INTERVIEW-U.S. economic recovery seen tepid
By Cal Mankowski
NEW YORK, March 13 (Reuters) - Investors counting on a
quick recovery in the U.S. economy are likely to wind up
disappointed, in the view of UBS strategist Jeffrey Diermeier.
"When you have a capital spending slowdown it takes longer
to work off than if people just stopped buying Coke or Pepsi
for a couple of months," Diermeier, chief investment officer at
UBS Asset Management, said in an interview.
The Fed's interest rate cuts are going to take a while to
stimulate the economy and will not keep corporate earnings from
declining right on through the third quarter of 2001, the
strategist said.
Diermeier stepped into the CIO job a year ago as his boss
and close associate for more than 20 years, investment legend
Gary Brinson, was preparing to step aside.
From his office on LaSalle St. in the heart of Chicago's
financial district he oversees some $320 billion of managed
assets under the banners of Brinson Partners in North America,
Phillips & Drew in the U.K. and UBS Asset Management elsewhere
in the world.
Diermeier says that the Brinson traditions of a global view
and choosing from a broad range of asset classes including
private equity and real estate continue to underpin the
approach at UBS. A correct call that the dollar was overvalued
in 1985, and another in 1981 that interest rates were about to
come down, paid off for Brinson's clients.
Late last year the firm decided it was necessary to take a
top-down look at the battered tech sector. It turned to its
London-based chief economist, Bill Martin, who concluded that
analysts' earnings expectations were too high even under the
most optimistic scenario.
Martin's study concluded that an accelerating decline in
the price of tech equipment in the 1990's led to an explosion
of activity as firm after firm jumped on the E-commerce
bandwagon. Some users of information technology double-ordered
equipment so as not to be caught short-handed.
But as Lucent TechnologiesInc. and others found
out, Diermeier said, some of their sales were "a little bit
vapor sales." Now, users of the routers and servers and
communications gear have more equipment on hand than they know
what to do with.
Diermeier does not like to be pigeonholed in either the
value or growth camp. He says looking at the fundamentals is
what matters.
With those investors who bet the ranch on tech now paying a
price for their success in the late 1990's, the question on
everyone's mind is how long the U.S. slowdown will last.
Diermeier does not expect the economy to trace out the
worst-case L-shaped pattern with a steep drop followed by a
prolonged period of sluggishness. Also dismissing the chances
of a sharp drop and quick recovery in a "V"-shaped pattern, he
thinks the "U"-shaped scenario is more likely but with the
recovery part of the U being rather subdued.
"We would not expect that you're going to have a strong
rebound in the second half of the year," he said.
The strategist also questions the conventional view that
inflation is more or less dead in a slow economy. "That's one
of those myths out there," he said. He notes that there are
plenty of chief executives who will resort to price increases
to meet their revenue objectives.
Diermeier's U.S. balanced portfolio currently allocates
only 40 percent to equities, compared with a more typical
allocation of 65 percent. The remainder is 50 percent bonds
with much of that in inflation-indexed Treasuries, and 10
percent is allocated to high-yield debt.
The U.S. balanced portfolio is up 2.7 percent so far this
year and it was up 10.25 percent last year. The performance
beat a customized benchmark that is 65 percent equities and 35
percent fixed income and showed negative returns for both
periods.
Diermieier is marking his first anniversary as CIO at an
interesting juncture. While the U.S. economy is in transition,
his firm is undergoing changes with the recent addition of
PaineWebber to the parent UBS AG organization.
Already, Painewebber's Mitchell Hutchins Asset Management Inc.
business has been folded into UBS Asset Management and renamed
Brinson Advisors Inc.
Peter Wuffli serves as chairman and chief executive of UBS
Asset Management. In effect, Gary Brinson's dual role of CEO
and CIO has been divided between Diermeier and Wuffli.
REUTERS
Rtr 14:15 03-13-01 |
