'Muddle through' model beats the apocalypse

Most participants in financial markets tend to spend their days enjoying quiet anonymity, shielded by their Reuters and Bloomberg screens, neither seeking nor deserving of much attention from the rest of the world. Even those individuals whose personalities are noticed by other investment professionals rarely become known outside the canyons of Wall Street or the City of London.

Ordinary punters may occasionally get to glimpse the one or two larger-than-life characters that exist but, for the most part, have to be content to deal with anonymous account managers and barely readable investment reports and newsletters.

This is a pity, since there is, occasionally at least, value to be gained from knowing the opinions of the opinion makers. Even when their views are palpable nonsense, there is often considerable entertainment value to be had - daft opinions elegantly argued are always fun to listen to.

Perhaps the day of the big personality has passed; gurus are gone. It is far easier to think of people from the past rather than characters of today. And it is an easy mistake to assume that someone who has made lots of money in the markets must be an interesting person.

There are plenty of millionaires walking around the world's dealing rooms who become utterly dysfunctional when separated from their screens; stringing together a comprehensible sentence is often beyond the modern-day financial genius.

As Michael Steinhardt, one of the world's greatest hedge fund managers, once said: "In the 1950s and 1960s, the heroes were the long-term investors; today the heroes are the wise guys."

Anyone trying to come up with a list of famous investors inevitably ends up with a lot of Americans. Invariably, with people such as Warren Buffet, Peter Lynch, Benjamin Graham and George Soros appearing on everybody's top 10 list, the names are of old or dead fund managers rather than sell-side (stockbroker) analysts.

Famous fund managers always emphasise "value" investing and, with the exception of Soros perhaps, don't pretend that the short-term direction of markets is in any way foreseeable.

Henry Blodgett and Jack Grubman (both mentioned in recent despatches concerning one or two alleged dodgy practices in the 1990s) might make it onto some people's lists: we seem to remember only the dark side of stockbroking.

Ivan Boesky is a name from another infamous era, a character said to have provided the role model for Michael Douglas's performance as a rapacious stock market raider in Oliver Stone's film Wall Street. In that movie, stockbroking was portrayed as a lower form of estate agency.

It has to be said that popular sell-side celebrities are as rare as fondly remembered EU Commissioners.

Perhaps the one contemporary sell-side name that the ordinary investor has come across is that of Steven Roach, chief economist of Morgan Stanley. Mr Roach is famous within the industry for his intellectual skills, his verbal precocity and unwaveringly apocalyptic views on the future of the world economy and its financial markets.

His opinions are always worth reading, if only to challenge any complacency that might arise in our thinking or as an antidote to any sort of creeping optimism. Some of his thoughts can be seen free of charge, twice weekly, on Morgan Stanley's website.

My favourite sell-side analyst, Gerard Minack, is an ex-colleague who beavers away in relative obscurity in Australia. Calling the direction of global markets and economies might be thought to be a tall order at the best of times, but to do it so far away from all of the action is a brave undertaking indeed.

Perhaps distance adds a perspective that the rest of us sorely lack. But Mr Minack has quietly built a dedicated following amongst money managers around the world, utilising methods that would not be recognised in most large financial centres.

He always speaks his mind, occasionally getting into trouble with robust use of language (he is Australian). He eschews the broker's favourite vehicle for delivering research, the 150-page report, muttering "NRTS" whenever anybody asks him why he doesn't write standard broker material. Most people are too scared to reveal their ignorance and ask what "NRTS" actually means, assuming it to be a technical term that only serious global strategists would understand. Press him and Mr Minack will reveal that it is a direct reference to 150-page broker reports: "Nobody reads that s***".

Sadly, for us optimists at least, Mr Minack is now as bearish as Mr Roach, and for very similar reasons. They both see the high oil price as an obvious threat to growth and believe that the main drivers of global economic activity in recent years - the US consumer and the exploding Chinese economy - will not rescue us from a horrible downturn.

Mr Minack believes that the US stock market is due for a serious fall and thinks bond yields will tumble to 3 per cent, implying that US (and probably everybody else's) interest rates will be falling by this time next year.

Mr Roach, uncharacteristically, has been bullish of Chinese prospects for years but is now warning that the extent of the party risks a huge hangover.

They both argue that, without China and the US to pull the rest of us along, this is about as good as it gets for the world's equity markets. Both analysts have been banging on about "unsustainable US imbalances" for some time, arguing that a balance-of-payments deficit amounting to nearly 6 per cent of GDP spells impending disaster.

Mr Minack is as bearish of his home country, Australia (which, unlike most other stock markets, has been roaring to record highs) as he is of the US, arguing that the recent downturn in house prices is merely a taste of things to come.

As Tim Congdon (another minor guru), of Lombard Street Research in London, put it: "I have been worrying about US imbalances of one sort or another for the past 20 or 30 years. Perhaps it's time I got over it."

It is one thing to spot something that is unsustainable (you rarely have to look hard to find it at any point in market history), it is another to figure out how things might change. Imbalances might correct quickly, slowly or not at all - at least for many years. And when they do correct, they can do so in ways that are utterly benign.

Believers in the "muddle through" model of finance rarely make for good guru material but they are more often right than the Apocalypse Now school of thought.