While much of the panel's discussion is the somewhat typical growth, recovery, global diversification mantra of a homogenized investment community, The Milken Institute's 'Reading The Tea-Leaves' panel [8] was dominated by some deeper thoughts from John Rutledge of Safanad SA [9]. John sees the world not as a series of equilibria like any and every mainstream economist but the exact opposite with earthquakes and tsunamis capable of occurring at any time. In three-and-a-half minutes, Rutledge analogizes investing today as "living on the crust of a molten marshmallow" and notes that 'investing' to him now is "trying to figure out situations in which some stupid policy has created a big wedge between returns on different assets that causes people to redeploy capital" and that is what moves prices. Claiming that the two most destructive inventions of the twentieth century were Modern Macroeconomics and Modern Portfolio Theory (which have caused more loss of wealth than anything else he knows), the optimistic father-of-six goes on to discuss the three storm systems that must be navigated in the world currently: 1) Europe; 2) China's growth; 3) the extraordinary growth of Central Bank balance sheets. He concludes with some insights into why not to own bonds and what bonds say about scarcity of future cash-flows.
[10]
From 6:30 to 10:00 John Rutledge of Safanad SA explains his thesis and briefly after this he takes on the panel's view that there has been no central banking money-printing.
At around 18:10 to around 20:00, Rutledge describes his views of Europe 'in a mess' - where he also destroys the myth of correlation, covariance and the entire asset allocation industry
32:30 - Energy demand from Emerging Markets -> good news and bad news facts
33:30 to 35:00 - China has a number of opportunities - you have to go there to understand but: 1) there is a 3-month cycle of liquidation; and 2) the 'Going-Out' Program means huge outflows of capital with Private Equity benefiting.
At 38:00 he explains his aversion to investing in Chinese firms - I would like to own companies that make their money in Asia but is governed in Australia, New Zealand, US etc... but not Russia whose "economy and politics are run by thugs"
The most under-appreciated world worry is discussed at 53:30 - The greatest risk for me is that "investors are mentally unprepared for the world we invest in"
At 1:07:30 Rutledge sums up his views on where to invest now...