I attended a dinner last night sponsored by the Financial Planning Forum, a Palo Alto based group of attorneys, accountants and people like us. The speaker was Axel Merk, an economist and founder of Merk Investments. Merk has two public mutual funds – one of which focuses on “hard” currencies and the other offers access to a basket of Asian currencies, most notably the Chinese Yuan.
Axel, German by birthright, is hardnosed American free-marketeer to the core. He looked seriously pained describing the US government’s efforts to date to contain the financial crisis and fix the underlying problems that led to this crisis. Containment strategy? Supplant the private market as the supplier of capital. Reform? None.
In general, his views are similar to ours. Some things he discussed (heavily paraphrased):
The only 2 major financial insitutions that may have the strength to survive in their current form are Wells Fargo and JPM Chase.
The Chinese may be fine. The middle class has a lot of savings and the Chinese government, with its 20 years of planned investment, has some real options when it comes to stimulating the economy. This is consistent with our conversations with those actively involved in China who have noted some signs of slowing – emptier restaurants – but no indication that the bottom will fall out.
Within Asia, the winners look to be China, Singapore and Taiwan (through their Chinese connections). He was concerned about Korea with a rapidly aging population and an insular culture and countries like Vietnam whose ability to compete is based very narrowly on lower nonskilled labor costs.
He seemed more concerned about the long-term inflationary impact of the current monetary stimulus than potential short-term deflation. While this is not surprising as Mr. Merk runs a “Hard Currency Fund” whose explicit objective is to protect against a declining dollar, it is something to think about.
Merk offers a free periodic newsletter (sign up) that offers economic commentary. It looks interesting but the usual caveats apply.
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