When noted investors Margie Patel and Mark Yusko sat down to discuss their outlook for the U.S. and global markets at the annual Financial Advisor Retirement Symposium held this week in Las Vegas, the two agreed to disagree. Actually, they just disagreed.

Patel, managing director and senior portfolio manager with Wells Capital Management’s Fundamental Equity Group, believes the commodities boom is over, the emerging markets story is played out and the U.S. will be the best market to invest in for the foreseeable future.

Yusko, CEO and chief investment officer at Morgan Creek Capital Management, holds that certain commodities (oil and agriculture, for example) will continue to be a bonanza, that emerging markets are where the action will be and that the U.S. will be a hard place to make money going forward.

It all made for a lively discussion at the conference, which was attended by more than 500 people. Below is a summary of their main points:

U.S. Is Best

Patel said she strongly believes the commodities bull market is done, and that spells trouble for emerging markets. “The emerging markets had a decade of strong growth, but what caused that was a boom in commodities prices tied to China’s growth,” she said, adding that China’s decelerating economy has drained the fuel from the commodities engine.

“By looking back we can see that what we thought was fundamental change [in emerging markets] was really more about China becoming more industrialized and causing a commodities boom,” Patel said. “That’s why I think we’ll see commodities prices decline, and why I think inflation won’t be an issue for many years. That’ll be a boon to U.S. companies and consumers.”

A strong U.S. corporate sector is another reason why Patel favors the U.S. economy.

“One of the reasons why I think growth and the equity markets will be very good [in the U.S.] is because I think we’ll see profit margins maintained at current high levels,” she said. “These margins derived from cost cutting and technical innovation, along with outsourcing of low-valuation fixed costs.”

And she believes the shale gas and oil boom will provide a fundamental, long-term boost to the U.S. economy by lowering the cost of doing business and lowering costs for consumers.

Within U.S. markets, Patel said she favors equities over fixed income. “I have three blend portfolios of fixed income and equities, and I’m near the low range in bonds because the absolute yield is low, prices are high and you’re very dependent on capital appreciation if interest rates go lower, and I don’t think that’s likely,” she said.

Add it up, and Patel concludes that U.S. economic growth is sustainable, and equities should benefit as a result. “Maybe absolute returns in the U.S over the next two to five years might be lower than what we’d like, but it will beat bonds and inflation, which I think will continue to be very low for the foreseeable future” she said.

Forget The U.S. And Look Overseas

“It doesn’t matter if stocks beat bonds, because if bonds don’t make much return, than beating them isn’t that great,” Yusko countered. “That’s this whole relative game. People call it TINA, or there is no alternative—stocks are good because bonds stink. That doesn’t work.

“Do we want to invest in a place with little growth and lots of debt, or do we want to invest in a place with lots of growth and less debt?”

Yusko believes the U.S. is in a secular decline as greater numbers of baby boomers retire, entitlement programs grow and U.S. debt increases to pay for those entitlements. “We can’t pay for these benefits, so our debt-to-GDP will keep going up. With a lot of debt you get low economic growth, and there’s no way out. Except through war.”

He called last year’s return on U.S. equities a “mirage.” “Companies took advantage of low interest rates to issue debt so they could buy back their stock. Their earnings didn’t change, but their earnings per share went up and people thought, ‘Oh, they must be worth more.’ But no one counted the number of shares to see that they really didn’t make more money. And that will reverse at some point when companies have to start paying off that debt or if they go bankrupt.”

That said, Yusko said there are pockets of opportunity in the U.S. “There are some great businesses in America like Google and Priceline that are leaders in their fields that you want to own,” he said.

But all in all, Yusko would rather invest elsewhere. For starters, he likes Japan. Hates the demographics of its aging population, but loves that Japanese stocks are dirt cheap.

“Japanese equities will do two to three times more than what U.S. equities will do over the next decade because you’re buying Japanese stocks at the lowest margins since 1969 and at trough multiples,” he said. “They’re the cheapest assets in the world’s developed markets versus buying U.S. equities at high multiples and margins,” he said

“U.S. equities won’t be terrible, but will likely be in the low-single digits. International markets—particularly Europe [he favors Italy and Spain and disfavors France and Germany]—will do much better because they’ve already had their collapse. Japan will do best in the developed world.”

Over the long haul, Yusko smells the biggest opportunity in emerging markets. Despite the fact some countries and specific facets of the emerging markets story have stumbled of late, he believes the collective group has been unfairly—and inaccurately—tainted. 

He pointed to the so-called “Fragile Five”—Brazil, India, Indonesia, Turkey and South Africa—that investors punished over fears they would get creamed when the Federal Reserve started easing up on its economic stimulus program and interest rates rose as a result.

“These countries are up 20 percent on average so far in 2014,” Yusko said.

And even though the Chinese equity market has been desultory for the past year or so, Yusko says the country’s growth story remains intact if you know where to go. “The basket of Chinese companies we own are focused on Internet, retail, consumer-oriented and health care companies, and are up 80 percent in the past 12 months.”

The expanding middle class in the emerging markets will provide an incredible windfall to invest in consumer-oriented areas, he said.

Among emerging markets, Yusko is particularly keen on Africa because of what he says are its favorable demographics.

And among asset classes, he said investors could benefit by adding an illiquidity premium to their portfolios.

“You want to buy things that have illiquidity like farmland, real estate, businesses that have cash flows, private equity, and business development companies that make private loans and where you can make 11 percent versus 1 percent for U.S. bonds,” Yusko said.

Currencies
Another area that Patel and Yusko disagreed about pertained to currencies. Given Patel's view that the commodities supercycle is over, she maintains that currencies of commodities-based countries will depreciate against the dollar—providing another headwind to investing in those economies.

Yusko posits the U.S. dollar will be weaker going forward because the currency will need to depreciate to keep up with the nation’s burgeoning debt.

“Time will tell,” Patel said. And time will tell which of these two divergent viewpoints on global investing will win out.