Davos pessimism a ‘valuable contra-indicator’ for investors: Guggenheim’s Minerd

(Reuters) – Guggenheim Partners Global Chief Investment Officer Scott Minerd said on Wednesday that worries about a global recession are inflated, and pessimism expressed by political and business leaders at the World Economic Forum in Davos is a “valuable contra-indicator” for investors and turning him bullish.

“While I concur with my colleagues here in Davos that a synchronized global slowdown is underway, fears of recession are overblown,” Minerd said in a note to clients. “If anything, the outlook is brightening as policymakers are beginning to awaken to the mounting risks arising from a protracted trade war and increasing nationalism.”

Minerd, who oversees more than $240 billion, said markets are “likely to remain choppy, but values abound. If we do not face a near-term recession, risk assets are likely to recover and, in some cases, explore new highs.”

For instance, U.S. stocks are cheaper today than when the bull market reigned at the World Economic Forum in Switzerland last year, Minerd said. “If they were a buy then, they must be a bargain now.”

Minerd noted that last year, “from the moment of my arrival the air was electric with the bullish outlook for global growth. Stocks were in a parabolic rise on tax cut euphoria. As stocks soared, nothing but blue skies were ahead.”

He said then that he had begun to consider the prospect that the mood at Davos served as a contra-indicator for the investment outlook. “Last year, we did not have to wait long as stocks fell into a sickening plunge in February,” Minerd said.

“The amber lights flashing in Davos are signaling the consensus view that global growth is slowing. Given past experience, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues,” Minerd said.

Minerd said growth in the United States will probably slow but remain at or ahead of potential in 2019.

“Additionally, the Federal Reserve is virtually certain to pause well into the second quarter with the market pricing in a possible rate cut if necessary to sustain growth,” he said.

As the largest economy in Europe, Germany will play a pivotal role as the locomotive for European growth, with monetary fuel likely to be provided by the European Central Bank in the form of a new LTRO (longer-term refinancing operations) program under Mario Draghi’s leadership, Minerd said.

“While Germany may be entering a technical recession, Chancellor Angela Merkel is calling for new tax cuts. Of all nations that can afford fiscal stimulus, Germany stands at the head of the class. It has a history of fiscal discipline and is well-positioned to deliver.”

Beyond tax cuts and new infrastructure programs, the People’s Bank of China has begun easing monetary policy – it announced cuts to the reserve requirement ratio (RRR) with the prospect of actual rate cuts if necessary.