The Evercore wealth managers, formerly of esteemed U.S. Trust, are
looking for 3.5% gdp growth, stocks up, dollar strong, gold down and
QE2 over in 2011.
At lunch yesterday, John McDermott, Evercore partner, revealed the
firm had sold its gold positions– but was hedging by replacing the
ETF holdings with calls on gold– a highly leveraged way to obtain a
high return if gold rises this year. If it doesn't, all that
Evercore has risked is the cost of the call option, a tiny fraction of
the $1300 plus cost of 1 ounce today.
Evercore is not backing off of tax free munis for its clients. Rather,
it has been buying municipal bonds yielding from 4.5% to 5% to
maturity on the basis that income tax rates are going to rise, making
the equivalent taxable return on tax-free securities above 6%. Jeffrey
Maurer, Evercore CEO reckoned the interest owed investors by New York
Stateis only 7% of the total state budget, and easily managed.
On China, Evercore is looking for higher interest rates and lower
prices for Chinese equities. It believes the yuan will gradually be
allowed to float and increase in price. And as Streettalk recommended
recently, Evercore is buying the ETF CYB, Wisdom Tree's play on the
Chinese currency as a way to participate without any risk in China.
Two extra pluses for the yuan; Americans can now open up bank accounts
denominated in yuan; and Chinese companies can use their yuan to
invest outside of China, especially in the US, where they may begin
acquiring part or all of a US company.
If the yuan appreciates, it will be beneficial for the securities and
currency of Vietnam, Malaysia, Korea, Australia and Indonesia,
Evercore believes. Also, Evercore management suggests investors no
longer use the S and P 500 index (SYP) as their portfolio performance
measuring rod– but switch to a global basket like the MSCI All World
Index.(MXWD)
The key risk for US stocks will come this summer when QE2 definitely
must come to an end, asserts Evercore. Then, the obstacle could become
even higher interest rates and growing disenchantment for equities.
There has been an 150% increase in the money supply by the Fed since
2008, accordinbg to Evercore.
And the issue for investors is what happens when the Fed takes the
liquidity away. No clear answers were forthcoming yesterday.
Source: Forbes.com
