The precipitous global recovery is bringing with it a myriad of consequences, good for some, not so good for others: mind spinning data; run-away demand with which supply is struggling to keep up; inflation overshoot already causing food insecurity. Energy transition has gone from optional, through desirable to obligatory. Personal freedom risks falling victim to a potent mix of illiberalism and technology. Almost everything is set to be hybrid. Amidst all this don’t forget to take a break – you almost certainly need it.
- In much of the world, and particularly in high-income countries, a recovery is now in full swing, progressing at such a remarkable speed that yearly comparisons are head spinning (like: South Korea trade up 40% Y-o-Y, US capex rising at 15% Y-o-Y, copper price almost doubling Y-o-Y, and so on). This sudden release of pent-up demand has been made possible by the phenomenal amounts of fiscal and monetary stimulus, but these are not indefinite. Once they are withdrawn, bankruptcies and unemployment will inevitably rise. This is currently the greatest concern of policymakers.
- However, for the moment, aggregate demand (for consumption and investment) is surging, transforming last year’s demand shortage into this year’s supply shortage. Anecdotal evidence + conversations with our network suggest that these difficulties on the supply side will not dissipate overnightand might even get worse before they improve. Today’s just-in time supply chains are composed of so many intricate layers that a problem with one immediately cascades onto and conflates with others. Take shipping (which accounts for 90% of the world’s trade in physical goods): it is at the moment hard to secure an order because of the labour shortage caused by COVID (many crews are Indian). Such examples abound. It will take months, if not a year or two, to sort out bottlenecks and resolve the issue of supply shortages.
- Hence the concerns about inflation, crystallised by US CPI at 4.2% and core inflation at 3.1% in April (Y-o-Y). This shouldn’t come as a surprise: from a ‘standing start’ the US economy is roaring ahead, forcing employers to recruit large numbers of workers at speed and suppliers to increase production as fast as they can. In a way, the bad news (inflation) stems from good news (the surging recovery). Will inflation be stickier than initially assumed? This depends on two main things: (1) whether geopolitics interfering with global supply conditions will endure (probably yes); (2) for how long monetary and fiscal policy will continue being so expansive and reinforcing each other. As aggregate demand expands, an inflation overshoot in the next few months is probably a given. But then, deflationary forces like (1) demographics, (2) tech innovation and (3) excessive indebtedness (that suppresses growth) will prevail.
- This said, the current inflation overshoot is already having a very real impact for many people, with food price inflation leading to a sharp increase in global food insecurity (the price of what makes up a ‘typical’ breakfast has gone up almost 30% since 2019). This phenomenon affects countries all over the world. Two examples: in Brazil, food insecurity (including its sharpest manifestation: hunger) has become a seemingly intractable issue. Over the past 12 months, 19 million Brazilians have gone hungry, and about 117 million (more than 50% of the population) now face a situation of food insecurity. In the US, since the pandemic started, there has been a 55% increase in “people in need of food”, with estimates that 42 million Americans, including 13 million children, potentially face hunger. In today’s highly politically charged atmosphere, this is leading to calls for less concentrated food supply chains, more protection for local producers and more antitrust action (more on this at our next Summit of Minds in Chamonix).
- The recent landmark court ruling ordering Shell to accelerate its decarbonisation plan and the remarkable proxy battle that just pitted Engine n.1 against ExxonMobil (in which the small activist fund holds a mere 0.02%) is further proof that the writing is on the wall for all large greenhouse emitters. The wider lesson: any company in any industry unprepared for the accelerating radical energy transition is bound to be in trouble.
- Even though cryptocurrencies are at the moment all the rage, in the end, it is ‘govcoins’ – central banks / government digital currencies – that will prevail. 50+ experiments are currently going on, ranging from advanced ones (China or the Bahamas) to those in the making (the EU or the US). Two consequences of the rise of govcoins stand out: (1) they will strengthen the power of the state and its capacity to intrude into the private lives of citizens; (2) they will reduce the operating expenses of the global financial industry (currently estimated at $350 per person per year) but also disintermediate banks. A cue from China: digital currency accounts will be capped at a certain level and private digital currency platforms tightly controlled.
- More than half of the countries rated Free or Not Free in 2009 by Freedom House (a think-tank) suffered a net decline in political rights and civil liberties in the ensuing 14 years. Although data is not yet available, this declining trend has sharply accelerated during the pandemic. A combo of rising illiberalism (or plain autocracy) and rising tech-enabled mass surveillance is gaining ground in a multitude of countries around the world. Ethnic minorities and immigrants bear the brunt of the trend, but everybody is affected – so much so that Apple’s CEO just declared that privacy will be one of the defining issues of the 21st century. This will soon become a major headache (not just a hindrance) for companies and investors who operate globally.
- There is no longer any doubt that the future is hybrid. It is now everywhere: hybrid work (worldwide and across industries, 9 out of 10 organizations are switching to it); hybrid events (a given); hybrid food (a protein mix of animal cells and plants); hybrid transportation (fostered by the dramatic improvement in battery technology and extending now to shipping). The list goes on. It even includes hybrid ‘improbable’ categories such as hybrid weddings, expanding fast in the US. The simplest take-away: (1) the digital transformation will accelerate further and wider across the board. Beware of companies that are laggards; (2) pay attention to second-round effects, like the impact of hybrid work on commercial real estate.
- A new book – Richer, Wiser, Happier – sheds interesting light on an insight familiar to many MB community members: the critical importance of long and regular breaks from work to excel in deep-thinking and decision-making. Green’s book, focused on famous investors, proves that breaks (whether it’s meditation, physical exercise or reading) is a pre-condition for success. Our next “Ask Our Expert” webinar with Scott Kirby, CEO of United Airlines, will be devoted to this subject, so listen-on!
- For an in-depth analysis of any of the bullet points and what they mean for you – please contact us.
