Bob Howe's hair turned white in three weeks during the 1997/1998 Asian crisis, and he thinks that if Greece defaults, we might enter into a post-apocalyptic era where tinned foods, gold nuggets and M16 rifles are more attractive than CDOs and Lehman shares. His pessimism has won him the nickname 'Bear Market Bob'.
"An optimist's view is that Germany will bail Europe out and America will get through it," he says. "A pessimist might foresee a great reckoning and a 'road warrior' scenario starting to play out if Greece defaults."
Howe runs the Opera Pan-Asia Fund, which was launched in July 2008 as the Akamai Pan Asia Fund and renamed in mid-2009, when Bob Howe hooked up with a fellow Harvard classmate who owns a firm called Opera Solutions. The fund is up 10% so far this year and is currently offering seed economics to new investors.
"One domino has already fallen -- Iceland -- so what is going to happen next with Greece and Spain?" he says. "Eventually it will go all the way through to the UK and US in the next five years. There is an uncontrollable government-debt problem, for which there appears to be no solution. As that plays out, it shouldn't be very pretty for equities in those countries. At some point the wheels come off."
However, he thinks we have a couple of years in which some profits can be made in the equity markets before apocalypse. Howe's day-to-day strategy is predicated on a set of quant-screening models, but he is also mindful of the big uber-macro events that can screw up even the finest calibrated trading strategies.
He doesn't think a government debt implosion will happen necessarily in the short term investing horizon that hedge fund managers deal in, as the stock markets are still recovering from the collapse.
Asia won't be protected from Europe's problems, reckons Howe, due to the correlations between markets and systematic traders selling elsewhere, which would have a knock-on effect on Asia. The region's economies would survive, but demand would be affected by a falling-off of GDP and incomes in Europe.
The reason he is running an Asian fund and not a global fund, he says, is because Asia offers the best prospects for the next 10 years, with a better form of discipline applied to government and corporate debt.
Howe sees a 20% upward movement in markets led by fundamentally driven valuations for each of the next two years. Nevertheless, he can use futures to protect investors in the event that a government debt meltdown does happen faster than that, and he is keeping the fund's net exposure between 50% and 100%. He is also shorting individual stocks in transportation and Chinese utilities.
Another major theme Howe likes -- and thinks will be the biggest consumer product of our age -- is that of 3D television sets. He is building positions in manufacturers and component suppliers.
He points out that you can already buy 3D TV sets at reasonable prices, and they aren't just for watching reruns of Avatar. Tiger Woods' return to the golf course is scheduled to be transmitted in 3D and he envisages that the technology will target sports events, video games and films made for mummies and daddies to enjoy.