Time to pack up and run away, or go active?
Time to pack up and run away, or go active? is a guest post by award winning freelance journalist Adam Lewis.
Time to pack up and run away, or go active?
Sell your house, get out of developed stock markets and invest in a combination of bonds, India and care homes, is the advice of one economic forecaster as he predicts another global financial crisis will hit within the next couple of years.
Central to the thesis of Harry Dent Jnr, the founder of Dent Research and author of The Demographic Cliff, is that the Western world is following Japan’s path into a deflationary spiral given the similarity in demographics.
“Japan were the first baby boomers”
He says: “Japan were the first baby boomers and the problem they faced – which is now facing the US, UK and Europe with its baby boomers about to hit retirement – is how do you grow an economy that has a shrinking workforce?”
At the same time he argues economies are being artificially held up with the QE that has been pumped into them and that central banks – especially the Federal Reserve – are repeating all the same mistakes as they did during last global financial crisis.
This is because he says the Federal Reserve “dropped the ball” by not moving in September, as it would have been a vote of confidence in the economy. “Now, like they were in 2008, the danger is that they will be too slow to react to events,” he argues.
“Government’s have pumped money into their economies”
“Government’s have pumped money into their economies to keep them going, but the only way they can favour the next generation is to let deleveraging take place. This is an artificial economy and we can’t go on this way forever.”
Given this background, the economic forecaster, who has in the past predicted many market falls including the most recent China sell-off, says now is the worst time to be putting any money into buy-to-let property. This is because he suggests and ageing population will spark a sell-off in the housing market, which will cause prices to drop.
In addition, given his prediction of negative market returns for the US and UK over the next decade, he says a safer investment will be into fixed income. “Now would be a good time to invest more into government and corporate bonds, namely US treasuries where 30-year Treasuries are currently yielding close to 4%,” he says.
Another way of playing the playing the demographic theme would be investing in primary care homes, while in terms of stock markets Dent says India is the country he would invest in for the next 40 years. This is because, in his view, both India and other parts of South East Asia have much better demographics, while it is also not commodity or export orientated.
Having read the above, like myself on hearing this, you may be thinking of sitting down in a dark room for a while. However it is of course not all bad news. Firstly this is one man’s view and secondly, what takes place in on the macro front does not correlate into the opportunities to be had out of stock markets.
Indeed Neptune’s chief economist and chief investment officer James Dowey offers a contrary view to that of Dent’s. In Dowey’s view, after 10 years of dominating the behaviour of global stock markets, the effects of the macro crisis are set to be replaced by two new themes going forward, neither of which relate to demographics.
The first is a rising interest rate environment and the second is the rapid developments taking place in the tech sector, which Dowey says is set to “confuse and disrupt” markets.
While the first of these two themes might not be unfamiliar for investors, it is the effect of tech which is most noteworthy and may give pause for thought in terms of how passive funds will be affected. This is because Dowey forecasts that established businesses will see their existing business model ripped apart by the “exponential” pace of tech change in the next decade.
He says: “The changes taking place in technology will lead to a mixed reaction in markets and in this environment investing across indices as an investment strategy will not work. As such individual investors will need to think of a response and rather than be stuck in index tracking funds, a better strategy over the next decade will be to allocate to good active managers who, rather than spot the winners, can miss the losers in this environment.”
“It does represent huge opportunities”
Indeed rather than the bearish path set out by Dent, while Dowey says getting the tech call will be a vital one, he adds it does represent huge opportunities.
“Many sectors, including healthcare and financials, are set to be heavily impacted,” he says. ““However it does present opportunities for investors to take advantage of these huge changes.”
Adam Lewis is a freelance journalist and content director at Matrix Solutions
He has worked as a financial journalist for over 14 years, the last 10 of which were at Centaur where he lately edited Fund Strategy magazine for 3 years until February 2015. He has won five awards for journalism excellence, including AIC Trade Journalist of the Year (2002 and 2008) and IMA Specialist Reporter of the Year (2005).
Keep calm and don’t panic is a guest post and the views here do not necessarily concur with those of Investment Quorum. In fact, it is very often the case that we may be largely in disagreement but we respect the opinions of others and value their contribution to the wealth management debate. Guest posts may appeal more to some than others and may often have an industry, stock market or sector knowledge expectation.
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