I was taken aback to see CLSA's Chris Wood on CNBC yesterday; the Hong Kong firm is better know across the pond as I have seen Wood quoted often in UK papers the last few years but almost never in the US. In fact, this is the first time I've seen him on video in the US.. For some quick background on Wood you can see a few stories on him from 2007:
Sep 2007, UK Times Online - Chief Strategist at CLSA Predicts Record Gold Run
Gold was in the $700s at the time and while Wood's call for greater than $3000 gold within 3 years did not pan out, it was directionally correct and his comments at the time were prescient. Please keep in mind, some of these things seem obvious in retrospect (20/20 vision is so helpful) but at the time the stock market was running to all time highs (Oct 2007), almost every US pundit / TV personality was completely in the dark, and we were still hearing such things as "subprime is contained" (from US Sect. of Treasury, and former Goldman CEO no less). Uttering the "R" word (Recession) made people laugh at you, not to mention talk of "The Big One" - after all the "all knowing stock market" was forecasting 6 months out and certainly as it sat at all time highs could only forecast Kool Aid for as long as the eye could see. This blog had just started in August of that year, and I was having none of the punditry consensus (see here and here) so I can appreciate these comments by Wood even more, because I remember how comments such as mine were in the minority. In retrospect, as I read my own thoughts in 2007 - as dark as they were - I was an "optimist" versus what eventually happened. From 2007:
Mr Wood said that the sub-prime conflagration would be the catalyst for a wider breakdown in markets.
However, Wood predicted that investors would soon realise that the sub-prime crisis is simply the catalyst of a much wider breakdown, arguing that it has been the “Archduke Ferdinand assassination event” that sparks a bigger calamity.
“This is not a sub-prime crisis. Sub-prime has merely exposed the bigger scam of structured finance; a scam that is about pretending that bad credit is good credit,” he said.
That was followed up a few weeks later in the UK Telegraph: Chris Wood, the Man Who Predicted the Subprime Crisis
In recent months, Wood's stock has risen still further, largely as a result of his forecast in October 2005 which said baldly: "Investors should sell all exposure to the American mortgage securities market." A year before HSBC issued its first profit warning on the back of its exposure to US home-loan defaults, Wood had spotted stress fractures in the system which, during the past three months, have become fissures.
I always find it important to see the track record of "pundits" since many are recycled week after week, month after month, without regard for accuracy of past calls. Most simply give us the same Kool Aid - the few who did not, should be given a much larger benefit of the doubt go forward. Just as then, many are scoffing at their current predictions... one should do so only with great risk to their capital. Was Wood a few years early in calling the mortgage crisis? Yes - he freely admits it. The party continued for 2 more years, and reached ever greater heights after 2005. Does the past ensure he (or I, or anyone of a similar thought process) are going to be correct go forward? Certainly not, but since 90% of the punditry only know how to repeat "keep sending my firm money, stocks are great for the long haul, green shoots, I see rainbows and butterflies in 2 years, USA! USA! USA!" it's ok to absorb some verbiage from those who do not live in Happy Happy Land.
Below is the video from CNBC - certainly worth the listen and the CNBC hosts are in their typical shock and awe that such things even have a REMOTE chance of happening. It speaks to the denial in the country of potential outcomes. While I have no idea if the vigilantes come to US shores "in 5 years" (I've guessed its closer to 10 years), I do agree with almost everything Wood says here, and the irony is the US will benefit in the nearer term as it will be the last to be visited by the grim reaper. Hence, it will be funny to watch the smugness as the damage hits other countries first, and investors flee into US currency and bonds - as they did in 2008 and early 2009, and we see again happening now with a minor blip like Greece. But as Wood says, the "end game" is the US; the last domino if you will.
6 minute video - email readers will need to come to site to view