Dear Reader,
Over the
course of this week, we will be sharing key insights from the 2017 Strategic
Investment Conference exclusively with Mauldin Economics readers.
A topic
covered by speakers like Mark Yusko, David Rosenberg, Dr. Lacy Hunt, and
Raoul Pal at the SIC was US economic growth and the reasons it will stay low
for decades to come.
Demographics
Are Destiny
Dr. Lacy
Hunt, former senior economist at the Federal Reserve and EVP of Hoisington
Investment Management, said the single best economic indicator is nominal GDP
growth as it measures all the changes in market prices that have occurred
during a given year.
And this
indicator suggests the US is in trouble.
Despite a
surge in optimism post-election, nominal GDP growth in 2016 was just
2.95%—making it the fifth worst year on record since 1948.
What does
this have to do with demographics?
Mark
Yusko, founder and CIO of Morgan Creek Capital Management told us...
Growth in
the working-age population has been a leading indicator of nominal GDP for
decades.
And the future looks bleak.
According
to the CDC, the fertility rate is at its lowest level since records began in
1909.
This,
coupled with the fact that 10,000 people turn 65 each and every day in the
US, means growth in the working-age population will remain at record lows...
thus weighing on any economic expansion.
More
Debt, Less Growth
David
Rosenberg, chief economist and strategist at Gluskin Sheff, dissected another
trend hurting growth: DEBT.
As these
statistics from the Bank for International Settlements and Haver Analytics
show, higher debt levels coincide with lower growth.
While the total debt/GDP ratio is 248% today,
the non-partisan Congressional Budget Office projects it will rise to 280% by
2027... and that’s assuming nominal GDP grows at 4% per annum.
This huge
debt burden also means interest rates must stay low to keep service costs
down... Dr. Lacy Hunt pointed out that a 1% increase in interest rates would
mean an extra $200 billion in Federal debt repayments per annum.
Devices
Equal Lower Prices
Another
deflationary trend discussed at the SIC 2017 is the rise of automation and
technology.
Findings
from the Brookings Institute show rising productivity in manufacturing has
led to a decline in employment in the sector.
By removing labor costs, automation is
driving down the price of core goods, as David Rosenberg detailed.
But no longer is this just in manufacturing.
In a recent study, PriceWaterhouseCooper found that 38% of US jobs will be
automated by 2030, which means more deflationary pressures.
And these
pressures have serious implications for your portfolio...
With US
equities trading at all-time highs, should you invest in them with little
chance of earnings growth?... With inflation likely to remain low, are
Treasuries a buy at 2.2?
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Deflation
Demographics
Economics
Government Debt Markets
Interest Rates
U.S. Economic And Political
World Economic And Political
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