OPPENHEIMER’S Greg Fisher, and new colleague Mark Scott (also no stranger to Jamaica) bought their local brokerage clients lunch at the Courtleigh last Thursday. Fisher took the opportunity to update his audience on the thinking of his “tier 1” clients (major US, European and Asian “blue chip” financial institutions), whom he had recently met on a trip that had included China, England, Ireland, Tel Aviv, Boston, and New York. One year ago, these major institutions had taken “risk off the table”, triggering an enormous rally in emerging market debt. Big investors were now willing to accept rates of five per cent, where before they had wanted a minimum of seven per cent.

However, these institutions, supposedly the ultimate in smart money, had now grown much more cautious, raising their cash positions to as high as 15 per cent, and buying credit default swaps (CDS) as insurance against county default for example, Greece. Moreover, they saw continued US dollar weakness, on average predicting a further five per cent decline.

Fisher observed that in his long career, he had never seen a situation where the US Federal Reserve was trying to stoke inflation as a problem easier to solve than one of deflation for example, falling prices. Rather than using the term “double dip”, Fisher believes the most relevant analogy to the current economic situation in the US is Japan’s “lost decade”. Whilst he believes that we will ultimately see “the worst bond market in a generation”, in the short run, he believe the US long (30 year) bond is more likely to hit three per cent than five per cent.

Despite the huge rally in September in the US stock market, Fisher observed that the normal market leaders, the banks, were now weakening. The small banks had huge problem commercial real estate loans coming due in 2011/2012, whilst despite relatively good profits, the “too big to fail” banks were starting to see sharp declines in revenues. Post election, a combination of a likely regulatory driven decline in proprietary trading, foreclosures (the housing sector already appeared to be in a double dip) and falls in business lines like initial public offerings (IPO’s) meant that the big banks were likely to lead the market down in 2011.

Further evidence of economic weakness was that one sixth of Americans were now on food stamps, and many US states were now insolvent, requiring “the mother of all bailouts”.

Mark Scott, who had just moved from covering the Caribbean for US broker Morgan Keegan, told his audience that “you would have told me I was crazy” if I had said a year ago that the Jamaica dollar would now be $85 to US$1, interest rates would be the lowest in 33 years, and crime would be down 40 per cent.

Fisher added that Jamaica was “smart to get with the IMF when it did”, as “sooner or later the IMF will run out of money” to bail everyone out.

Over the past few months, due to a lack of supply, his “tier 1” investors had been buying even the longer paper, such as 2039 Jamaican Eurobond. Commenting on Minister Shaw’s recent trip to Europe, Fisher observed that although institutional investors appeared relatively upbeat about what had been accomplished over the last nine months, they remained concerned over Jamaica’s prospects for growth. Nevertheless, Fisher believes that if Jamaica wants to do a new bond issue, they should do it now, or at least before 2011, to take advantage of the current hot IPO market. He cited Mexico’s newly issued 100-year bond, sold out in three hours, as evidence of bubble type conditions — “Everybody who buys it will be dead”. Finally, he observed, if there was an emerging market default, or even a rumour of a default, all emerging market interest rates would rise, including those in Jamaica.