In our first edition of Expert Interview, Y&I is very excited to bring you the insights of Puru Saxena, founder of Puru Saxena Wealth Management. Based in Hong Kong, Puru has his finger on the pulse of the East markets, and provides investment advice and asset management for numerous clients. As a highly regarded member of the finance community, Puru is a regular guest on various media such as CNN, BBC, Bloomberg TV, CNBC, RTHK, NDTV, TVB Pearl … need we say more?
Puru also produces a popular monthly report known as Money Matters that is available on the firm’s website, and regularly writes at several reputable locations, including The Daily Reckoning, Bullion Vault and Financial Sense.
1. Puru, what is your passion, and how do you stay passionate about it?
My passion is to learn about the world and spot the major changes taking place. I really enjoy learning about the economy and finding solid companies which are poised for long-term growth.
2. How would you describe the investment philosophy that you utilize in your decision making process?
Our prime objective is to produce growth over the full business cycle. We believe that credit cycles are responsible for booms and busts and we try our best to stay on the right side of the credit cycle. When monetary policy is loose and interest-rates are low, we prefer to be invested in growth producing assets.
However, when monetary policy is tight and central banks are raising interest-rates, we become cautious and reposition our clients’ portfolios. Furthermore, we believe that stocks represent partial stakes in operating businesses and they are claims on the long-term cash flows of the underlying businesses. Over the long-term, every stock’s performance ultimately depends on the operating results of the business and we try and buy into good businesses at favourable valuations.
3. How do you identify and differentiate the important trends worth considering versus the noise that is becoming an increasingly bigger part of the market?
In the world of business, the most important variable is the cost of money or the interest-rate. So, we watch these very carefully and we also monitor the yield curve. The interest-rates determine the value of every asset in the world, so we watch these like a hawk.
Furthermore, we also utilise technical analysis to see whether we are in an uptrend or a downtrend. Finally, we try and gauge the broad sentiment to see where we are in a market cycle. It is our contention that bull-markets are born on pessimism and they exhaust themselves during widespread euphoria.
4. You have written a lot about inflation before. The US Fed recently hiked the discount rate in a surprise move. Do you think it’s too late to prevent the repercussions of the unprecedented monetary stimulus?
Inflation depends on two things:
a. Ability of a central bank to monetise debt (print money to buy government debt)
b. Willingness of a government to take on more debt (issue more government debt)
Unfortunately, in a fiat-money world, politicians have the will and ability to debase their currencies and this is why we foresee high inflation over the next decade. The debt overhang in the West is simply too large and if one needs to avoid sovereign defaults, inflation is the only option.
5. How do you see the sovereign debt situation in Europe evolving? Do you think the bailout strategies used by the US government could also work as well in the EU?
The debt situation is hopeless in much of the developed world and unfortunately, there is no way out of this mess. We suspect that the EU will also bail out all the weak members but this will have a negative impact on the euro. And it will lead to even higher inflation down the road.
6. Have we reached a stage where growth and economic strength has permanently shifted to developing nations that are not suffocating their economies with debt?
Nothing is permanent in the business world. But, over the next decade or two, the developing nations in Asia are likely to outperform the debt-plagued nations in the West. Today, nations in Asia have large surpluses, huge savings and massive reserves. This is extremely favourable and should lead to a boom in domestic consumption. So, we are optimistic about China, India and Vietnam.
7. Given recent developments, attention has moved away from commodities. What are your thoughts on that asset class?
We are still very positive about crude oil and the energy complex. Unfortunately, we are sleep-walking towards an epic energy crisis and within the next 2-3 years, we will see major problems. Essentially, the world’s daily flow rate of crude oil is about to peak at a time when demand is rising. This will be unpleasant and lead to a spike in the price of crude oil, which will cause another recession.
Apart from crude oil, we also like gold and silver. In our view, precious metals are in a major bull-market and they should benefit from the ongoing debasement of paper money. Accordingly, we own positions in gold and silver mining companies.
8. Are US treasuries in a bubble?
Yes, US Treasuries seem to be overvalued, but they can remain overpriced for many months. As long as investors are uncertain and worried about sovereign risks, US Treasuries shouldn’t fall apart. Over the longer-term, we expect US interest-rates to rise, but first, we may decline in case of any another deflationary scare.
9. Do you think today’s markets are directed a lot more by short-term developments instead of long-term fundamentals?
Yes, with the advent of the internet and information overload, short-term noise dictates market movements over the short-term, but the fundamentals still decide the long-term fate of every business.
10. Sitting in Asia, how would you say the investor perceptions of this long, sharp equity rally differ between Asian investors and North American investors?
We don’t know how North American investors relate to Asia but to us it is obvious that nations like India, China and Vietnam are climbing up the prosperity ladder. And their fast-growing economies are grabbing investor attention and this is why we have big bull-markets in the East. Over the course of this business cycle, Asian markets should continue to outperform the West.
11. If you were in 100% cash, how would you allocate that cash right now, looking at a horizon of 2 years?
At present, we are fully invested in our preferred companies but if we had to choose currencies, we would keep cash in the Canadian Dollar, Australian Dollar, Indian Rupee, Singaporean Dollar and Chinese Yuan. However, it is worth noting that every country is inflating its currency and this is why we don’t like cash over the next 2-3 years.