GURU OUTLOOK: DAVID GERSTENHABER & THE “CONTAINED DEPRESSION”

Courtesy of The Pragmatic Capitalist

guru David Gerstenhaber is a former Tiger Cub and President of Argonaut Capital Management. His distinguished pedigree is of the long line of successful traders that once traded under Julian Robertson (see Robertson’s guru outlook here). His global macro strategy fund has never lost money since its founding in 2000 and has averaged an annual return of 19%. What was a disastrous 2008 for most investors was another excellent year for Argonaut as Gerstenhaber guided the fund to a 12.3% gain. In 2008 he bet big against high interest rates in the UK and shorted the British Pound in response. Both were huge winners. The pound alone fell over 25% in 2008. He is well known for being a superb risk manager and has proven to be able to thrive in any market environment.

Although there have been signs of economic recovery Gerstenhaber hasn’t changed his bearish outlook all that much. In a recent interview with CNBC he said we are in a “contained depression”. He describes this as a period of very low growth and a jobless recovery. Although it is not technically a depression it will feel very much like one. He also believes the US consumer has been reset. Thinking with regards to spending and speculation will never return to what it once was.

He reiterates a belief of our own that the problem of debt continues to hinder the global economy. On the whole, the bailouts and government spending set a poor precedent. He says this is particularly true in Greece. While the bailout in Greece could be a near-term positive it is in fact a long-term negative and sets a very bad precedent. I couldn’t agree more. He says the Euro could remain depressed for an extended period of time due to this. He also says the Eurozone is still suffering from a battle with deflation and it is likely to continue for the foreseeable future.

In terms of the U.S. equity markets Gerstenhaber now says the market is fully valued and that the easy money has been made. He believes 2010 will be a very difficult year for equities as the U.S. government is making many of the same mistakes that were made in Japan. He says that we settled for a “workout” period as opposed to taking our medicine or inflating our way out of the crisis. This could mean years of sub-par growth.