How will the current crisis end?

Dubai: "Nobody knows nuffing," says Kevin Hinton, paraphrasing the septuagenarian head of Jupiter Asset Management. The occasion? Hinton is opening the London Think Tank, sponsored by RMB Asset Management.

As a manager of managers across the full range of asset classes, surely he would have some focus on what has just happened to our world? Condensing truckloads of information into crystal clear thought is awkward. Still, here are my top two inputs.

First the backdrop: "Unprecedented," says Glyn Owens. When a leading City player sounds rattled, fear spreads. Owen has been a mentor for some time. That type of role eases your thinking into the future a little more easily.

"Unprecedented" means we have no frame of reference. The bottomline, as Owen says, is: The banking system was on the verge of collapse.

Banking isn't like other sectors. It is the lifeblood of the economy. Small and medium enterprises, and individual households, are reliant on banks. The lack of a banking system means no money transmission, no means of exchange. It means barter. Now add in a second negative trend: Global recession.

"It's not a normal crisis," says Edward Bonham Carter (Jupiter). For him, "normal" means that economic events lead to a financial crisis. Normal is when Main Street drags down Wall Street; not when Wall Street jolts Main Street. The confluence of the banking crisis and an inevitable recession has all the impact of an end-of-the-world scenario.

So, to the top snippets.

Snippet one

It's not the end of the world as far as banking is concerned, but it was close. Don't move to the Hatta caves yet. Banking will survive.

Tim Bond (Barclays Capital) explored IMF research showing 41 banking crises since 1970. He makes the observation that maybe only 11 of them have comparison value, of which the best example is the crisis in Sweden between 1990 and 1993.

The worst comparison history offers is the Great Depression. "We are no-where near that," says Bond, making the point that government intervention has been positive on this occasion whereas earlier, policy dogma contributed to a scenario where the US GDP halved, government expenditure stopped and exports shrank.

Bond puts the current crisis as an "average shrinking" of GDP when compared to the 11 earlier instances.

As far as the current crisis is concerned, Bond believes "we are over the worst point of the banking crisis, but only just entering the worst part of the economic crisis".

That's a harrowing thought when you consider that most Americans (and by extension global investors) have already lost 40 per cent plus of their wealth.

But Bond is bullish about the future. "We must be somewhere near the bottom," he says, alluding to the capital markets.

Conclusion: History suggests that sometime in the near future we will see an asset price recovery.

"Equity markets were fairly valued, and de-rating can be put down to the credit crunch and inflationary fears," says Bond.

Snippet two

How long will the recovery take? "We make the heroic assumption that the government has solved the credit crunch," says Owen. The problem is "you have to bet on a deep and painful recession. The recovery requires some element of patience. There is a huge amount of de-leveraging going on. Hedge funds may enter into a strong round of de-leveraging as will many households with high credit and mortgage debt. While asset prices are looking cheap, the recovery process requires time," he says.

It's a sentiment that prompts Bonham Carter to give two pieces of advice: Don't sell now - it's too late. This is a great time to be averaging into investment."

Bonham Carter sees the US "taking the lead" in recovery. The US remains the world's biggest market and has the largest GDP.

The US may have gotten us into this mess, but there is some confidence in the US pulling the world into recovery. Eventually.

The bottomline is that yes, it will happen, but nobody is keen to guess.

Bonham Carter gets close with a caveat: "My mental map will change when the facts change." His current mental map sees the classic "V-shape recovery" as highly improbable. Don't expect it soon - hence the averaging. The Japanese "L- shaped" index, while carrying a deflationary risk, is also "less likely". This leaves a "U-shaped recovery" as most likely, "with plenty of tapering" at the end of the U", says Bonhan Carter.

The writer is chairman of Mondial Financial Partners LLC.