China may be a bubble, but “it’s a bubble that can go on longer than you can remain solvent… betting against it”, warns Stephanie Pomboy.
The 43-year old founder of institutional research firm MacroMavens told Fortune magazine this month that if China faces difficulties, it could use its “ginormous” foreign exchange reserves to buy GDP growth for several years. She also believes that emerging nations in general are stockpiling strategic natural resources.
“I don’t think it’s a mystery why oil is still over $80 at a time when the global economy is hardly booming. There’s silent demand coming from somewhere. Our emerging-markets creditors are opting to spend their excess dollars on commodities rather than US Treasuries.” Pomboy suggests investing in a Russian stock market tracker as a cheap way to gain exposure to this trend – the Russian market is 90% correlated to movements in the oil price.
Pomboy made a name for herself earlier this year when she advised clients to ditch shares and buy US Treasuries and gold. The call has paid off, but she was heavily criticised at the time, says Pomboy. “Forever, inflation was viewed as the primary driving force for gold. So when I suggested that gold and Treasury bonds (which lose value with inflation) would go up at the same time, it was seen as laughable.” She says the reason gold increased in the face of low inflation is because the Federal Reserve printed dollars, which “debased the currency” and fuelled gold.
Pomboy is now less bullish on Treasuries – “I definitely wouldn’t short Treasuries… (but) it’s not particularly compelling to buy them either”. She is far more positive about gold, which she thinks will continue to benefit from “currency debasement”. Pomboy also draws attention to shares in gold miners, which have so far lagged the increase in the oil price, and suggests they offer a good way to invest in gold.