This year’s Forecast Dinner featured three excellent speakers from the U.S.: Stephen Roach, Non-Executive Chairman, Morgan Stanley Asia, James Grant, Grant’s Interest Rate Observer, and Abby Joseph Cohen, CFA President, Global Markets Institute, Goldman Sachs.

Here are some of the highlights from their presentations.

China:

Stephen Roach: Wall Street’s fears are overblown. Chinese consumer consumption will ramp up much faster than we can imagine, especially given that Chinese authorities are practising long-term strategic thinking and working to implement five-year plans.

Europe:

Stephen Roach: The European Union is similar to a stool with only two legs. Without a common fiscal union, no currency union can be optimal. And as for the developing world, which is dependent on exports, Roach expects a slowdown.

Canada:

Stephen Roach: Canada has major challenges ahead because the U.S. and China are our most important trading partners. As Canada’s largest external market, the stagnation of the US consumer – responsible for some 70 percent of U.S. GDP – will be a challenge, as will China moving out of manufacturing and towards providing services.

Causes and solutions of banking and economic crisis:

Stephen Roach: Roach places responsibility for the current economic situation on the failure of political policy and the regulatory apparatus, which he says have been “corrupted by the illusion of prosperity.” Over the last 30 years, we have seen 11 major global crises, almost one every three years. The politics of false prosperity are based on a steady stream of behind-the-scenes imbalances – and the notion that growth can continue forever.

In terms of fixing it, Roach says there is no one single solution to such complex issues. In the U.S., there have been twin pressures of excess debt and inadequate savings by consumers. Consequently, dealing with the problem will require debt forgiveness policies, or these balance sheet corrections will continue. There must be some incentives for aging, soon-to-be-retired baby boomers to save, particularly in a zero-interest-rate environment, which is unsustainable as it penalizes savers. While there are many uncertainties, having another full-blown crisis – the 12th – is the last thing that the world needs.

Abby Joseph Cohen: In addition, we need to regain confidence in decision making by governments. We need to see stronger political will in Europe, along with fiscal policy unity. She pointed to the last 10 to 15 years in Japan, where bank regulators discouraged writing down bad loans. When book losses were not realized, the system froze up. The reality of the financial distress in Europe must be acknowledged.

Current markets:

James Grant: There are high relative values in equities. As an example, he compared investing in a 10-year Canada bond yielding 2.1 percent (noting that Canadian inflation was 3.1 percent in August and has averaged 2.2 percent since 1990). Meanwhile, Molson Coors trades at a P/E of 11.1 with a yield of 3.25 percent.

Abbey Joseph Cohen: The current distress in markets is due to a failure of Europe to deal in a productive way with the inadequate capitalization of its banking system. She stated that the bull market in bonds is over, and while equities are attractive, when the markets will rebound remains uncertain.

U.S.:

Abby Joseph Cohen: The numbers coming out of the U.S. do have a positive side. Retail sales are up 4 percent, with strength in durable goods, and new jobs being added. GDP is growing 2 percent to 2.5 percent, along with an 8 to 10 percent growth in exports. It is certainly true that excess pessimism is priced into markets, with the S&P trading at 10 to 12 times earnings versus 18 times historically. However, there will be a need for “tough love,” particularly on accounting and regulation and in the disclosure and stress testing of valuations of sovereign debt on balance sheets of European banks.

U.S. long-term trends:

Abby Joseph Cohen: While the U.S. still leads the world in innovation, as measured for example by patent filings, the gap has been narrowing. Those who have lost their jobs will require retraining, and education needs to be a higher long-term priority. Ms. Cohen has been appointed by President Obama to a bipartisan Innovation Advisory Board, where her role is to help address policy toward improving STEM (Science, Technology, Engineering and Math) education.

While U.S. unemployment is hovering at 9 percent, she commented that is important to stop looking at the averages and consider the divergence between these groups. For those with a four-year college degree, unemployment is a low 4 percent. Incomes are rising, while savings rates and spending are up. However, the picture for those without education is grimmer. Unemployment for those with only high school education is 12 percent, and in the high teens for those without even basic high school. While there has been no rise in the number of adults with college degrees, young women are now more likely to complete college than young men, with a corresponding difference in unemployment rates.