In 2012, we were thrilled to roll out a partnership with arguably the most notable global leader in wealth management: Deutsche Bank. Through this relationship, we have broadened our services to sellers, buyers and agents with direct access to top-tier financial tools and personal advisors.
One recent benefit of our partnership with Deutsche Bank was the notable attendance and presentation by Ben Pace at The Key 2012, the luxury real estate conference we hosted in Las Vegas in December. Ben Pace is the Chief Investment Officer and Head of Global Investment Solutions for Deutsche Bank Private Wealth Management in the U.S. With more than 25 years of experience in investment management, and as a common expert speaker on the likes of CNBC and MSNBC, Pace KNOWS. He knows numbers. He knows consumers. He knows trends and forecasts. He knows them on a national scale, and he knows them globally.
When we confirmed Ben Pace as a speaker, I knew we were in for some great learnings. And learn we did! Here are a few takeaways from Pace’s presentation:
GLOBAL ECONOMY
Recovery Cycle: As Pace pointed out, Deutsche Bank has been analyzing the type of recovery that is occurring after “we just had the worst recession in our lifetime and hadn’t experienced anything like this since the 1930s.”o Would it be a V, “where it comes right back — that’s great”?o Would it be L-shaped, “which we’ve seen in real estate for the last four years, where it stays down at the bottom”?o Or how about a W, “the double-dip recession argument, which we’ve dealt with every summer for the past three years, when we have these summer swoons that make people a little nervous”?o Instead, Pace and his team began looking at a square root sign. “We went down so much in the middle part of the last decade and then came back, only slightly to previous levels, and then pretty much leveled off at what many consider disappointing rates of growth.”
Economic Growth: Emerging markets are going to be an interesting continual story — not just China, but also Brazil, Central Eastern European countries, Peru, maybe Argentina. Those are going to be the drivers of world economic growth. But what is the most important? The direction of world economic growth: “us” (the United States).
The Fiscal Cliff: “We’re thinking slower economic growth in 2013 than we original anticipated — 2% prediction right now.”
Emerging Markets: “We’re the only country where it doesn’t really matter if any other country is in a recession. … What I am most excited about is 5-10 years down the road, where maybe other emerging markets start to develop that consumption function in their GDP where they don’t care as much what happens in the rest of the world because their population is consuming their own GDP.”
World Growth: We need to continue working towards increasing world growth and more global economic cooperation. “It’s not just about onecountry’s size of the pie. We can increase world growth, and as long as you keep your portion of it, you grow.”
FIXED INCOME
Asset classes: “I talk about the inflationary implications of the aggressive monetary policies not only in the US but also in the developing markets…The concept of globalization has made things so competitive that you don’t get price increases if you’re a business person. If you try to increase prices, others will come in and undercut you.”
Safety of Treasuries: People are accepting the safety of treasuries without any real return, but that has more to do with the unnatural buyer in the treasury market: the Fed. One of the tools of quantitative easing is the Fed just buys overnight to pick up the monetary policy. “When the Fed pulls out of their unnatural buying, who’s going to soak up that excess supply?”
Duration:The concept of duration (the time it takes to get your money back when you buy a bond) is a measure of volatility. When coupons go down, it takes you longer to get the money back. If interest rates go up, that hurts you from principal deterioration more. Moral: “If you’re in the fixed income markets, don’t stretch for yield by extending your maturity. Instead, do it by going down credit quality.”
EQUITIES
Emerging Markets: “When I got nervous about the equity markets in the Summer/Early Fall, I didn’t put money in cash, I put it into the high yield space for more return. Another place I put it, which I think is an even better story right now, is the emerging markets. The emerging markets started to tighten their monetary policies in 2010, fighting a true inflationary problem. China was the best example at 10.5-11%. That’s way too high and creates a lot of excesses and inflation. By the end of 2011, we started to see the inflation rates coming down, and now the monetary policies are more friendly.”
Secular Bear Market: “The biggest problem is that we’ve been in a 12-year secular bear market. Stocks haven’t gone down all 12 years, but the price earnings ratio has gone down steadily” … “The secular bear is probably close to being over, but I’m not making the call yet for Price/Earnings ratio expansion.”
2003-2007 vs. Today: We had 15 consecutive quarters of double-digit earnings growth in 2003-2007. In the equity markets, you got nowhere near that in returns. Even in this most recent recovery, the rates are going up, but not at the rate of earnings.
Internationally: The outlook for European equities is improving as Eurozone fears are receding and risks appear largely priced in. “European equities in general are higher than the S&P500.” The Chinese economy appears to be heading toward a soft landing. “The Chinese equity market has been a very weak performer, so I argue that this could be one of the more interesting plays.”
FOREIGN EXCHANGE AND COMMODITIES
Precious Metals: Should continue to perform well.
Gold: “One that concerns me is gold… When you’re worried markets going down — a deflationary market — gold goes down too.” Deutsche Bank expects gold prices to strengthen as the economies improve.
Image: Ben Pace, Chief Investment Officer and Head of Global Investment Solutions for Deutsche Bank Private Wealth Management in the United States, presents on Global Economic and Capital Markets Outlook at The Key 2012 luxury real estate conference.
See the entire presentation from Ben Pace, and the other speakers at The Key 2012 on our YouTube page. And leave us a comment with your thoughts on the global economic recovery and how it will affect luxury real estate.
