Vision 2010: The Road Ahead gave us everything but clarity about the future of capital markets. One thing is certain, however– the ride back up is not expected to be an easy one. Not surprisingly, both keynote speakers spoke on an overarching theme of the demise of the financial markets and the potential signs of recovery.

Seek out market inconsistencies
Dennis Gartman, editor and publisher of The Gartman Letter, L.C.

Mr. Gartman, the first keynote speaker to take the stage, started the evening by reminding the audience that markets will not behave in a rational manner because, after all, they are at the mercy of human behaviour. The key to success, amid turbulent times, is to take advantage of those inconsistencies.

So, Mr. Gartman, any signs of recovery on the horizon?

Mr. Gartman said he believes that the recession has ended in all but the Western world. While there are some signs that brighter days are on the horizon, it is very unlikely to be a quick recovery. In fact, Mr. Gartman points out that the recovery will take a long time and will be “moribund.” In other words, it will stink and it will stink badly!

Why? How will the savings rate affect the recovery?

For one, in what Mr. Gartman defines as the “Conundrum of Saving,” Baby Boomers are saving money at a higher rate that they ever have and they are taking quite a liking to it. Unfortunately, it is also known that saving is not good for any economy looking for growth.

The U.S. government’s decision to flood the market with liquidity in September and October, 2008, was, in Mr. Gartman’s view, the right thing to do in order to avoid a total meltdown of financial markets. However, an equally rapid removal of this liquidity is also paramount to a successful recovery and to counteract the increasing rate at which people are holding on to money.

“Will China be a force to reckon with in the consumer-spending arena? Of course, it will.”

What effect will China have?

Mr. Gartman also spent some time discussing the impact of China in the world economy as the next consuming force. As China increases its spending patterns to match that of Western societies, retail, technology, and basic supply companies, mostly exports from North America, are likely to benefit tremendously from the Chinese people wanting to elevate their standards of living. Will China be a force to reckon with in the consumer-spending arena? Of course, it will. Anyone who understands this trend and positions themselves to take advantage of it will benefit in the long term.

Any comment on inflation?

Mr. Gartman concluded with his views on inflation. While commodities are likely to lead the way on the inflationary front with gold, silver, and copper as well as grain, wheat, and soy all expected to exhibit rising prices, what we should be more fearful of is deflation. Significant drops in wages, mostly in industrial sectors, will be the number one reason, in his opinion, for deflationary pressure in North America.

Big companies should be left to fail
Gerald Celente, founder and director of The Trends Research Institute

The second keynote speaker, Mr. Celente, echoed some of the comments made by Mr. Gartman with respect to commodities and interest rates, stating that, “as long as the U.S. dollar goes down, gold will continue to go up” and “governments can’t raise rates without crashing the economy.” Both speakers agreed that any increase in interest rates, while designed to keep inflation in check, would likely lead people to increase saving–thereby decreasing consumption and slowing the growth of the economy.

“For America to be able to compete against any emerging production superpowers like China or India, a shift towards quality and efficiency is absolutely necessary.”

However, where Mr. Celente differed from his counterpart was on his theory around the bailout efforts of the U.S. government. Mr. Celente took the view that the government intervention through TARP was merely a cover up, not a recovery, and that this same intervention is merely masking a market bubble that is bigger than any other market bubbles experienced in the past. Mr. Celente criticized the U.S. government for coming to the rescue of the too-big-to-fail companies. “LET THEM FAIL!” he shouted, referring to AIG, Fannie Mae, General Motors, and Citigroup, to name a few. “No one should ever be labeled too-big-to-fail.” It is not sustainable for the government to continue printing money so that banks can carry on lending and consumers can carry on borrowing. Something’s got to give!

Invest in quality

So where do we need to look now? Mr. Celente’s words of wisdom: “Stop looking at the bottom line.” It becomes less about how cheaply, how quickly, and how big something can be done, and more about how well it can be executed. Simply put, when going through difficult times, quality will generally fare better. For America to be able to compete against any emerging production superpowers like China or India, a shift towards quality and efficiency is absolutely necessary.