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Has The World Changed? Macro Watchers Still Divided Three Years Later
Macro observers generally fall into two categories in 2023: Those who believe the world changed this decade and those who don't or at least doubt it.
I'm not sure my view can be neatly categorized. I try to avoid being pigeonholed lest I should find myself in a position where I have no plausible claim on being right. Maybe that's cheating. I don't know. And I don't generally care.
If you do think the world changed as a result of the pandemic (and, later, the war), your argument goes something
Our middle class may indeed be “hollowed out” but we ain’t seen nothing yet. We still use 20-25% of all the world’s resources for 4% of the population. Not a fair allocation by any stretch of the imagination. And if you think our suppliers are stingy now, just wait. The commodity markets will provide us with the canary in the mine. We want to imagine that any change to our collective “fortunes” just won’t happen but what we should be figuring out is just what a portfolio for living in a hollowed out country should look like.
Harnett’s descriptions splash some chilling water on the possibilities in the future of markets, institutions and countries. Whether present or past tense, changing or changed, doesn’t matter. He has a point, and he shines useful light on vague questions I have pondered, but without a clear view of what’s coming down the pike. Thanks, Mike Harnett. I take the theme that investing and evaluating investments will only become more complex next year.
I’m at the table, dice in my hand. Honestly, my 2024 bets on innovative battery manufacturing, 5G, and internet advertising are made already. I hope at this point that the US market and the financial well-being of good old American consumers will stabilize by Q2 of 2024. Fingers crossed.
I have no idea if the world has changed or not.
However, I have yet to talk to one single Millenial or Gen Z person who thinks investing in USTs is a better idea than investing in equities. **
H said in another post that the last time mortgage interest rates were over 7%, those trying to purchase homes today were 9 years old, therefore, a 7 handle seems ridiculous to them!
In a similar way, since Millennials were 9 (about 20 years ago- or 2003), SPY has returned over 10% annually and produced 7.5% real returns (in excess of inflation). Equities beat the pants off of US treasuries/ bonds over this same time period. Therefore, over the next 15-20 years as the Boomers pass down $75T of wealth (which Boomers might have invested in the 60/40 framework), their kids are more likely to invest much more heavily in equities and not follow the 60/40 guidance that their Boomer parents believed in.
** the sample is not statistically valid!
I bought a house once when the rate was 11%. That was after the rates came down from a greater height. I refinanced 18 months later when the rate dropped to 6.375%. My wife and I were ecstatic at the time.
One other thought to share… I’m not a bond guy either. I invest in equities. But I feel the air needs to clear before questions about the quality and strength of the US economy are settled. I have a sense of foreboding that changes in dynamics are coming this decade. US markets have enjoyed free-wheeling money flow for a long time. I’ve been amazed at how long it has lasted and that so much money could continue being invested to sustain such a strong US market for so long. But change happens. It just does.
For instance, the climate is changing. For this matter, the question is not just what do we want. It’s actually a question of what actually can help? For instance, commodities like Cobalt, Aluminum, Iron-Ore, Lithium, Nickel, Uranium, and Copper all can play a role in realizing the benefits and values of renewable energy, which is going to be very expensive, and it will help the environment. It may even be a decent investment, though it’s not my bailiwick. But the truth is, the money invested in extracting these commodities will only make a small dent in the impact of climate change. So climate change will not be arrested and controlled. Addressing climate change will be very expensive. Climate change will persist. The climate will not be “normal.” Commodities will deplete. And you’ll have a mess of radioactive material to house.
Today, thorium nuclear power, which provides much more positive impact for dealing with climate change is the best thing for solving the problem of the climate. It’s quite different from traditional nuclear power, which remains dangerous to humans for 10,000 years. Thorium can be stored more safely and continues to be radioactive for 300 years, which is only 3% of the time needed before traditional nuclear power generation materials become safe. The Chinese are investing in thorium. The US ought to as well.