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How Long Does it Take a Seal to Eat a Penguin?

I have been away on vacation for my daughter's half-term school break. One day we sat and watched "March of the Penguins." Have you seen it? Neither of us liked the sad parts, and while we could both marvel at the beauty of the landscapes, the cruelty of the environment in which the Emperor Penguins tried to nurture their young wasn't lost on us.

The title for this blog comes from the question my daughter asked after the film. It hadn't even occurred to me.

Now you knew this was going to be a cute lead into the market chat, and here it is: if the bull run for equities is to end where will the catalyst come from? Inevitably it will emerge from some unanticipated quarter, and in so doing take a good number of casualties in the process.

Corrections, whether they turn into full-blown bear markets or not, tend to be messy and painful affairs. So, like my daughter, start trying to come up with the unasked questions. What isn't already in the market? If you like, the markets equivalent of how long does it take a seal to eat a penguin?

In our extended four-hour "Squawk Box Europe" Monday we had two guest hosts, Philip Manduca and Bob Mckee, who argued the end is nigh for the best returns from Western equity markets. Bob is already advising clients to sell down equity holdings in the face of current strength, Japan excepted, while Philip is pragmatic about the chance for equity to perform over the short term without bad news, but thinks the three-year picture will see smarter investors trade out of paper exposure into hard assets.

What does that mean? A lot of switching into gold it seems. Philip's 18-month forecast on gold is for it to run up to a $1000. How attractive that looks in your currency of choice is also worth spending some time on. After all, the market consensus still seems to be for the U.S. dollar to fall further against most major currencies.

Incidentally, both cite the main risk growing out of inflation and central banks being forced to nudge rates higher. Inflation from rising input costs, with labor and capital expenditure markets tightening, will be the driver.

Bob's protection: buy volatility indexes, buy gold, diversify from dollar assets into the yen, Japanese equities and the euro.

Feedback welcome - here.