Aronstein implements the strategies, deciding how much to invest in a particular stock and when to exit the trades. Shaoul manages the 20-person staff, writes daily market commentary for clients and courts potential investors.
“It’s my job to help him come up with big-picture ideas,” said Shaoul. “It’s his job to ignore me if he thinks it’s wrong. We have a lot of trust in each other.”
The arrangement results in “one of the great one-two intellectual give-and-takes that I’ve seen,” George Wolfson, chief fixed-income strategist at SYM Financial Advisors, which oversees $1.2 billion and has invested in Marketfield since 2008, said in an interview May 16. “We don’t always agree with what they do, but we respect it, and the performance is there to justify it.”
Shaoul and Aronstein started betting against stocks of the largest developing countries, including Brazil, China and India, via ETFs in July 2011.
‘First Wave’
The nations are reaching a point where too much borrowing by companies and households throttles economies, just as in Japan during the late 1980s and in the U.S. in 2006, Shaoul said. As housing prices and wages increase, central banks will eventually choke off credit.
“We are in the midst of the first wave, in which China, India and Brazil lead the way down,” said Shaoul.
Brazil’s Ibovespa stock benchmark has lost 26 percent since the end of 2010, the MSCI China Index fell 13 percent and India’s S&P BSE Sensex dropped 4.7 percent. The S&P 500 surged 31 percent during the same period.
China’s total credit, including items off bank balance sheets, climbed to about 190 percent of the economy by the end of 2012, from 124 percent in 2008, according to Fitch Ratings Ltd. That was faster lending growth than in Japan during the late 1980s that foreshadowed two decades of deflation, and in the U.S. before the financial crisis of 2008, according to Royal Bank of Scotland Group Plc.
Early Mistakes