January 23, 2018 / 7:17 PM / a year ago

Guggenheim's Minerd: Davos 'valuable contra-indicator' for investors

(Reuters) - Guggenheim Partners chief investment officer Scott Minerd said Tuesday that extreme optimism about the global economy among political and business leaders at the World Economic Forum in Davos, Switzerland is a “valuable contra-indicator” for investors and turning him cautious.

Minerd, who helps oversee more than $260 billion, said in a telephone interview from Davos: “While I am still a Davos neophyte - it is only my fifth visit to Davos - I am starting to consider that Davos may be a valuable contra-indicator.

“Optimism about global growth is disturbingly high at Davos. While I am of the opinion that the global economy is gaining momentum, I always find it discomforting when virtually everybody shares the same opinion,” he said. “My fear is that that economic optimism is spilling over into global equities, which will lead to a mania in stocks.”

In that regard, “We’ve been taking risk off the table” as well hedging by purchasing long-dated call options on the S&P 500 index and emerging markets, he said.

Minerd said he purchased one-year S&P LEAPS because “the risk is that the S&P could go to 3,600 and I could underperform.”

An index call option locks in the price at which the holder of the contract can buy the value of an underlying index at a fixed time in the future.

There has been a pick-up in demand for buying of S&P 500 Index options in recent months as investors seek exposure to further gains, options data showed.

A staff member is seen during the World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 23, 2018. REUTERS/Denis Balibouse

Davos optimism is strong in the face of U.S. tariffs on solar panels and washing machines, a rising tide of nationalism, and an immigration debate just when healthy Western economies are starting to experience labor shortages in certain key industries, Minerd said.

Minerd said a few years ago, the big story in Davos was about the emergence of Africa as an important component of future global growth. “While I think that view is ultimately correct, the immediate experience proved very disappointing for investors. Rather than a buying opportunity, investors would have done better to go short for the near term,” Minerd said.

“While I am hesitant to jump to a conclusion, I’m troubled by the euphoria undergirding the gathering here,” Minerd said. “I have seen bull market tsunamis before. They can be both rewarding and destructive.”

Additonal reporting by Saqib Iqbal Ahmed; Editing by Cynthia Osterman

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