perma-bear who sees the ice melting, The

Spectator, The, Feb 3, 2007 by Davis, Jonathan

Even his beloved timber (now yielding just 5 per cent) is no longer the bargain it once was.

'The stock market is overpriced. Everything is overpriced. Junk is king.' What he means is that, buoyed by cheap money, few if any financial assets now offer sufficient reward to justify investors' risk. So where then? 'For the moment I say don't be too proud to own cash. You always feel there must be something you can own that will do better [than cash] and usually there is. In 15 years of asset allocation for clients, we have never once owned cash. We could always find something better -- but now we can't.' Equities as a class, he predicts, will deliver below-average (and in the case of lower quality stocks, negative) returns over the next seven years.

The cautious investor, he argues, should therefore prepare for trouble. The stock market may still go up this year on a wave of momentum, but investors should be tilting their portfolios towards less risky assets. In the pension fund he manages for his sister, that means conservative hedge funds, cash and high-quality stocks; plus some emerging market equities. With their high growth and low multiples, the latter are the only equities other than blue chips that still offer some risk-adjusted reward today. 'Net, they will do very well if the market stays intact; after getting really whacked in some sort of crisis, they'll probably rebound and do less badly than other overpriced segments of the equity markets.' That there will be some sort of market crisis, however, he does not doubt -- any more than that climate change is a reality that is getting away from the human race.