Equity and bond markets tell conflicting stories about future corporate growth, with the former signalling a double dip, according to Crispin Odey.
The founder of Odey Asset Management says bonds currently suggest 2011 will be a difficult year for the world, with all the risk to corporate profits.
Meanwhile, stockmarkets seem to believe the opposite, with the dead cross at the end of June giving way to a solid rebound in July.
“Today, I look at a world that is halfway through its recovery programme”
Odey retains his bullish view, highlighting the differences between now and 2005-07.
“I found it hard to sleep then because no assets yielded me more than 6% gross and I could see consumer spending over-inflated by Ponzi credit,” he adds.
“Today, I look at a world that is halfway through its recovery programme. The policy mistakes of 2002-2007 demanded a massive bailout of the banks and sensible governments are cutting public expenditure and following a path back to stability within five years.”
While Odey admits markets can be volatile because we are only halfway through, he says managers are being paid to take risk.
“I think this is a bull market because I find myself talking numbers and strategy with companies and feel their targets are achievable and not priced in,” he adds.
“I still maintain markets cannot go higher unless led by the banks [and they] have driven the July recovery.” (article continues below)
On whether this can continue, Odey points to JP Morgan, which recently reported surplus capital equal to 42% of its market capitalisation.
“This is still a self help environment and companies need to buy back their shares with all this surplus cash’,” he says.
“But it is also potentially a great time to be investing: US fixed assets have never been older and China is enjoying a wage boom.
“The only thing needed was governments to create an environment conducive to investment. In the UK, we appear to have one while the USA does not so it is no wonder sterling has risen against the dollar since the election.”