Jonathan Pain
Despite the dramatic events of the past 48 hours, the worst could be yet to come, according to a leading Australian hedge funds manager.
The global economic outlook is only going to get worse as “the pain in Wall Street has now migrated to main street”, said HFA Asset Management funds manager Jonathan Pain.
Pain does not believe the stock market has hit bottom and said the latest falls are only the beginning of what could be a long-term bear market.
“Many people have asked in the last 24 hours if we have seen the ultimate low in stock markets,” he said.
“Events in the last 24 hours clearly highlight the degree of panic in the markets and as a 25 year investment contrarian, I can’t wait to call the bottom in markets. That time will probably come when the last ‘bull’ is dragged out kicking and screaming.”
In contrast, AMP Capital Investors head of investment strategy and chief economist Shane Oliver does not believe that a long-term bear market is on the horizon and expects the US authorities to do whatever it takes to head off this latest crisis to “protect the economy and lower interest rates”.
“While the ongoing turmoil in the US financial system indicates that the risks have gone up and that shares may see further downside in the next month or so, our assessment is that a long-term bear market in shares is unlikely.”
In addition to the stock market falls, Pain said the events of the last 24 hours have also served to fuel a painful period of de-leveraging (credit contraction).
“It would be both dishonest and naïve of me to suggest that the painful process of de-leveraging is behind us, now that Lehman has gone and Merrill Lynch has been acquired. In the days ahead, we still face the agony of watching both AIG and Washington Mutual fight for survival.”
Pain concluded that the economic adjustment facing the world economy would be difficult, but “very necessary”.
“It is the adjustment we had to have, and ultimately the world will be a better place and the days of shameful, and moreover, predatory lending will be abolished,” he said.
