Despite investor worries about the U.S. debt, China's excesses and commercial real estate the world over, veteran global investor Barton Biggs says the global recovery now unfolding is going to be powerful. Biggs, who heads New York hedge fund Traxis Partners, spoke with TIME contributing editor John Curran on the outlook for world stock markets.
TIME: How will the U.S. recovery play out?
Biggs: The surprise is going to be how strongly the U.S. and the world for that matter emerges from this thing over the next six to nine months. History says the steeper the decline, the steeper the recovery, and I think we'll see that play out. In addition, we've had unprecedented amounts of stimulus, both fiscal and monetary, as well as coordination by governments and central banks around the world. I think we are going to have a very steep recovery that is going to last for another two to three quarters.
As the stimulus wears off, I expect that we will flatten out in the big developed economies not have a double dip as the economic bears would argue, but just flatten out. The thing that is different this time is that the developing countries are coming out of this thing very strongly and their own domestic demand is going to sustain them. So they are going to be an important driving force for the global economy. It's worth noting that developing economies are now 35% of the global economy. They are going to be a new factor.
The big concern in the U.S. is the weak consumer. Can we get a business recovery but no consumer recovery?
The consumer is 70% of the U.S. economy, so it's hard to imagine that business can do well unless the consumer is reasonably healthy. But I think the conventional wisdom has become excessively pessimistic about the condition of the U.S. consumer. People have forgotten the effect that rising equity prices as well as the stabilization of real estate maybe even a few upticks in residential real estate will have on the consumer's net worth and his spending-saving behavior.
I also expect we'll get some surprises on the business side. Businesses overreacted to the severity of the recession they cut capital spending, they cut advertising, they cut employment very, very dramatically. They overcut. In the next six months, we are going to be in a period where businesses hire back aggressively and spend on capital equipment and advertising and all those things very aggressively.
The U.S. stock market is up nearly 50%. Many bulls say there are hundreds of billions of dollars sitting on the sidelines that will come in, pushing the market higher. Do you agree?
We've been through a secular bear market that really began in 2000. Adjusted for inflation, the S&P 500 is down 65% since then. We've been through the worst 10-year period of stock returns on the S&P in the history of American equities. But I think we saw the bottom of the secular bear market [at the March lows]. My view is that the money is coming back.
If we hit bottom in March, does that mean better times are ahead?
Just because we made the bottom of a secular bear market doesn't mean we're in a new bull market. The history is that when you make the bottom of a secular bear market, in almost every situation, there has been a huge rally followed by a long period of churning back and forth in a big, broad trading range, anywhere from three to in the case of Japan 18 to 20 years. As for the rally, the usual rebound rally after one of these things is 71% over 17 months. The current rally in the U.S. and Europe has been about 42% over the last five months. We've gone up faster than most rebounds, but not as far. After the rally is over, I can imagine a trading range for the S&P 500 of 1400 to 700 [the S&P 500 is currently near 1000]; that could last for five or 10 years, until we really see how we come out of this thing.
Sort of like the '60s and '70s, when the stock market really went nowhere. Is that what we might be headed for longer term?
Yes, exactly. That bull market really peaked in 1965 or 1966 and then it churned back and forth and inflation ravaged it, even though the nominal prices didn't collapse as much. But the Dow Jones average didn't set a new high until 1982.