How do we get out of this mess?

There seems to be little doubt over whether the global economy faces unprecedented challenges. But the best route out of our current predicament remains an open debate. How do we get out of this mess?

Members of the Niagara Institutional Dialogue were presented with two contrasting, yet complementary perspectives on our current situation at the interim meeting of the network on Tuesday, January 24th in Toronto. Helima Croft, Director of Commodities Research at Barclays Capital and Barry Allan, founder of Marret Asset Management, a major Canadian fixed income manager, addressed the gathering of over 40 Canadian pension funds, endowments and family offices.

Croft, a former CIA analyst, focused on the geopolitical dynamics surrounding several of the world’s largest oil exporters: Saudi Arabia, Iran, Nigeria, Libya and Iraq. In Croft’s view of the world, the overthrow or attempted assassination of dictators in Tunisia, Egypt, Libya and Yemen and the protests against leaders in various other Middle Eastern countries represent the culmination of years of social and political pressure. In her view, commodities markets (specifically oil markets) laid the groundwork for a crisis that only political leaders and social institutions can effectively solve.

Allan, the manager of one of Canada’s largest high yield debt funds, pointed to three megatrends that will drive global capital markets in the near term: sovereign debt crises, volatility and high correlations between securities and asset classes. He argued that recent spikes in bond yields in countries like Italy and Spain as a much needed governor on fiscal over-extension. This was in contrast to Croft’s perspective since, in Allan’s view, it was political leaders and social institutions (the EU for example) that laid the groundwork for a crisis that only capital markets could resolve.

In the discussion and debate that followed, participants seemed to agree that the “way out of this mess” lies somewhere in between and that a more intimate knowledge of geopolitics and global capital markets is more important now than ever before. The 2012 Annual Meeting of the Niagara Institutional Dialogue (June 11-13) will focus on exploring some of the complex institutional relationships and capital market dynamics that have led to our current “mess” - but also hint at a roadmap out of it.