Investment Trust Insider on Capital Gearing Trust – James Carthew: why I heed the hawks at Capital Gearing
Following last week’s article on Henderson Diversified Income (HDIV) and its managers’ concerns about the threat of a recession and a return to deflation, I thought, fresh from attending its investor day, I would put the counter-argument as championed by Capital Gearing Trust (CGT).
Once again, there is a sense that we are approaching an inflexion point in markets. However, CG Asset Management (CGAM), manager of the popular absolute return fund, believes that this will be accompanied by rising inflation.
To set some context, the team, headed by Peter Spiller, first addressed the role of central banks in creating the current environment and their likely policy response to the next crisis. Personally, I have long thought that Alan Greenspan, former chairman of the US Federal Reserve whose long tenure ran from 1987 under Ronald Reagan to George W Bush in 2006, as the architect of our current woes. He directed his interest-rate policy towards ameliorating the effects of stock market setbacks and staving off recessions. His actions have been aped by other central bankers and I think that this has bred complacency.
We are in a situation akin to the surge in extreme anaphylactic reactions as a consequence of excessive cleanliness. Rather than letting recessions clear out the dead wood from our economies, we have created a situation where vast numbers of consumers and companies are excessively indebted, vulnerable to any interest rate rise or downturn in their income and yet expectant that, when a downturn hits, the government and/or the central bank will take action to bail them out.
As an illustration of this overly relaxed mentality, CGAM… read more here