The 'five Es' investors need to know about
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“Dad, they shouldn’t allow you to speak in public,” says our son Henry. “You’re too depressing. If you took calls at one
of those suicide prevention lines, everyone who called would kill themselves. Even people who got the wrong number. They’d call to order a pizza…talk to you…and then blow their brains out.”
“Everything is predictable”, we told our conference audience in Vancouver yesterday, adding helpfully that “we just don’t know what will happen next”. We then proceeded to outline five major trends we think will have foreseeable consequences. For the benefit of MoneyWeek readers, we condense our oeuvre down to 550 words. Alert readers will note that each begins with the letter E to make them easy to remember.
Energy… Is the world running out of oil? No. There is plenty of the stuff. At today’s oil prices, every energy producer in the world is adding capacity. But more people use more energy every year, whereas the earth’s supply of ready fuel – which took millions of years to lay down – is being rapidly used up.
The typical American or Brit spends much more of his money on housing and energy than he did five years ago, while discretionary family incomes have gone down. This means he has less left over to pay for anything else. The situation is especially bad in North America, where people depend on cheap fuel. Look for falling housing prices and a slump in both countries as consumers are forced to cut back.The world is also facing the collapse of its experimental monetary system. Oil is calibrated in dollars. But what is the dollar calibrated in? Nothing. Of course, paper currency – with no gold or silver behind it – has been tried before. But never with happy results. And never, ever on such a grand scale.
The whole world’s financial system rests on the shoulders of a single currency – which everyone knows is a shirker. Prediction: the dollar-based monetary system has been around for 35 years. It won’t last much longer.
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Economic cycles are also predictable. We know that from boom to bust in the US stockmarket, for example, is usually a period of about 18 years. Now we face busts in three major markets at once: stocks, bonds and housing. (James Ferguson explains why UK housing prices are headed down here: When will the housing bubble burst?).
There are two more major related trends: the exodus of power and money from West to East and the decline of the great Anglo-Saxon Empire. The Chinese economy is growing at 11% per year. In India, wages double every ten years, or even faster. Asian countries build up capital, while Western nations squander theirs. The Chinese savings rate is 35%. In the Anglo-Saxon countries, it is near zero. It was bound to happen; reversion to the mean is always a safe prediction. The Industrial Revolution gave the West a huge lead; now the East is catching up.
Readers with time on their hands and adequate medication may read the full text of our speech here: The five major trends reshaping the world economy.
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