Wealth Management: Market Perspective – Longer-term uncertainties

Kevin Gardiner, Global Investment Strategist, Wealth Management

“Supposing a tree fell down, Pooh, when we were underneath it?”

“Supposing it didn't”, said Pooh after careful thought.

- A. A. Milne

Contagion and isolation, recession, disrupted working and spending patterns - and the possibility of a second wave, and/or the arrival of a new virus. Doesn't this “change everything”?

Fellow panellists in a recent discussion suggested, among other things, that Western leaders will be dumped; China and Russia will become more powerful; globalisation is done for; inequality and low pay will no longer be tolerated; Brexit won't be completed; and we will all be nicer to each other.

We would keep Big Picture analyses at arm's length. We would also avoid the blame game: government is not easy, and sometimes the only choice is between two bad outcomes. Capital markets don't consider fault.

The longer-term outlook may not change much. My suggestion on that panel was that we will again prosper, but also that people will think and say we aren't.

The world is not necessarily any more dangerous. The arrival of the first pandemic since 2009, horrible though it is, does not reverse the longterm trend towards improved health and safety.

Another common view is that this is a crisis of capitalism. It is certainly a crisis in a capitalist context - more of the world is capitalist these days. But does it reflect a doomed system? We are sceptical.

Pundits talk as if there is a neatly labelled set of economic regimes on the policy shelf from which we can choose. But we can no more replace selfinterest as an economic force than a physicist can replace gravity, and with as little need. This is not veneration - physicists don't venerate gravity - but acknowledgement.

For sure, capitalism will continue to be modified - to deal with environmental market failures, perceived unfairness and so forth - but there is no other “system” available.

Nor is it certain that taxes have to rise a lot: it depends on how much government support is taken up, and how the economy fares. To say big government has “won the argument” is a bit premature. Emergency powers may be just that.

We may reject travel, eating out, live entertainment and sport when they reopen. It is also possible - likely - that some of us won't see the daily commute in the same way again. But tastes may change less than the more fanciful essays suggest, and not everyone can work from home. Memories can be short. Just three weeks ago we were reading about the fragility of the food supply chain.

Rather than seek new directions, investors might do better to focus on existing trends given added impetus by the crisis. Sustainability, for example. Perhaps the encroaching end of the oil age, big banks and physical cash? More online distribution and distrust of established media?

The future has always been profoundly uncertain. It is no more so now. Otherwise how could we have got here?


We do need to stay alert to one potential development. The last quarter-century has been characterised by low inflation. Contrary to what some economists and central bankers have been suggesting, this has been a Good Thing.

Now, with one hand governments are suppressing output, and with the other supporting demand - and doing so by creating liquidity, not just borrowing it. Are we at last about to see “too much money chasing few goods”, and the revival of demand-pull inflation?

As yet, weaker oil prices are keeping a lid on inflation expectations. And when growth does resume, supply may prove more responsive than feared, as we've noted here before. As stale bears of bonds, we recognise that the underlying inflation/output mix has been better than we'd feared for some years.

And yet, and yet… we will revisit this topic: watch this space.

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