ECB financing “like giving heroin to a drug addict”, says Legg Mason

David Nadel, manager at Legg Mason, has compared recent moves by central banks to provide cheap dollar financing to giving drugs to an addict.

Nadel, who is manager of the Legg Mason Royce Global Smaller Companies fund, says he fails to see how the move could be beneficial.

He says: “I don’t see why these actions should have a sustained positive effect. Why is it good to lend more to those drowning in debt?

“Isn’t it a bit like giving heroin to an addict?”

Nadel adds: “To me, all this lending, the European Financial Stability Mechanism, the bank bailouts, and the quantitative easing come down to one thing: money-printing.

“And money-printing is just digging a deeper hole, throwing gasoline on the fire.”

However, the manager says he is more bullish about international equities in 2012, with a particular emphasis on emerging markets.

Nadel says he is optimistic about countries such as India, South Africa, South Korea and Brazil.

He says: “In 2011, we saw massive underperformance by the international markets versus the US.

“On the back of this cataclysmic underperformance, I think 2012 will be the year international equities storm back, while US equities could take a breather from their perch as the ‘safe haven’.”

The manager says the US economy’s ability to reinvent itself, time and again, could also bode well for companies.

Nadel says he is “cautiously bullish” about Europe’s long-term prospects, comparing the current crisis with the Asian crisis of the later 1990s.