- What a difference a month makes! Although growth continues to slow (gently) in Asia, Europe and the US, the global economy is in no worse shape than it was a few weeks ago. Yet two things augur ill: (1) the Fed’s decision not to raise rates until the end of the year – it makes it “official” that not all is well; (2) the yield curve inversion, which many analysts rightly interpret as the sign of tougher times ahead (the Fed identifies 3-y rates being higher than 10-y rates as a reliable predictor of recession risk). The recession may still be 18 months away (average consensus) but the fact that so many businesses are deep in cost-cutting mode could set in motion a self-fulfilling prophecy, precipitating the advent of the next recession.
- Whatever the length or intensity of the next recession, it will be exacerbated by a context framed by diverse risk categories. Many analysts tend to look at recessions through “cyclical lenses” and in “silo” terms (isolating economic risks from the rest), forgetting that systemic connectivity rules. The next recession will take place against the backdrop of major environmental, societal and geopolitical risks that conflate with the economic ones, exacerbating the financial pain. A deep sense of anxiety fuelled by the ontological uncertainty caused by climate change, AI or geopolitical turmoil dampens our animal spirits. When the going gets tough, this will depress consumption and investment disproportionately.
- To illustrate how the above point plays out at the community level, take climate change in the Monthly Barometer’s hometown: Chamonix. At first glance, this Alpine destination seems insulated from the most deleterious effects of global warming: like all ski resorts its ski season has shrunk substantially, but otherwise there is no major visible impact (contrary to coastal villages for example). Yet, when you scratch the surface, many tiny, insidious effects are apparent: from the retreating glaciers now providing insufficient water to small hydro-power stations to the melting of permafrost destabilizing the structure of cable cars and rendering the mountains evermore unpredictable and thus the profession of mountain-guide increasingly perilous. When these micro-effects, absent from the macro data, are compounded, the picture that comes into focus is a disturbing one. To observe this first-hand and better grasp the global investment implications, come and join the Summit of Minds where several experiential sessions will take place amidst glaciers and peaks.
- The outcry over Italy signing a “Belt and Road accord” with China is overblown. China can now access the ports of Genoa and Trieste, having already invested in other European ports (in France, Spain, the Netherlands, Malta and Greece – with a controlling stake in the port of Piraeus). Three things can explain the Western overreaction regarding the accord: (1) Italy is the first and only G7 country to conclude a BRI accord with China; (2) the signing took place almost at the same time as the European Commission officially characterised China as a “systemic rival”; (3) the accord is a crude manifestation of the fast-changing geopolitical landscape: the US is in retreat and China in the ascent.
- On most metrics measuring human progress (ranging from GDP per capita to life expectancy), we’ve never had a better life; yet a surprising number of individuals in high-income countries (most notably in the Anglo-Saxon world) feel miserable at work (where we spend a third of our adult life). The reasons are manifold and hard to address for traditional companies: purposeless jobs, punitive hours, dreadful commutes, “always-on” culture, increased competition, constant infighting, to name just a few. The take-away: businesses that do not offer purpose and flexibility will not be able to retain talent. Small and adaptable has an advantage over large and less elastic…
- “Brexeternity” – At the eleventh hour, all options are back on the table, from May’s deal to a no-deal, from a softer Brexit to a second referendum. But, irrespective of the actual outcome, Brexit won’t be over any time soon. For years to come, the British economy, society and politics will be consumed by wrangling and negotiations with the EU (and the rest of the world), leaving the authorities unable to concentrate on the problems that led to Brexit in the first place: rising inequalities and lack of public spending for schools and social programmes. Here is a prediction based on a hunch: one day, Britain will be back at the EU table, but in the immediate future, keep an eye on the GBP that will slip towards parity with the USD in case of no-deal.
- Notwithstanding the horrific mosque massacre in New Zealand, the rise of Alt-right and white supremacists in much of the Western world is a powerful undercurrent not receiving the attention it requires. Far-right networks are gaining strength, boosted by technology / social media. In a similar vein as for the Yellow Vests movement (that couldn’t have emerged without Facebook), social media savvy Alt-right militants congregate around tech. Technology functions as an accelerant, giving state (like Russia) and non-state (Alt-right) actors the opportunity to spread disinformation online and exert “malign influence” over electoral outcomes.
- The more technology dominates our lives, the greater the value placed on human interaction – so much so that some analysts now talk about the “luxurification” of human engagement. Mediating through tech is no longer a symbol of power, but the manifestation of low-income status (the saddest expression of this trend is to be found in American low-income senior-housing institutions where social life is mediated by a screen with an avatar programme). By contrast, droves of wealthy individuals are reducing screen time or even opting out from tech (now prevalent in the Silicon valley). The take-away for business executives: the richer their clients, the keener they are to talk to a real person, not a machine.
- Something vague but worth pondering, with significant investment implications: the slow death of the family and the emergence of a #MeOnly society. Consumption, travel, housing, etc. are increasingly centred on the individual. You doubt it? This is backed by data (the number of young and middle-age people living alone is soaring) and surprising new trends like “solomoons” replacing honeymoons (you celebrate your wedding alone…).
- Over the next few weeks and months, the top “must-watch” issues are global trade tensions and in particular whether a comprehensive agreement between the US and China will happen.
