Others on the panel agreed that credit products would probably outperform equities this year. Ian Harwood, global head of economics and strategy at Dresdner Kleinwort Wasserstein, said that he views the US stock market as overvalued. "While tax cuts during 1998 improved consumer confidence and bolstered Nasdaq," said Harwood, "the two interest rate cuts by the Federal Reserve this year have failed to produce the same result."
Elga Bartsch, senior European economist at Morgan Stanley Dean Witter, said that she expects European equities to fall 10%-15% in the first half of the year, before rebounding in the second half. In what Bartsch called a difficult time for equity markets, fixed income products could be "the bridge through to the other side".
David Miles, professor of finance, Imperial College, University of London, said that inflation, which he described as "the real killer", was "dormant almost everywhere", creating an "extremely favourable world environment for bonds".
But others, such as César Molinas, chief European debt strategist at Merrill Lynch, said that investors will look to the stock markets as an alternative source of investment now that government debt levels have fallen.
Reduced government borrowing has created a shortage of government debt, with long duration assets particularly rare. One panellist suggested that the only bond market alternative for buyers of 30 year government paper would be corporate issuance.
However, there was also the warning of a potential conflict between fiscal austerity and tax cuts that might cause government deficits to edge higher.