Waddell & Reed investing guru Michael Avery sees less U.S. prosperity but opportunities in India, China, Brazil
Michael Avery, executive vice president and investing guru at Waddell & Reed, came to town Thursday evening to address the investment advisory firm's area clients gathered (despite the rain) at the Carillon Hilton in St. Petersburg. His sobering, if velvet-gloved, message?
"We're in for a long period of less than optimal prosperity."
Don't get me wrong. Avery's a smart guy and absolutely loves to explain economic history. And he's not just a talker.
Earlier this year, Waddell & Reed Advisors Funds and the firm's Ivy Funds were featured in the list of "Best Mutual Fund Families in a Bruising Year," an annual ranking of the best fund families published by Barron's. According to the Feb. 2, 2009 issue, Waddell & Reed Advisors Funds were the fifth ranked fund family, and Ivy Funds ranked number nine, out of 59 fund families.
Avery himself, plus partner Ryan Caldwell, run the firm's Asset Strategy Fund. On Thursday, just before presenting these insights to his firm's gathered clients, Avery said a key strategy ahead in choosing what to invest in is to ask yourself this question:
Where is the emerging middle class and which companies are most catering to their rising consumption? Avery's answer: India, China and Brazil, among other places, and companies like Monsanto.
The United States, Avery warns, is dangerously close to mimicking Japan, which became overleveraged in the 1990s and has been treading water economically ever since. He calls America's plight a "balance sheet recession" and also, citing author and economic historian Niall Ferguson's phrase, a "crisis of excessive indebtedness." I'll boil down his explanation:
1. It's a balance sheet recession because consumer assets (mainly home values and stock investments) are way down. And liabilities (mainly debts) are, as a result of the asset decline, proportionally too high.
2. A large majority of Americans has never experienced a serious economic downturn and, in their haste at pursuing higher living standards, fed their consumption by slowly pursuing more and more risky investment strategies.
3. The federal government is pursuing a classic recovery strategy of having the government consume and buy stuff until consumer confidence returns and people go back to their old ways of buying.
4. That may not work, Avery argues, because people are debt saturated already.
5. The likely result? Deleveraged consumers may not choose to spend, but rather continue to pay down their debts and spend less.
Is this a terrible scenario? Not necessarily, says Avery. People are very likely to embrace the reduced stress of less consumption and appreciate saving more. Hopefully, they'll invest that mooney with Waddell & Reed, Avery says, smiling. The firm, based in Overland Park, Kan. (where Avery lives), has an office in Tampa and recently relocated its Pinellas office from Palm Harbor to the Carillon area.
-- Robert Trigaux, Times Business Columnist