Money Show, Gavin Graham

Gavin Graham is from Graham Investments Strategy Limited. His talk was entitled “For my Next Trick, What Happens now QE2 is over?”

He said that there was no double dip recession last year because of QE2. More tricks from the Federal Reserve is that their rate will remain unchanged for the next 2 years. Will there be a QE3?

2008 was the 3rd worse year in history for the last 100 years. The worse years were 1931 and 1937. With Bernanke printing money he stopped another great depression. Monetary policy does work. From August 2000 to August 2010 have been 10 lost years for the S&P 500. For 2 years now we have had no interest return and this will continue for the next 3 to 5 years.

Rate will be 0% in US and 1% in Canada. If a double dip recession now occurs in the US, they have shot all their bullets. In Canada, we still have some leeway. Banks are not lending. They can borrow 0% and make money on treasuries. This is the problem with low rates. Japan also has this problem. US growth has almost stalled.

Take the car market. In the US it is lower than at any time in the 60’s to 90’s. It will not improve. With high fuel costs, people cannot afford cars. The biggest car market in the last 3 years is China.

In Canada the Canadian consumer has both debt and savings. Our consumers can fund their debt. In the US debt is coming down because people are defaulting on their mortgages. The US cannot spend their way out of this recession. So far spending is 22% of their GDP. This is the end of Keynesian economics.

The Greeks cannot cut to get healthy growth. Most people feel that they will default and leave the Euro. The problems can spread to Spain and Italy, and then it will spread to France and Germany. Their main problem is that have a monetary union, but not a fiscal union. (In other words they need a federated state like US and Canada.)

The Euro area could break up in the next 3 months, staring with Greece and then maybe Spain, Portugal, Ireland and possibly Italy. Only the core of Germany, France, Netherland and Finland will be left. You should not own Euro banks. Apple is worth currently more than the 32 European banks.

Canada is a good place to be. We can supply emerging markets with resources. Some 37% of the GDP is in exports and 80% of that is dependent on the US.

China has a different problem. For the Government, if they do not produce growth they will not stay in power. So, China will have GDP growth. Does it have bubbles? Yes, but the Chinese can fund them for another 10 to 15 years. China’s urban population is growing and it will continue to growth. By 2030 they will have 1B people living in urban areas.

Nuclear power will grow in both China and India. It will stop growing in Germany.

In the last 5 years, money has been made in emerging markets and in Canada and Australia. Our currency will continue at parity and may be at 1.10 or 1.15 in the next 5 years. He feels that there is a few years of growth left in emerging markets and oil. We should also be buying gold and silver mines. The difference between gold and gold mines has never been greater than it is now. Gold will continue to rise.

Our baby boomers will also need yield. Our people are growing older faster than the population growth (and a lot of western countries have no population growth at all).

Graham said that if you send him an email at graham investment strategy he will send you an electronic copy of this speech.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.