You're Trading Tear Gas as Well as Stocks: Asset Manager

The violence in recent Greek protests is not just confined to that country and investors should price in civil unrest brought on by austerity, Philippa Malmgren, president of Principalis Asset Management, told CNBC Wednesday.

Greek riot policemen clash with protestors in the center of Athens on May 5, 2010.
Dimitar Dilkoff | AFP |Getty Images
Greek riot policemen clash with protestors in the center of Athens on May 5, 2010.

Greek police and marchers clashed in Athens Tuesday, with dozens of protesters throwing stones, sticks and bottles.

"I think we should not be surprised to see this occur in other locations and that's why I say to traders you know, these days you really need to think, you're trading tear gas as much as you're trading equities or whatever your asset class is," Malmgren said.

"The bottom line is that this is where the decision is made about how much pain the public can bear, it's individuals," she said.

People have two choices to show their anger with austerity measures, either they change the government by going to the ballot box or take to the streets. And if an election is not imminent, there is a higher risk they will organize protests, according to Malmgren.

"Even here in the UK we've had some of the police leadership talking about the possibility of civil unrest too," she said.

Defaults Ahead

The United States will need to tackle austerity at some point as well and this will be obvious at state level, Malmgren said.

There will be some defaults at local level that are going to "scare everybody else and they'll say 'we will have to cut,'" she said. At a federal level there will not be as much austerity and "we'll see the electorate responding," she said.

"I think we're going to see messy politics until we get a solution for this," she said.

Real estate investor Sam Zell told CNBC Tuesday that the US may fall like ancient Rome if it does not cut deficits and spending.

If the Federal Reserve does not increase interest rates and the fiscal system does not tighten, then "my bet is that the US is going to do what it always does, which is to inflate its way out of the debt problem," Malmgren said.

A lot of defaults are still ahead, not only sovereign nations but also companies and municipalities in the US, for the markets to function properly, she predicted.

"The bigger phenomena is that we still have a lot of balance sheets out there that make no sense in the absence of government assistance. And until they're cleared out of the system we're going to have nervousness," Malmgren said.