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Paul Gambles

Recognized as a regional financial expert, Paul is a regular speaker at industry events on market forecasting, financial planning, investing and legal issues for foreigners living or doing business in Asia.  Besides Paul’s blog, Paul previously distributed his ‘almost-daily’ email – “Daily Updates”, where he gave his views on timely issues affecting financial markets, macro economics, micro economics and everything in-between.

Born in South Yorkshire, England, Paul graduated from the University of Warwick with an Honours degree in English and European Studies.  He began his financial career in the early 1980s as a technical inspector at HMIT with Inland Revenue.  Following a successful career change to the Bank of Scotland in 1987, Paul moved to Bangkok in 1994 to help set-up an investment counseling practice, which today is known as MBMG International.

www.mbmg-international.com

  

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2 February 2010

Are you expecting the unexpected yet?, the third of the trilogy.

 

Following from yesterday's DU, we'd like to highlight the second piece from By Nophakhun Limsamarnphun in Saturday's The Nation:

Short-term pain could have cured long-term economic diseases

PAUL GAMBLES, managing partner of the MBMG Group, a wealth-management consultancy, and Global Markets Asia's John Sheehan told me the other day that investors need to be nimble and quick during this time of global economic uncertainty.

Sheehan called his concern "Bob" or "Bolt out of the blue", which means that people should be expecting the unexpected or shocks that could badly destabilise the markets. In response to this "Bob", Gambles suggested that you need "Jack", or rather you need to keep the nursery rhyme "Jack be nimble, Jack be quick" in mind.

"The dogmatic buy and hold is dead, and opportunistic, risk-aware, flexible approaches to investing are the key to 2010," Gambles wrote on his website.

Gambles and other panellists at last Wednesday's seminar, hosted by the Foreign Correspondents Club of Thailand, also shared the opinion that there could be a repetition of the lost decades that have hit Japan since 1989 due to the way the US had tackled its post-Lehman Brothers crisis. The seminar - "The LUV Perspective: Global Recovery or Renewed Recession?" - was sponsored by the MBMG Group. The letters L, U and V stand for the shapes of the three most-talked-about recovery scenarios in the wake of the 2008-2009 crisis.

Gambles and others also agreed that the United States was facing a series of major structural problems.

First, its financial system's massive distressed debts after the bankruptcy of Lehman haven't been written off. As a result, there has been no market correction on these massive assets, which were purchased by the US government at 100 cents on the dollar.

Second, US consumers are de-leveraging by reducing their personal debt, so the demand for consumer credit is negligible - even if it were available. This has mainly resulted from the US jobless recovery over the past five months. Even though the 2008-09 recession was declared to have ended in August 2009, unemployment remains high at double-digit numbers.

Third, bank balance sheets remain severely impaired, which means they will pose problems for the recovery process.

Fourth, the US public-debt servicing costs are expected to rise when the Federal Reserves starts tightening monetary policy by jacking up interest rates.

Fifth, the external appetite for US debt is likely to decline due to a sharp rise in the nation's massive debts, resulting in continued weakness of the US dollar.

Sixth, massive capital is trapped within the banking system as the Fed now pays commercial banks to hold excess reserves. The risk is that these will either get into the system too quickly causing hyperinflation, or too slowly prolonging the great recession.  

Another panellist at the FCCT seminar, Jeremy Charlesworth, Europe's top-performing commodity/hedge fund manager for 2009, was also pessimistic. He said he was worried the second half of the year could hit a critical juncture that determines whether we may experience a period of sustained, albeit low, growth or whether there will be an economic and social upheaval.

The Bank of Thailand's Dr Kobsak Pootrakul, also a panellist, noted that the challenges facing Asia were different from those facing the West and that if the Chinese data are reliable and it continues to power the Asian growth story, backed by India, then Asian economies pulling away from the West is inevitable. However, Kobsak stressed that he doesn't see it as a regional polarisation but more as a matter of indebted economies struggling under the weight of their impaired balance sheets, while nations with healthy balance sheets prosper.

Sheehan, who is a former Lehman Brothers' executive, said the US was hamstrung by its indebtedness, future debt-servicing costs and imminent capital needs. The US is also powerless to devalue its currency on its own account now that so much of the impetus for the dollar exchange-rate policy has passed on to Chinese monetary authorities.

The panellists agreed that the failure of America and the Western world to address problems both prior to, during and after the 2008 financial crisis had left other indebted nations such as the UK, Australia and some of the euro-zone economies in a far worse shape today. They said that letting insolvent banks fail would have been painful in the short term, but would have done a great deal to ultimately fix the damaged banking system. This is the key reason they are afraid the Western economies could repeat what Japan has been undergoing since the late 1980s.

History doesn't repeat but it does rhyme and 20 years after Japan embarked on its wasted decades, there's a severe danger that the west is now setting off down the same sorry path.