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Economy's Gonna Need a Bigger Boat: Strategist

CNBC.com
Friday, 21 May 2010 | 9:33 AM ET

A global crisis of confidence is imminent unless there's “a bigger boat” to tackle the world’s economic problems, Beat Lenherr, chief global strategist at LGT Capital Management, told CNBC Friday.

Jaws
Source: jawsmovie.com
Jaws

Lenherr applied the famous “bigger boat” analogy -- when Chief Brody first sees the great white shark and bluntly suggests a bigger vessel to Captain Quint -- from the 1975 nail-biter “Jaws,” to the sovereign debt situation in Europe.

In the film, the protagonists needed a bigger boat to escape the gigantic, encroaching great white shark. With this analogy, Lenherr implies that the EU package may need to be bigger than the current $1 trillion size.

“Flashback to September 2008, we asked, is the TARP program big enough?" Lenherr said.

"At the time, the headline put out was, ‘we’re gonna need a bigger boat.’"

“It’s not about Greece, Southern Europe, etc," he said. "We are on the brink of a global confidence crisis.”

Markets plummeted Thursday as investors fled commodities, stocks and riskier currencies. China's top benchmark index fell 1.2 percent to its lowest level in more than a year, while the major Japan and Taiwan indexes hit their weakest levels in over three months.

ECB 'Fiercely Stubborn'

Lenherr said that the European Central Bank is fighting a “ghost of inflation” which is simply not there.

“(The) ECB claims to be fiercely independent but is actually an issue of just being fiercely stubborn," he said.

Europe is very behind the curve, according to Lenherr, and as long as the ECB continues to focus on these extraneous issues, global confidence will evaporate, he said.

We're on the Brink of a Confidence Crisis: Strategist
Beat Lenherr, chief global strategist at LGT Capital Management, says we are on the brink of a global confidence crisis again. He speaks with CNBC's Chloe Cho and Anna Edwards on why there is no support for the equity markets.

Watch a video clip of the interview with Lenherr on CNBC

World 'Addicted to Liquidity'

The ECB should embark on quantitative easing, according to Lenherr, yet the ECB has been quite vocal about their reluctance to do so.

“Investors continue to be addicted to liquidity," he said. "But they need liquidity globally, not just from ECB.” Investors should be worried about contagion to other parts of the Western world, according to Lenherr.

"There has been an increase in volatility, as well as an increase in the correlation of risky assets around the globe," he said.

“Libor, and other money markets are climbing – another stress symptom. We’re going to need a bigger boat.” “There’s not much positive to say about any of the risky assets," he added.

"It’s a convergence of various negative factors. Asia is in a monetary tightening cycle, but the source of issue at the moment is the euro."

Contact Europe: Economy

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