A speaker at the 11th International Conference on Hedge Fund Investments has told delegates that he expected a recession within the next 18 months.

John Mauldin, president of Millennium Wave Investments, was one of four managers and analysts talking part in Tuesday's panel presentation titled 'If I Really Knew What Was Going to Happen in the Markets in 2005, Do You Think I'd Be Here Making a Presentation'.

Beyond basing his prediction on slowing consumer spending and a lack of new stimulus for the economy, Mr. Mauldin said: "Furthermore, there is always another recession. We haven't hit the reset button on a lot of our excesses. I could be wrong, but 18 months is about 4-5 years from the onset of the last and that is more typical. The 90s was not a period that was typical in terms of frequency of recessions. Maybe we're in a brave new world but I'd be afraid to make that bet. I think we will go back to the old world that we knew."

Mr. Maudlin says that the Fed may continue to raise rates to get a little "buffer" inflation ahead of the recession. If however a recession arrives early and interest rates fall to zero without the economy starting to recover, Federal Reserve Governor Ben Bernanke and his colleagues have discussed possible actions in 'Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment'.

In the paper, the authors suggest attempting to "jaw-bone" rates down.

"Mr Bernanke said we can talk the markets down," Mr. Maudlin said.

"Look at how successful we were the last time, what if we were successful again? Mr. Bernanke thinks it is a high probability because he shows how the markets respond to Fed talk. It's reasonable except that this time the market may call their bluff. What if the markets call their bluff?"

The same 113 page paper addresses this scenario with a Fed discussion on offering to buy the ten-year treasury at a fixed rate for a set period of time.

Mr. Maudlin told conference delegates that pressure on the dollar would be huge in the scenario, but the end result might be stagflation.

He said: "Historians 50 years from now will look back and say this was their finest hour. They kept the world out of a worldwide depression and they got back to something they can then manage. They know what to do with stagflation and they'll muddle along and we'll get through the problem of coming off a couple of the biggest bubbles in history, which is amazing."

Panellist David Tice told delegates that his company, David W. Tice & Associates LLC, believed that the case still exists for lower stock prices and a continuing falling dollar while gold and commodity prices will continue to rise.

"This is a secular bear market that is going to last a long time," he said. "We are hoping it is back to the gravy train but we don't think that it is. Debt levels are still outrageous. They stimulated consumer spending and that is what has maintained our economic growth. Ever increasing borrowing from foreigners is really the key to our economy today.

Unfortunately we have a dysfunctional global system where the rest of the world works hard, produces, saves money, sends goods to the US and we do the rest of the world a favour and consume and send them paper in return. That is what is causing massive deficits."

Mr. Tice says these deficits will continue to increase because foreigners are continuing to hold all the paper. He compared today's situation to the United States in the 1920s and Japan in the 1980s when both had low inflation and interest rates, strong growth in stock and real estate prices. Both also ended in very bad economies.

Mr. Tice said that because there is a serious threat to the US dollar his company has started a natural resources fund and a precious metals fund.

"We've resorted to what we call rolling bubbles in order to perpetuate the overall economy because constraints are now exchange rates, current account deficits, possible inflation and credit quality. The economy hasn't yet crashed due to reckless mortgage growth that has been perpetuating the real estate bubble, but the problem is its requiring more and more debt."

Mr. Tice told delegates to protect themselves with gold and lower exposure to equities.

Steve Katznelson, investment manager for the Radcliffe Funds, has been trading convertibles since 1987. He told delegates that he was still enthusiastic about convertible arbitrage.

"The reason is that despite the fact that they are fully valued the is an enormous amount of mispricing and inefficiencies that still exist," he said.

Peter Matthews of Optimation Investment Management LLC told delegates that in the face of an uncertain future the only way he could manage risk was by trading options.

"It is the only place where I can put out a trade and know absolutely what my risk is. Even though it seems trite, people say an option is nice because you can never lose more than your investment," he said. "It is all you can do in the face of an unknown future so what that means is I have to construct strategies so that in every single trade I put up, it absolutely fits risk regardless of what the market does. If it does what David or John predicts, I do not lose more than half a percent on that trade no matter what happens."

Mr. Matthews also questioned why market pricing is cheaper now.

"When I look at the world today I see low volatility, I see the world pricing future uncertainty much lower than they did a year ago. I see the Feds at an eight-year low, treasury options extremely low, currency options low, commodity options really cheap. Why is it people are more or less uncertain about our future today than they were a year ago?" he asked.

In his opinion people in general are pricing options much too low.

He said: "I don't know whether bonds are going up or down, I don't know whether stocks are going up or down. I don't know what is going to happen to the dollar. I know nothing about those assets. I give you no insight into where they are going in the next year, but I think it is extraordinarily likely that the people who are now selling options are going to regret it."