Watch this recap video of the 2010 Annual Conference, which includes perspectives from members in attendance at the Boston event from 16-19 May 2010.

Antoine Van Agtmael, director of Emerging Markets Management and Strategic Investment Group, and a 2010 Annual Conference speaker, discusses China and the outlook for emerging markets in Eastern Europe. The interview was taped from the Annual Conference in Boston.

The Harvard professor and 2010 Annual Conference speaker delves into the alternatives for investors seeking a hedge against uncertainty but who don't want to "join the gold rush." 

Jack Bogle talked financial reform and investor protection in an 18 May interview with Bloomberg TV live from the CFA Institute 2010 Annual Conference. Here's the clip:

Nomura Research Institute Chief Economist Richard Koo was interviewed yesterday by Bloomberg TV live from the CFA Institute 2010 Annual Conference. Watch the clip:

Yesterday, Grail Partner's Donald Putnam was interviewed live from the CFA Institute 2010 Annual Conference about the evolution of the asset management industry. Watch the clip:

Niall Ferguson was the final presenter at the CFA Institute 2010 Annual Conference and delivered a sobering message about debt levels in the U.S. and possible outcomes for the future.

Dr. Ferguson eased attendees into his presentation, noting that sovereign debt crises are nothing new. In fact, they have been a phenomenon for as long as the debt markets have existed. While there have been “serial defaulters” throughout history (Greece is near the top of the list), defaulting has not been limited to just Southern Europe, Latin America and the Middle East. There are several occasions throughout history when established, wealthier nations have defaulted.

Niall Ferguson wanted to use the title “Pigs ‘R Us” for one of his recent columns in the Financial Times, but he said that his editor wouldn't agree to it. Nonetheless, it is a very apt title considering the U.S. and the UK’s debt position relative to Portugal, Ireland, Greece and Spain. In a steady state, the UK and U.S. debt levels as a percent of GDP will far outstrip those of the “PIGS."

Since the early 90s, tax revenue in the U.S. has not kept pace with spending, which has put the nation in a challenging position of having to borrow the difference. The U.S. is getting to the very scary tipping point of where interest payments needed to service the current debt may soon eclipse the amount of money spent on defense. What makes the U.S. debt burden even more challenging is that there are many foreign debt holders.

Theoretically, there are six ways a country can reduce debt: with a higher growth rate of GDP; a lower interest rate on public debt; a bailout; fiscal discipline; inflation; or default. The first three options are the most appealing, but not feasible, in Dr. Ferguson’s opinion. High debt burdens slow GDP. Lowering interest rates cannot happen because higher debt ratios warrant higher interest rates. The U.S. is too big for a bailout, so that leaves three options – and none of them are particularly popular or pleasant.

Applying fiscal discipline is a very difficult political challenge and by Dr. Ferguson’s estimate, the U.S. would need to reduce its spending by 12.8% of GDP, which is nearly impossible. By his account, only one country was able to apply fiscal discipline to reduce debt and that was the U.K. in the Industrial Revolution. In an era of short-term borrowing, nominal rates can rise ahead of inflation, thereby keeping real rates high and preventing inflation from minimizing debt burdens.

The only remaining item on the list is default. Dr. Ferguson pointed out that there are several avenues that governments tend to pursue with enormous debt burdens:

• Oblige central and commercial banks to hold the debt
• Restrict overseas investments
• Default on politically weak nations

Niall Ferguson ended his talk where he began it: with the intimidating notion that things are O.K. until they are not.

By Steve Horan, CFA

In many ways, moderating a panel discussion on curing the ills facing the financial industry with two industry icons — Vanguard founder and former CEO Jack Bogle and Davis Funds' Christopher Davis — seems like easy work. Ask a question and let the icons do the rest. But moderator Norton Reamer, CFA, did have one challenge managing this panel discussion: finding topics on which these two great minds didn’t have powerful insights.

To be sure, Bogle and Davis agreed on much. If there was an underlying theme to the eclectic mix of questions, it was that fundamental analysis in the spirit of Graham and Dodd is the key to moving forward. Some additional highlights:

• Bogle cited a long-term trend away from stock-picking and toward asset allocation. Davis argued that the Enron and other similar corporate failures represent, in reality, our industry’s failure to have detected them sooner using the information at hand.
• Both agreed that as short-term speculation replaces long-term fundamental analysis, investor demand for strong corporate governance wanes.
• Market forces would force the mutual fund industry to change if investors could stop the folly of performance chasing, obviating the need for regulatory intervention.
• Both agreed that the track record of regulatory effectiveness is discouraging. Case in point: the sole mission of the Office of Federal Housing Oversight was to oversee the risks that Fannie and Freddie were assuming.
• A shift away from privately held financial institutions has created asymmetric incentives that discourage long-term fundamental analysis. Under public ownership, managers walk away from corporate failures with large amounts of capital. Under private ownership, partners’ capital is wiped out and incentives are better aligned.

Bogle and Davis have shown us, once again, that a reliance on economic fundamentals — and an understanding of them — is the key to finding the way forward.

Carbon emissions were not even on the radar of investment managers five years ago, but yesterday a packed room at the CFA Institute Annual Conference was present as MIT’s John Parsons discussed the topic in his presentation entitled "Carbon Exposure and Strategic Opportunities in Energy Markets." The senior lecturer at the Sloan School of Management provided a review of current regulatory issues on greenhouse gas emissions, including the failed talks in Copenhagen, as well as a review of the Kyoto protocol that was previously adopted by the EU but noticeably avoided by the U.S.

Given the uncertainties in climate science, some say that it is hard to tell if human activity really has had an impact. Nonetheless, the European Union Emissions Trading System has been approved by all 27 EU countries and is by far the largest currently operating emissions market. The U.S. Congress will soon be considering the Kerry-Lieberman bill, which is more comprehensive than the EU version as it includes liquid fuels and home heating (but still not agriculture). Additional subjects covered in the session included cap-and-trade, offsets, carbon taxes, land-use regulations and energy efficiency incentives.

Parsons also noted that individual companies are beginning to get their arms around how to deal with emission issues. (In the U.S., he said, Exelon is particularly well positioned while Southern Companies is not.) Questions on nuclear power and wood burning emissions were addressed in the session as well as concerns on cooperation and how disparate international regulatory systems could be linked up.