Co-CIO Interview: Whitney George on Japan, Energy and Technology

Whitney George

What long-term effects do you think may result from the recent Japanese disasters, both on the Asian markets in particular and the global markets as a whole?

After a lost 20 years for Japanese stocks—the Nikkei bubble burst in 1989—we are starting to see some compelling valuations in the Japanese market, particularly in smaller stocks. The recent tragic events have brought even closer scrutiny to Japanese stocks from people who have been looking for investment opportunities throughout the globe, but for one reason or another, Japan had not been at the top of their list. For example, I think that some investors are interested in what should be considerable long-term reconstruction opportunities in Japan.

The nuclear issue is clearly going to have global reverberations. It raises questions about what kind of power we rely on and how much risk people are prepared to accept from an energy source that, prior to the earthquakes, was largely viewed as both efficient and inexpensive. Just as last year's BP disaster brought a new focus on safety as a priority over cost, the experience of Japan is going to make safety an even more important factor when one thinks about energy sources. I think here in the U.S., natural gas, which is currently priced very low relative to oil, should be a beneficiary in both the short and long term.

With oil prices rising, do you expect natural gas to follow suit?

I think it's only a matter of time before natural gas prices begin to rise. In addition to its ability to fill the void left by Japan's nuclear power plant problems, natural gas remains inexpensive and abundant here in the U.S. We also have the ability to export liquefied natural gas, which could help Japan a great deal. And with the greater emphasis on safety and other environmental concerns, natural gas looks cheaper, safer and more efficient. Our own exposure to energy is heavier in natural gas than it is in oil.

How concerned are you about inflation right now and what effect is it having on your investment decisions?

I would say that I'm no more concerned now than I was five years ago, and I was pretty concerned five years ago. The government's response to alarming deficits has generally been to print more money. That has been the policy not just here in the U.S., but all over the developed world, and no government can continue to print money without creating price distortions. My belief is that inflation is like a disease on which governments should practice more preventive medicine, while many central banks in the developed world seem to view inflation as a symptom that only needs treating once it's already broken out. It's true that sometimes the symptoms feel good. After the Asian currency crisis in 1998, inflation showed up in the prices of technology stocks, then it moved to real estate. Now it's showing up in food and energy prices, and those symptoms don't feel good to anyone. These concerns led me to a number of investments in hard asset-based stocks, including energy companies and precious metals and mining stocks.

What are your thoughts on technology companies, particularly with small-cap technology stocks enjoying a strong start in 2011?

I see no reason why the strong start would slow down. Looking around at the number of new products and new industries that are on the rise, including the iPad and other tablets, flash memory, and new labor- and energy-saving devices and applications, I see a very compelling case for technology stocks to remain among the market's strongest performers. There is also the importance of LED lighting and solar power that have not yet really attracted investors, but they will in the next few years. Finally, the sale of consumer technology products to the developing world is a potentially huge boost for technology companies that I think is being under-rated in the market right now. So we feel very good about our investments in a variety of technology industries.