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The Economist's 'Buttonwood Gathering'

Written By Brian Hicks

Posted October 19, 2009

The Economist‘s Buttonwood Gathering on "fixing finance" had no shortage of big names on stage. Speakers included Tim Geithner, Larry Summers, George Soros, Niall Ferguson, Robert Shiller, and Elizabeth Warren.

First off, assembling a conference with a slogan like "fixing finance" sets lofty expectations. And some of the speakers did offer realistic and sound ideas for reform. Elizabeth Warren, head of the TARP oversight committee, said we need "the toughest possible accounting standards," because "you can’t trust anyone’s books these days."

Unfortunately, Mrs. Warren’s position is toothless; her role has no enforcement authority, after all.

This would prove to be a recurring theme throughout the conference. The speakers who had the best ideas were usually not in a position to act on them. The power-players, like Summers and Geithner, said little of substance, dodging the best questions from the audience.

Judging by the comments of White House Chief Economic Advisor Larry Summers, Wall Street won’t see real change anytime soon. (Keep in mind, this is the same former Treasury Secretary who was instrumental in the push for the deregulation in the repeal of the Glass-Steagall act.)

Ironically, his speech was on the topic of bubbles. His position was that bubbles are impossible to predict, so we shouldn’t even try to pop them. We can only prepare ourselves for when they do pop. He laid out the White House’s financial reform plan, which I’ll cover in more detail later this week.

Investing Insights

Nearly all the hedge fund managers I talked with said the U.S. market is toppy and may be overbought at these levels. While it is undeniable that we’re in a bull market, many are content with their gains. After all, markets are up almost 60% from lows. Some are taking profits, but most said they are not eager to get short.

One manager I talked to said experience has taught him to be cautious after run-ups like this. He noted that the VIX (also known as "the fear index"), is at new lows for the year. This indicates people are getting too comfortable. . . and the bull run may be getting long in the tooth.

Others I spoke with are worried about a possible double-dip recession. Questions surround the Federal Reserve and what happens if/when they stop pumping trillions of dollars into the markets. If they decide to keep providing liquidity after their current plans expire, how long can they keep it up? At some point, will America’s creditors balk, and refuse to buy more debt?

Jeffrey Sachs, director of the Earth Institute at Columbia University, was bullish on green technology. He endorsed the green sector as America’s best shot for stimulating growth and creating jobs.

The dollar was another hot topic. Most attendees and panelists seemed to think we would see continued weakness.

Billionaire investor George Soros noted that there has been "a general flight from currencies." When asked whether the dollar would lose its reserve status, he took a page out of Winston Churchill’s book and quipped, "The U.S. dollar is the worst reserve currency, except for all the alternatives."

On the subject of growth, Mr. Soros offered a not-so-rosy outlook. He stated that world growth is bound to be "flat for a number of years," and that "the U.S. will continue to drag on the world economy."

There was no shortage of great quotes during the conference, and I’ll share some of the best ones with you later this week in Wealth Daily.

Until then,

Adam Sharp

P.S. Soros, Sachs, and other Buttonwood brains have zeroed in on cleantech and other elements of a low-carbon economy to direct their economic outlook. As they know, not billions but trillions of dollars will churn based on emissions-reduction efforts. This December in Copenhagen, related investments will get a booster shot. To find out exactly why, check out this special report Nick Hodge and Sam Hopkins have prepared for you.