Gina Sanchez - on the Roubini stall speed theory & emerging markets

8 Aug 2011 CNBC
Gina Sanchez is Director of Equity and Asset Allocation strategy at Roubini Global Economics.

"We got a revision that said that not only was the recession worse than we thought but also that the recovery was quite a bit shallower than we thought and we're really at a stall speed, not even a U-shaped recovery that even we, the biggest bears in the street were forecasting. So our asset allocation has leaned towards a quality bias. We are going with the best balance sheet, corporate balance sheets. We are overweight credit, emerging market equity even though it's been hit hard but there is a growth story there. There could be a perception of value in emerging market economies especially those that have domestic demand. We also see some value in the long-end of emerging market debt curves as inflation is probably going to be put on hold with the slowing of growth."

[Very interesting -- why invest the long end and not the short-end of the yield curve? It could be because the long-end is more responsive to inflationary fears and rate rises while the shorter-end perhaps is more responsive to central bank intervention (manipulation?) to aid the economy in its time of need.]

"We're watching the Fed minutes like a hawk. The mandate is growth, unemployment and to keep inflation going in the right inflation. If we can see any sign that can start to justify QE3 that could put a floor in the markets. But we're a little more concerned that that would be a confirmation that the sky is falling [Amazing]
Right now what we're having is a growth scare. That's really what's making these markets drive into this fear territory. If you think that equity is the sum of discounted future cash flows then maybe we're looking forward and thinking those cash flows are a lot smaller than we thought."

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