Benjamin Melman arrived at the investment management fund Edmon de Rothschild, by way of Credit Lyonnais, in 2009 to direct its Absolute Return department. The timing was precarious and the mission was arduous. Known for his high-strung and expressive disposition, Melman remains confident in the United States recovery, speaks openly about the future of his birth country France and what lies ahead for Spain and Italy.
elEconomista: After risk premiums surged last week, would you invest in Spanish or Italian bonds?
Melman: The Italian bond rally was impressive, and any good news is now discounted from Spain's point of view. Spain has benefited from various reforms carried out during last year, but this year that is not the case. Buying Spanish and Italian bonds is not a wise move right now. In fact, the market is focusing its attention on the credibility of complex fiscal policies caused by local politics and a the second national recession in three years.
elEconomista: Rajoy's government just rolled out the tightest national budget since the inception of democracy in Spain. Is austerity the right path?
Melman: Spain is doing what it must, as usual. Still, the fiscal adjustments planned for the next two years will be strict. The private sector will be trying to rebuild its savings. But unless balance sheets on both private and public sides improve, it will be difficult for both sectors to save simultaneously. Therefore, there is some risk that the recession in Spain will worsen, which could endanger its economy's ability to practice true austerity.
Spain and Italy are problems we know about. What worries me more, because it is not yet on the international stage, is France. The biggest problem in France, according to economic data, is that the country is the last real estate bubble in Europe that has yet to burst.
elEconomista: What's your view on the US stock market?
Melman: United States fixed income is not overvalued in absolute terms, even if it may be overvalued in relative terms. We like US stocks and will continue to bet on them as a strong tactical move. And we are still long on American dollars. We think that 2012 will be a big year for the dollar for several reasons. First, The European crisis, as we all know, has not ended. The euro at 1.3 on the dollar is rather expensive compared to other foreign currencies in our area of the world, especially taking into account that it could end up around 1.5 dollars/euro instead of 1.3.
