R.I.S.E Student Investment Conference

Having just returned from the R.I.S.E Conference in Dayton, Ohio, I thought I would share some of the key points that were discussed. For those of you who don't know, the R.I.S.E (Redefining Investment Strategy Education) Conference is an investment forum that brings together leading students, faculty and professionals to discuss a range of topics surrounding the investment industry. However, due to the lack of pertinent issues facing today's investment professionals, the discussions were quite dry...I'm kidding...This year's conference will likely go down in history as one of the more interesting investment symposiums. Being a rookie, I didn't have much of a benchmark to compare this year's conference to, but I can assure you that I didn't leave disappointed. This year's conference drew 2,600 students from over 250 universities spanning 71 countries. It resembled a Mecca for those of us who live and breathe the financial markets. The keynote panels were moderated by Dr. Bob Froehlich who I thought did a great job of blending humor and gravity to the situation. The caliber of speakers was incredible. Speakers included Steven G. Desanctis, Chief Small Cap Strategist at Merrill Lynch, Patrick Dorsey, director of Equity Research at Morningstar, Dr. Roger W. Ferguson Jr., CEO of TIAA-CREF, Richard W. Fisher, President of the Federal Reserve Bank of Dallas, Dr. Andreas Hofert, Chief Global Economist at UBS, Dr. Roger G. Ibbotson, Chairman of Zebra Capital, Steve Liesman, Senior Economics Reporter at CNBC, John Surma, CEO of U.S. Steel and Durmus Yilmaz, the Governor of the Central Bank of the Republic of Turkey. Acting as a sponge and soaking up as much information as I could from these brilliant minds, I will now attempt to wring out the key points that were made. I will use a succinct bullet point format to outline the "raw" ideas. If anybody would like additional details on an idea please feel free to drop me a comment and I'll see if I can expand on it.

• Credit spreads and volatility still extremely dislocated
• Global governments are extraordinarily active, so we will likely avoid a depression-like scenario
• Inflation will be a possible side-effect down the line, but certainly not right now
• U.S. government will run up the public debt to historically high levels. There are three ways to deal with it: 1) Increase taxes 2) Reduce spending 3) Inflation
• As long as the velocity of money remains sluggish, inflation won't be a problem
• Watch out for protectionism!!! Protectionism is what solidified the Great Depression, so we must not make the same mistake twice. (this upcoming G20 meeting should shed some light on global trade intentions)
• U.S. dollar will likely remain the world's reserve currency simply because there is no better alternative (the Euro will have trouble becoming a reserve currency simply because of the disparity in the bond market)
• U.S. Dollar is here to stay in the short term, but may be challenged by an Asian currency in the coming decades
• A big question will be: How will fiscal and monetary authority respond to inflation down the line?
• Older people are more vulnerable to inflation due to their higher rates of savings (this will be an important issue as baby-boomers continue to age)
• In regards to the recently announced PPIP, it will be difficult to get the banks to sell into this program (why sell assets at below market value???)
• One also has to ask...after all of this selling of toxic assets, will the banks be adequately capitalized???
  
• Bigger government in the future will likely dampen growth and possibly volatility in the future
• Interesting point: The U.S. government is essentially a corporation with a weakening balance sheet that just happens to be able to borrow at 2%!
• Private sector will likely need to write-down approximately 3.5 trillion in bad debt. (back on February 22, I estimated the write-downs could amount to 3 trillion, so my estimate could prove conservative)
• Undercapitalized banks will be a tremendous headwind for the U.S. economy
• A nasty cycle: As solvent banks begin to pay back TARP money, other banks will follow suit, even if they're not necessarily ready, in order to stay competitive in the industry. These banks that aren't ready will conserve cash (i.e. not lend) in order to make the pay-back. Not good.
• U.S. consumption (9.6 trillion) represents about 20% of global economic activity, so as the U.S. consumer deleverages, the rest of the world will feel the pain
• The world is looking for a replacement for the U.S. consumer (Unfortunately our consumption patterns aren't easily replicated)
• Future economic growth will likely come from Asia and Eastern Europe because of the young demographics
• Developed country growth will likely remain sub par due to increased taxes and regulation
• Secure sources of income and growth opportunities in emerging markets will be the next focus
• Real assets (i.e. commodities) will play a crucial role once asset prices stabilize and inflation begins to take hold
• In the near future, real assets will be more appealing than "wild" financial products that got us into this mess
• Simplification will be a big theme..."know what you own and why you own it."
  
• Volatility should significantly decrease due to the halving of the Hedge Fund industry (2 trillion in assets to 1 trillion) and more limited access to leverage