Changing Investment Landscape
Markets are ever-changing. Today’s markets look very different from the past. Equities and bonds have high volatility, high PEs in the S&P, and greater liquidity. Most investors, including Joseph Wu from RBC Wealth Management, investors at T. Rowe, or even Warren Buffet, would agree that the markets are always involved. Though some dispute this claim, their point of view is not in the changes from decades but in the present fundamentals that have been repeated over hundreds of years.
John Dionne foresees several present and future aspects of investing. His view revolves around increased inflation and the need to think and understand the economy more dynamically. He believes that to succeed, one needs to constantly evolve one's strategy and blend it with adaptability as situations change quickly (Dionne, John).
James Church, an entrepreneur and author, has a more detailed view. The rise of blockchain technology and the growth of AI and ML will change economic outlooks. As these products are allowed to create more productivity and creativity, he sees that the overvaluation of critical stocks, such as NVIDIA, may be reasonable, but only if the productivity sustains at an increase of 5% for programmers and coders. He says that investments in passive vehicles are significantly increasing interest as volatility rises. His expertise comes in the form of an understanding of VCs. He claims that in 2023 and on, the VCs are looking for four main things: 1. Angels see safety in numbers; the more invested companies, the greater the chance of return with one winner; 2. Valuations are being reset; as volatility increases, their downsides are more significant, and thus, they are lowering the valuations of many companies, 3. They expect actual models, not ideas thrown on the wall to see what sticks, and 4. The bottom line is that whether that is more revenue, greater profits, or more organic growth, something has to grow, or they will do their write-downs much sooner than planned and pull liquidity (Church, James).
T. Rowe, the retirement investment company, has some insight due to its clientele. They see individuals looking to find less volatile assets that return a low natural rate. They are looking at interest rates rising; they are expecting lower corporation earnings due to more significant inflation, less consumer spending, and liquidity challenges, as many companies deleverage or fail to meet their debt obligations (The Investment Landscape).
Ray Dalio, in his interview of The Five Big Forces (An Update on Ray Dalio’s Views of The Five Big Forces Shaping 2024), points out many unique events of today that impacted the world in the past and his view of standing in similar positions as many successful investors and business people did back then. He argues that as the world enters a tumultuous era, his expectation of disruption is minimal, except for when there are large disasters, famine, or disease that cripple critical infrastructure, agriculture, or trading lanes. Inflation is not a new phenomenon but a recurring event in history that leads to predictable outcomes; he states that the debt service payments will increase as inflation remains higher than 2% or increases due to volatility and global disruption. The US does not have a solid financial balance sheet, and outside powers may question our standing.
Stanely Drunkenmiller reflects on similar principles. He argues, similar to Ray, that inflation will be a problem, but if that is not a problem we will face, it definitely will be the increase in taxes. Social Security funding is as inadequate as it can get. Entitlement programs already take up more than 70% of the current budget, and with an increase in inflation, especially from an increase in debt issuance, the service cost of that debt will rise. According to CBO, 27% of outlays will only cover the interest expense by 2050; service Entitlement Programs and interest service alone will be 117% of the tax revenue by 2040, not including the cost of running government, defense, or other Free Aid Programs. (Bloomberg Live).
The two juggernauts differ in their outlook on global trade, the US's position in the world, and China's role. Ray Dalios's view is that the US has two paths: Under Trump, the US is expected to be protectionist and isolationist and decrease its presence in the world; this will weaken the US’s negotiation power, lower the expense of the US abroad but bring in higher inflation due to onshoring of many industries. Under Biden, the US is expected to invest in itself, as many members demand infrastructure of old and green to be updated, entitlement programs to expand, and education spending, as the US slips lower in educational standards across all levels. ?(An Update on Ray Dalio’s View of The Five Big Forces Shaping 2024). Due to their expected loss in world positioning, he sees the US “investing” more in the Global Stage, as with the current bill that passed the House and was sent to the Senate recently, providing a 95 billion dollar aid package to Ukraine and Israel (Cowan, Richard, et al.).
Drunkenmiller also foresees inflation, but his view is based on the previously mentioned reasons in paragraph 2.
Their views on China differ pretty dramatically. Ray Dalio believes in China's strategic move to hold a position and extend its power across the Asia-Pacific. Drunkenmiller foresees a weaker China and a possible break due to a close-minded dictator, fragile markets, and liquidity issues. One reason stems from their inability to let go of the yen and allow it to be disseminated at the market's will, as the USD has done in the past 70 years.
One individual, George Gammon, has a different view. The markets may change opinions and be more volatile, but the rest of the world does not care. Some may argue in favor of the USD strength due to the milkshake theory, or the cleanest shirt in the hamper, and thought that may be true for developed markets, underdeveloped markets, or even third world countries could not care less if the USD is at 2% inflation or 20% inflation. The USD inflation is at no par with the instability of their currency; see Argentina, Turkey, Venezuela, Colombia, and more (Here’s What the “Experts” Aren’t Telling you About the Dollar). Their inflations affect their daily lives and have been known to fluctuate between 80 to 120% per year.
All in all, the markets are more volatile. Whether you are looking at a 10 to 20-year-old or trend seekers who have created vast amounts of wealth on their correct bets, the markets are not as they were ten years ago. All agree that one needs to remain on their feet. They all may have different opinions about the importance of current data and future trends. Still, it seems clear to them that the demand for investment professionals may be higher in the future, as great investors who understand the volatile markets and the disrupted global economies are fast to change strategies as changes are few and few between. Navigating through these changes may be as trying as it was at the turn of the 20th century or in the late 1920s and early 1930s, when the unprepared were cut off-guard and lost everything, and the few that foresaw the coming doom took off with the bag running. How will you lay the chips on the table? ?
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