Three-Week Risk-On Rally to Come; Europe Fatally Flawed: CIO
The markets have been oversold amid intense pessimism and a relief rally will be on its way within the next month, David Murrin, chief investment officer at alternative investment firm Emergent Asset Management, told CNBC’s “Worldwide Exchange”.
“Going forward you don’t want to be short on markets; even though I think Europe will go through some cataclysmic changes, it’s all about timing markets wisely,” Murrin said.
He added that despite the negativity surrounding the European debt crisis and talk of a Greek exit from the euro zone, European stocks and Bunds have barely moved in the past week and much of the downside risk from the uncertain political situation has been priced in.
“This crisis is a multi-year crisis and it goes through phases of intensity and we’ve been through one phase where the markets have pushed themselves to a point and now we’ll have a relief phase,” Murrin said.
He added between now and the next likely downside risk, the Greek elections set to take place on June 17, markets will not just sit and wait.
Jim Bianco, President of Bianco Research, told CNBC that Europe would be a great buy but “just not yet”.
However, Murrin warned that he was very pessimistic on Europe and that it was not a "great buy" because of the long-term structural problems of the region.
“If you look at what Europe faces it’s an incredible disaster.
First you have a fundamentally wrong concept, you can’t agglomerate countries with negative demographics, secondly you have no charismatic leadership that works in Europe – the two elements of France and Germany are opposed – they are the core, if they can’t resolve their differences I don’t see how that’s going to work,” Murrin said.
Gold Has Bottomed
He said that gold had bottomed and the only way was up for the precious metal as the realities of a changing world and failed euro were realized.
“When the correction ends you’ll end up with a spurt to $2,500 (per ounce) or even higher because I can’t see a substitution for a failed euro and a failed dollar as the power shifts from West to East,” he said.
Gold prices have confused investors in recent weeks as its traditional safe haven status has been tested despite heightened tensions and volatility within the stock markets, with its behavior more akin to that of arisk asset than a safe haven store.
Murrin said the West as a whole was seeing a major problem with growth without which a fractious society would develop – now being seen in Europe.
“What you see right now is [an attempt] to agglomerate a European system which isn’t driven by the fundamental energy of demographic expansion and ongoing wealth.
We have to have definitive emergency action to control this crisis.
This incremental [approach] is not going to work,” he said.
Murrin added that ultimately the euro zone would fail and break up with a potential "new" Europe of core countries but the interim would see a series of impasses and the continuation of “this grumbling sore”.