Tonight's FT has Richard Davidson of MSAM echoing the PIMCO comments last night. He is looking at a 50% chance of a recession in '05 predicated on the recent oil spike and reduced tax stimulus.
"Davidson is particularly enthusiastic about Europe, where dividends are growing at a double digit rate and where cash deals now top 80 per cent of all mergers and acquisitions activity, normally a bullish sign. He is also keen in Japan, where he believes good progress has been made on banking reform, corporate balance sheets have been restructured, manufacturing capacity has been reduced and the return on equity is rising.
Within the bond market, Davidson is underweight US Treasuries, saying yields are too low in the light of rising producer prices and the falling dollar. He has a holding in gold (which reached its highest level since 1988 on Thursday) as a hedge against the US currency. He also owns no corporate debt, arguing that spreads are too low to reflect risk."
He also expects U.S. rates to continue rising while U.K. rates have topped. As for his Japanese comments, today's downward revision in GDP estimates there may provide a buying opportunity. It is not clear if that news was out during the interview but typically GDP data is backward looking and is not a good reason to change an outlook.
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