Working into market volatility
RT: Is now the time to panic?
SJ: “Well you know, it is never time to panic, is it? Obviously we are facing a true uphill struggle in terms of the political environment – particularly in Europe and to some extent in the US. But what the investors now need to do is to look ahead and look long term, because obviously a lot of stocks have got too cheap relative to the value they carry.But having said that, the main focus right now is, in Europe and to some extent the US, is the banks and the banks ability to fund themselves, which is increasingly becoming an issue.”
RT: What's going to be enough to turn the market?
SJ: “Well, if you look at Europe very clearly, we need Germany to commit wholeheartedly to this process.Germany owns, sort of the serving rights, in terms of being able to unknot this Gordian tie. Because as it is right now, everyone knows we are going to move to EU bonds eventually, but there is a political struggle ahead of that. So we need some sort of assurances that they are committed.I don’t think the Merkel and Sarkozy meeting last week was any confident unfortunately.But we need the Germans to commit, we need some sort of thing from the policy makers to get ahead of the curve, and right now they are way behind the curve.It seems like, to me at least, that politicians are not facing the real crisis ahead of us.”
RT: How likely is that to happen in the short term?
SJ: “Very good question.It seems from the political rhetoric and the domestic German agenda that it is very unlikely.But you know as well as I do that when things come to almost a standstill, crisis 2.0 as I coined this present crisis, then the politicians all of a sudden find themselves the ability to do something they should have done long ago.What remains to be seen though, is to get ahead of the curve.I think in order to save the European debt crisis we need to see at least 3 Trillion Euro, in terms of duns made available.I don’t think that is likely now.For now it looks like we are going to be going into Q4 and Q1 of next year in a crisis mode.”
RT: How much of a buying opportunity has the market become with such dramatic falls?
SJ: “Well if you look at value investing obviously this is a good time.But you have to remember that investment is always based on the liquidity in which it is taken.So, what is important to note now, for an investor, medium term and long term, is there is several good stocks across the globe where you can buy now and buy at reasonable prices.But you have to cater for that fact that liquidity, the banking side of things, is increasingly under pressure.You will probably see the banks in Europe having to recapitalize to some extent, US banks also having to go through the same exercise.So what you have is to balance is the good value combined with the lack of liquidity.And as such what I think you need to do is just average yourself in.Don’t commit fully here, don’t get too dispersed either, but buy 5% of your cash portfolio this month, 5% next month, and average yourself into a good position, I think.In my opinion, that is the way to play.”
RT: What's the biggest concern for Russian markets, the global sell-off or the falling price of oil?
SJ: “Neither actually.I think the biggest concern for the Russian markets is that the capital outflow in Russia continues to be there every single day.
In some way or another you need to stem the outflow of capital because that is, in itself, a huge statement that the domestic Russians don’t trust their own markets. If you look medium term, long term, I don’t think the oil price is a big issue. I think the world growth will come back.
We have seen growing signs that Asia is now willing to ease monetary policy somewhat, which is, by a long shot the biggest buyer of new net oil, so oil is not an issue.
The crisis is right now having some small impact on the economic numbers, and will have a bigger impact going two to three months forward. But, in itself, I think the major think to watch is how you stem the outflow of capital in Russia.”