What do the 2020s have in store for investors? Big-picture thinker David Dowsett sets out the ten trends he foresees emerging over the next decade, along with their investment implications.
TREND 1: Monetary Debasement
Global quantitative easing (QE) has prevented recession, helped to stabilise the banking sector and alleviated the threat to the euro – but it has also exacerbated inequality.
Excess liquidity has been invested in financial assets and has not trickled down to the real economy. While the S&P 500 index has risen from 1115 to 2900 this decade, half of all Americans would still struggle to raise a USD500 emergency loan.
Financial assets have done well, workers less so.
Additionally, all this monetary firepower has led to anaemic growth and inflation below central-bank targets. When the next recession hits, QE and negative interest rates will likely be an insufficient response.
Debt monetisation could be the next policy initiative. Fiscal expansion, perhaps targeted at certain sectors of the economy, will be financed by central banks printing money.
In my view, this will be very appealing to politicians following such a sustained period of low interest rates. It is easy to envision the political catchphrase: “After quantitative easing for banks, now we have credit easing for the people”.
Of course, this policy is risky and relies on the maintenance of low interest rates across the yield curve. This is why the yield targeting measures undertaken by the Bank of Japan are likely to be only the prototype for further monetary policy experiments.
Debt monetisation is monetary debasement and therefore perhaps the ultimate conclusion of policy experiments since the abandonment of Bretton Woods. Which assets will be safe?
The short answer must, in my view, be to buy those assets which cannot be printed. Commodities and other real assets must be the winners, reversing a decade of underperformance.
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