Ellington

Renee Haugerud is a true forward thinker. She has built her billion-dollar Galtere Ltd., investment advisory firm with a keen eye on the future and the flexibility to adjust to the obstacles and opportunities she detects. With a shaky economy both in the United States and around the world, Haugerud says 2012 could be a pivotal year. While there are going to be some major — and somewhat scary — shifts, she feels there is great potential for people who pay close attention to the economic landscape.

“It doesn’t have to be scary if we adjust our thinking. The way we’ve looked to invest in the past isn’t the way for the future,” says Haugerud, who has lived on Lookout Mountain since 2008 with her husband, John Murphy, a LaGrange, Ga., native and former football player at UTC. “We are having a shift of wealth from developed to developing economies.

That’s a good thing for the world in the long term, but in the short term it can be painful because we will have to moderate our standard of living. It’s not scary if we look at the world dynamically as it’s shifting and at the regime shift as it’s taking place.”

Haugerud cautions that Americans need to adjust their thinking to the idea that their house isn’t going to be their ATM, that housing prices and equity prices may not go up, but everyone’s cost of living may go up. “I think every problem contains the seed of opportunity and I think ultimately these shifts that are taking place are painful but good for the world in general,” she explains. “You want a diverse portfolio because globalization and the interrelationships of all geographies and all asset classes around the world is getting stronger, not weaker.”

For 2012, Haugerud believes we are on the brink of a major change and she says Chattanooga may be a perfect prototype for how cities around the country can get on board with globalization and economic shifts on the world stage. Citing international investments such as Volkswagen, Alstom and Wacker to main street initiatives like electric shuttles, greenspaces and environmental awareness, she says the Scenic City is ahead of the curve moving forward into this new era.

“I think Chattanooga is on the cusp of growth. I think Chattanooga and the state of Tennessee will be the beneficiaries of these changes,” she explains. “I think it’s very interesting that Chattanooga embraced a lot of the big, key things that I do. Chattanooga has embraced all these new concepts in alternative energy and the cultural dynamism and because of that I think Chattanooga is a little bit ahead of other places in that globalization evolution.”

As founder, chief investment officer and managing principal of Galtere Ltd., Haugerud has crafted a cuttingedge global macro focus for looking at how global markets are affected by the psychology and relationships of macroeconomic trends. Her expert view makes her a sought-after speaker and panelist at global investment events, as a guest on CNBC, CNN and the PBS Nightly Business Report, as well as for interviews in Barron’s, eFinancial News, Forbes Magazine, ForbesLife Executive Woman, Time and Trader Monthly. She is profiled in a new book entitled “The Big Win: Legendary Investors and the Secrets to the their Smartest Moves” by Stephen L. Weiss that is set for release this spring.

“Global macro is a form of research that is incumbent upon anyone who invests or trades in anything,” explains Haugerud. “You must understand all asset classes from the top down and also understand the interrelationships of all asset classes in all geographies.

“My goal is to really identify the dynamically shifting global landscape and invest in things that are undervalued in short supply and going up, i.e. real assets, and be underweighted to short on those investments that are overvalued and overweighted and becoming in less demand,” she adds.

Haugerud believes the economy is shifting into a decade or two characterized by inflation in real assets and commodities and disinflation in paper assets. She recommends expanding out of your traditional mutual fund or identifying funds that see the changing landscape of the future, getting into some alternative investments, and divesting a certain amount away from the dollar. “It’s not scary if you’re positioned right, but the way most people are positioned it could be very scary,” she explains.

“Years ago, I came across an anonymous quote about investing that I find particularly insightful: ‘The science of trading ponders the past; the art of trading focuses on the future. Finding good hedge funds requires a reasonable mix of both.’ I believe that any good hedge fund manager, any good investor, must achieve this balance.” Haugerud describes. “Right now I believe it’s important to look to the future in investing rather than the past.” To that end, she says it is really important to now incorporate that art of trading to understand why things may happen differently in the future because the inputs are now different.

“The U.S. is not the world’s largest net creditor like we were in 1984, we’re now the world’s largest net debtor; our population is rapidly aging, and our position as the world’s largest manufacturer is in a declining trend as we lose market share to developing economies; the individual US consumer now spends close to 140% of his or her income, versus emerging economies where the individual consumer is a net saver, only spending 30 to 60 percent of total income.”

And while Haugerud admits there will be some challenging steps on the path ahead, she is clearly excited at the prospect these global shifts can mean for the United States in the long term. “We have a really skilled work force, we’ve got a ton of commodities. If we could forge alliances between North and South America, between young workers, a stable, educated work force, and abundant raw materials we could bring manufacturing back here.”

“Ultimately the short-term pain that we go through, I think the U.S. comes back even stronger, but we have to get our fiscal house in order, we have to put partisan politics aside, and we have to focus on our infrastructure and energy,” she says. “There’s a common phrase that says money is flowing, wealth is shifting from West to East, but wealth is also shifting hugely North to South from northern developed economies to southern commodity-rich economies. Ultimately if that wealth does move from West to East and then from North to South, that path in 20 years brings it right back to our doorstep if we do things right.”

Following the Past Into the Future:

Renee Haugerud’s New Theory of Inverse Stagflation

"If you look at the big picture of history you had the ’50s ’60s and ’70s, which were a real business environment where you borrowed money, you put it to work, you made a margin, you reinvested, you borrowed more, you put it to work because the cost of borrowing capital was less than the margin you made.

And then we ran into stagflation, which was the breakdown of the Philip’s curve or the offset of unemployment and inflation but the results were basically that you had inflation in a stagnant economy.

The very definition of inflation is the price of something in short supply goes up. But what was in short supply? People had borrowed too much money. Baby boomers were just starting their first jobs, they were in hock for college degrees, they bought their first new house or cars, etc. Central banks, the Latin American debt crisis had over-borrowed and corporations had over-borrowed putting money to work for a never-ending economy so interest rates went up.

The peak was 1978 to 1982 and the results of stagflation – commodities went sideways to down.

Stagflation ushered in basically 30 years of paper outperformance with stocks and bonds going up at the same time as productivity gains and globalization came in.

That’s why I’m so excited about 2012. Now 2007 to 2011 is kind of for me the mirror image of 1978 to 1982 and now I think we’re peaking on equity markets and maybe bond markets around the world and now we’ll have sideways moves in equities markets for the next decade or two and how commodities and real assets are going to catch up.

So it’s the reverse, now instead of a stagnant economy we’ll have relative growth. Yes we’re going to have inflation like we did in stagflation, but this time instead of interest rate inflation we’re going to have real asset inflation because now commodities and real assets are pretty much at 20-40-year global lows of supplies with increasing demand and now what are the silos full of? Money.

It’s going to be very difficult for this inflation to translate itself into high interest rates so anyone who tries to sell bonds hedged against inflation is going to get hurt, in my mind. I think we’re going to go to negative real rates because if you target core CPI, core doesn’t include food and energy and if food and energy goes up then your headline inflation might be 4,5,6 percent but your interest rates are going to still stay at 2 to 3.

We have negative real rates on the front end of almost all developed economies right now. Now developing economies still have positive real rates — buy those bonds all day long. For me for 2012, it will be important to remain nimble with respect to equity markets. I think equity markets are probably the most overinvested, overvalued, mismanaged asset class in the world. I’m not saying there’s going to be a panic-driven selloff; rather, there should be more of a sideways market with volatility in both directions. I’m actually looking for one more move up into the beginning of 2012 and after that I just think we’re going to have a lackluster 5-10 years.

Your real value right now is real assets — something tangible. For every buyer you need a seller. There can’t be fraud in commodity markets because a bushel of corn is a bushel of corn, a bushel of beans is a bushel of beans, agriculture land is agriculture land. Buy the real asset itself, something you can own. I think it’s going to be a real asset environment."

Investing in the Future

Growing up in southeast Minnesota in a home that was literally connected to the local jail where her father was the sheriff, Renee Haugerud says she developed an early interest in forecasting.

Her father farmed crops and flew planes, a combination that gave Haugerud an interesting bird’s-eye perspective of agricultural commodities as she took to the skies with her father to check on crops and determine their probable yields.

At the age of 5 she first began to understand the concept of shares while flying above cornfields in Iowa. “It mesmerized me at the time,” Haugerud recalls. “My interest was piqued very early on by supply and demand, and markets and going short and going long. So I kind of had exposure to that at a very early age.”

After getting her start trading cash commodity markets in the United States and Canada for Cargill Inc. and Continental Grain, she held top financial posts throughout the world before founding Galtere, Ltd., in 1997. “There’s a lot of women in the business — in the sales side, in the research side — but very few who have founded their own firm and then trade and are the CIO and portfolio manager too,” Haugerud says.

In an effort to improve that aspect of the financial landscape, Haugerud and her husband, John Murphy, an alumnus of the University of Tennessee at Chattanooga, founded the Galtere Institute – Finance for the Future Initiative at UTC in 2008.

“The Galtere Institute is really a female-centric trading program,” she says. “The goal of this program is really to incubate and to train and educate students in finance, giving them the tools necessary for future investment. At the very least any student who completes our program will have the skills to manage their own portfolio.”

Haugerud explains that a global macro trading program really doesn’t exist in any of the major universities nor does a program that incorporates the psychology of trading in a specific graduate or undergraduate program. “It’s very, very cutting edge,” she says. “I envision everyone from the major investment banks from the Goldamn Sachs, the JP Morgans to the major investment banks around the world to access the graduates of our program for their in-house trading desks, investment desks and their training programs.”

The Galtere Research and Development Center is another forward-thinking investment Haugerud recently established in her native Minnesotsa. The 600-acre center on the Root River grows corn, soybeans and switchgrass, it functions as a disaster recovery center for Galtere’s New York headquarters and serves as a testing ground for alternative energy. Approximately 93 percent of the energy that runs the center can be attributed to alternative energy, including thermal solar, biomass, geothermal and wind energy.

“Fundamental analysis is what drives our portfolio so this is just one aspect of fundamental analysis,” explains Haugerud. “We are hands on in the cornfields measuring the cornstalks, measuring the yield, doing estimates, doing the cost of production ourselves. We have hands on experience with what the cost of growing that crop is, what the opportunities are to sell, what government programs are available. It’s really unique.”