Between the XNUMXs and XNUMXs, Arthur Clarke and Isaac Asimov made extraordinarily lucid predictions about the next half century. However, their object of investigation was limited to science and technology, two fields in which large research programs are usually open, large construction sites that proceed following a project. Along the way, one can of course encounter unforeseen obstacles or, conversely, fortunate serendipity (when one is looking for one thing and by chance finds another even more interesting one) but the guidelines are in any case traced and visible.
On the other hand, no one has ever been able to correctly predict the historical, economic and political developments not only over the next half century, but also just twenty years. According to Keynes, the most revered of economists, we in the 1996st century should have long lived by working four hours and dedicating the rest of the day to writing poetry and listening to or composing symphonies. That's not the way it is going, at least for now. And on the other hand, in XNUMX, in full Clintonism triumphant between growth and globalism, no one could have formulated the hypothesis of another Clinton, twenty years later, candidate to govern deglobalization and semi-stagnation.
So if twenty years are beyond the possible, in a more modest horizon, let's say five years, something you can try to glimpse. Today the markets, thanks to central banks, live in an alternative reality like humanity in the Matrix. The only anxiety is to continue receiving the daily ration of opiates in order to be able to return to a state of torpor. Concerns about growth, profits and debt have left the mental horizon and no one is dedicated to thinking about the future anymore, because with interest rates at zero, time no longer has any value and is transformed into an eternal present. In the long run, however, dreams fade, while reality never fades.
And what will the real variables look like in five years? Let's try to answer a questionnaire.
1. In five years there will be more or less debt in the world debt? There will certainly be more. Public deficits are set to grow. In America, the Congressional Budget Office calculates that, under current legislation, the deficit will double between now and 2020 and triple between now and 2025. However, the legislation will certainly be made even more expansive, with more infrastructure spending and more military spending. Individuals will continue to reduce their debt very slowly, but businesses will continue to increase it. Debt will continue to grow in Europe and Asia as well.
2. In five years there will be more or less growth? Probably the same as today. With no structural reforms in sight and the wind still blowing in favor of ever greater regulation of the economy, it is difficult to see engines of further growth. In order to maintain the current level, however, it will be necessary to resort to public spending and it is difficult to think that productivity will be able to revive productivity in this way, today at the lowest levels of growth in the last half century.
3. In five years there will be more or less inflation? There will be more if monetary and fiscal policies are successful (in which case all bonds will suffer). There will be less if we have gone through a new recession, even a superficial one (in which case credits and equities will suffer, but not high quality bonds).
4. In five years the margins of profit Will they be higher or lower? Most likely lower, even if only slightly, due to higher wage pressure in a context of low productivity. If the protectionist wind strengthens, we may see cases of improvement in the margins of producers who will be sheltered from competition, but the game will be, overall, negative sum.
5. In five years there will be more or less political stability? Impossible to say, but one cannot fail to observe that low growth is gradually eroding consensus. This erosion can be translated either into the prevalence of anti-system forces or, if these are not credible, into a growing sense of extraneousness towards the institutions. The remedy proposed by a part of the elites is to redistribute wealth and income through taxation. The most recent experience in this sense, that of Brazil under Rousseff, did not end well.
6. In five years there will be more or less Europe? At the moment everything is frozen and will remain so until something new occurs. The new fact will not be the Italian referendum and neither will next year's elections in Germany and France. The novelty, in case, will be the next recession. That's where you will have to seriously decide whether to move forward or say goodbye.
It may be that the course of the next five years will be very different from what we have tried to draw. For a local conflict, Syria, in the space of a few weeks we have witnessed an escalation that has led some to even hypothesize a nuclear war. Nerves are fragile and the Second Cold War does not yet have the detailed rules that the first had. It may also be, why not, that things are going much better than we imagined.
What is certain is that the markets do not price the five-year world that can be imagined today with the limited visibility we have. Of course, a continuation of the exceptionally expansive policies could further inflate equity multiples and give bonds another life, but it would still distance the real world from the virtual world. The inevitable reunification between real and virtual can take place either with a surprising improvement of the real or with a deflation of the virtual.
In the next two years we will not see any collapse of the virtual, but certainly greater volatility, starting from next year.
This higher volatility it will exercise more downwards than upwards even if the final result could be, at the end of 2017, a level of bonds and shares not very different from the current one. To take advantage of the opportunities that this volatility may offer, we suggest continuing to create liquidity in portfolios in this phase of calm.
We want to end on a hopeful note. In five years, in 2021, the XNUMX-year wave of baby boomers will slowly begin to fade. The labor market throughout the West will gradually return to equilibrium. Potential GDP will rise again and perhaps we will return, if we have not made policy errors, to review higher growth levels.
