More Easing Won't Boost Bank Lending: Investor
Another round of quantitative easing from central banks will not result in more lending from banks and won't help the underlying economic problems, Peter Toogood, head of investment at Old Broad Street Research, told CNBC Thursday.
"If anyone thinks that (a second round of central banks buying assets to put money into the system) is going to encourage the banks to lend more out, well no-one wants to borrow it, which seems to be the fundamental point that people miss," Toogood said.
"All that will happen with the QE is exactly what happened the previous time, in the UK (for) example £200 billion of gilts purchased allowed £200 billion of other assets to be purchased," he added.
The Federal Reserve signalled that it plans to unleash further easing measures in the near future, while the Bank of England appears split on whether to ease policy further. Meanwhile, the European Central Bank is under increasing pressure to follow the Fed's example.
"There's no V in the MPV — money, price, velocity — there is no velocity. They can chuck as much as they like at i t… nothing is going to change," he said.
"The fact is a third of houses in the U.S. are under water. They can't move and every two years a third of the population moves states. That's the reality of why you can't get any jobs in the U.S., it's nothing to do with the velocity of money. Deal with the housing problem," Toogood said.
Olivier Blanchard, chief economist of the International Monetary Fund, also told CNBC that easing measures won't boost the economy. Central banks have used up nearly all of the monetary ammunition they had, according to Blanchard.
As central banks mull further monetary easing, many Western governments are contemplating tough austerity measures in a bid to reign in fiscal deficits. While the measures will inevitably dampen growth in the West, there are still investment opportunities in the developing world, according to Toogood.
"We're in a deleveraging world of austerity for the developed world, which is in hospital, and the developing world is growing very nicely," he said.
Toogood recommended companies that can feed off the developing world's growth and have strong balance sheets, good cash flows and solid yields. He also said he thinks there is a trend of larger companies taking over small and medium sized companies, which provides opportunities.
Provided the economy doesn't dip back into recession, Toogood said investors should ignore the wider economic concerns.
"Focus on the fundamentals of the companies, strong cash flow, hugely profitable and likely to retain that profitability next year," he said.