Benedicte Gravrand, Opalesque London: This the second part of our Culross interview. See yesterday’s article “Culross’ FoHFs manager Blanshard forecasts ‘very severe’ GDP slowdown” here.

Nigel Blanshard listed “three outstanding investment opportunities,” going forward.

(1) Bonds and credit, for the spread “The very best scenario for investors would be if these credit spreads pushed out further and then stayed there,” Blanshard said.

Culross’ managers think that the inflection point will have come when bonds become attractive to the unleveraged buyer and that the opportunities are global. They are looking at seniority, possibly convertibles, going long and short (with flexibility and trading ability). They believe that, now, there is a huge opportunity that could extend for quite a while with big spreads, lots of confusion and lots of supply. Auto-loans and credit card receivables are deemed toxic, but the mortgage market is now throwing up long opportunities.

“There are ABX tranches segments that are trading near to nothing because the presumption is that there will be no coupon paid – whereas one just needs one coupon payment to get one’s money back, and another to double one’s money,” Blanshard noted.

The things to consider are: leading and lagging segments; the prospective returns from collateral recovery, and the liquidity of the collateral.

(2) ‘Despised’ equities, for the cash flow If equities survive, they could end up being the very best investment opportunity, ever. Culross considers it a stock picking story, not an index story.

“So if anyone thinks hedge funds are over,” he said, “they’re nuts.”

It is really a question of which hedge fund is going to be there to give this service. Among other opportunities are directionality (although this may take years), value investing and plenty of shorting.

(3) Inflation or deflation on asset portfolios and currencies The government bailouts of the banking system effectively socialise the ocean of consumer debt, and government debt liabilities are exploding.

“Now Gordon Brown, the UK prime minister, is saying we’re going to go on a Keynesian spend… but with what?” he exclaimed.

Crowding out is likely and inflation is possibly one of the outcomes. More than 15 countries have index linked-government bonds so there are plenty of opportunities in that area.

As for currencies, one must look at the too-big-to-fail banking sector, as a percentage of GDP, and factor in which of those countries have huge external debt in foreign-currency denomination as they might be at risk of currency raid by people who feel that that country is no longer a reliable proposition. For example, compare the major banks’ assets as a percentage of their national GDP last year: in the US, it was 52%, in Russia, 15%, and in Iceland, 1401%.

Looking back and forward Blanshard thinks that people won’t go back and buy equities, so equities will remain despised, overlooked and “terribly attractive”. People looking back at the last 20 years will say the best performer was real estate, followed by bonds, cash, and equities. In the next 10 years, most will stick to real estate.

“But because real estate will not be de-rated enough, whereas equities will have been savagely......................