We were told to expect his movie star looks and a penchant for lower interest rates for longer, but I donât remember anyone predicting the Bank of England governor Mark Carney would be such an optimist.
Admittedly, it wouldnât be hard to be sunnier than Mervyn King, his predecessor. King now sports the colourful title of âBaron King of Lothburyâ after he was ennobled in summer for his services to the public, which included â in Kingâs own words â preventing âa Great Depressionâ. In the years that followed, he rarely stopped warning that banks were a threat to financial stability. And in summer 2012 he told MPs the financial crisis was not yet half done.
Some would say he had a point, but you wouldnât invite him out for a jolly night out on the town.
The best is yet to come
What a difference a Canadian makes. A couple of weeks ago Carney told incredulous reporters that, when it came to the UK economy, âfor the first time in a long time, you donât have to be an optimist to see the glass as half fullâ.
And now heâs revealed he *is* an optimist anyway, telling an audience in New York that people predicting permanently crippled Western economies would slide into a sluggish senescence were looking backwards, not forwards.
âIt seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled,â he said, calling die-hard doom-mongers âthe ghost of Christmas pastâ.
Carney disputes that either capitalism or innovation and scientific progress is on its last legs. Referring to Twitter, he said, âIt seems unlikely that communicating in 140 characters â useful discipline though it is â represents the apex of human progress.â
The new normal â extraordinary gains?
I agree with the Bank of England boss. Some gloomy economists who warned us a few years ago that 2-3% a year from equities was about the best we could hope for over the next couple of decades are still doing it today. The cheek!
The best of the global markets, such as the US, have more than doubled since the height of the bearsâ wailing. Such rampant growth means markets will almost certainly deliver slimmer gains from here, but thatâs because weâve already had the equivalent of several decades of 2-3% returns in barely 60 months.
However, a few sectors havenât really joined the party, especially mining, materials, and oil and gas.
What these have in common is they are tied to global growth, and worries that this is set to slow, especially with the US central bank looking to reverse its easy money policies.
But what if Carney is right? If the doomsters are guilty of getting too pessimistic on the back of the financial crisis, then it could be wrong to bet against global growth plays like these.
The governor with flair should take a trip to Rio
Prior to the financial crisis global growth surpassed 5% in real terms, as countries like China, Brazil and India raced to catch up with the West.
Itâs true that growth has been lower since then, but it still likely surpassed 3% in real terms this year. If the global economy is set to develop a head of steam, then now could be the ideal time to hunt among the shares hit most severely by fears of a slowing world.
I suggest Mark Carney takes a look at Rio Tinto (LSE: RIO) (NYSE: RIO.US) to put his money where his mouth is.
Itâs hard to think of many companies that will prosper or flounder along with the global economy as much as this ÂŁ46bn integrated mining giant.
Digging into global mining stocks
Rioâs shares are down 7% so far this year, against a UK market thatâs up 13%. Not pretty if youâve been loyally holding, but perhaps a cue for contrarian-minded investors who follow Mark Carneyâs logic to look again at the shares.
The miner doesnât seem too pricey — itâs on a forward P/E ratio of 8.5, yet its earnings are forecast to grow at nearly 20%. If that growth comes through for a year or two, the shares are likely a bargain.
Of course, investors might be right to have their doubts. Besides residual pessimism â those ghosts of Christmas past â investors are concerned big miners spent too much during the good times. Not only did their grand projects consume valuable cash (which might have been used for dividends, buy back shares, or paying down debt) but it also increased supply. If demand doesnât bounce back due to stronger global growth, then there could be too much copper, iron ore, and other materials on the market. Hardly the stuff of great margins!
If Mr Carney is right though and humanity recovers its drive to spread prosperity more widely, Rio Tinto should do very well. No doubt Carney is logging into his online broking account even as we speak.
