By Tom Anderson / Guest Editorial
In previous commentaries, I shared my perspective on investing in today’s global economy. The main theses – and the basis upon which I craft investment strategies – are that the next 30 years will not resemble the past 30 years in terms of the economy and that investing should be viewed in the framework of a global, interconnected economy.
There is no single source for what shapes my views and portfolio positioning, but rather they are a compilation of everything to which I am exposed, including the meetings and presentations I had the opportunity to attend during the first half of 2013. I heard perspectives offered by Nobel Laureate professors, a former vice president of the United States, acting secretary of the U.S. Treasury, representatives of the Central Bank of Brazil, ambassadors to the United States from Kazakhstan, Germany and France, and many more. (For a full listing, visit www.morganstanleyfa.com/public/facilityfiles/mssb931956/5cdafc6b-4d98-4f28-bd45-bca477c5784d.pdf).
When you review the list of experts, you can see that there is no single political party or economic ideology represented. Rather, my goal is to approach these meetings with a broad perspective and to try to challenge the biases that we all inherently have in order to attempt to consistently test the premises of my perspectives and portfolio construction.
One of the most enlightening presentations was offered by Nobel Laureate and Professor Gary S. Becker on the topic of global financial markets. His outlook is especially poignant during a time when the globe must be viewed as a cohesive whole, instead of an aggregation of independent parts. His presentation, “How the U.S. Can Maintain its Economic Leadership,” focused on the recent shift in our GDP growth over the past few years from its traditionally linear trajectory.
Mr. Becker contends that while these divergences occur in most developing nations, the U.S. economy has not bounced back as many others do. Instead of interpreting this change as merely a temporary slump, Mr. Becker believes that the United States will not, in fact, return to the pre-recession growth path, but instead continue down a new economic road. His ideas have the potential to shake the investment beliefs many U.S. advisors have formed over the past century or more. The general bias toward investing solely on the home front, what I call “home bias,” may have worked for the past 30 years, but it is unlikely to work in the next 30.
Mr. Becker presented lackluster statistics of five traditionally strong areas that tend to correlate to increased GDP growth, including education, competitiveness, immigration, government budget and tax reform. In short, the U.S. has slipped in all of these areas.
• The U.S. educational attainment rate among 30-34 year olds has dropped from fourth in 1970 to 15th for men and 17th for women in 2010.
• Since the recession in 2008, the U.S. has dropped from first to seventh in the World Bank’s competitiveness rankings.
• Immigrants are no longer coming to the U.S. in large numbers to find competitive jobs. Other nations have become destinations for immigrant workers, while the U.S. has fallen behind as an attractive haven for jobs.
• The ever-looming federal debt continually grows, and with the aging baby boomers reaching retirement and beyond, entitlement programs are taking up a much larger portion of the budget.
• U.S. tax policies are not modern enough to perpetuate growth in a constantly developing world. Without serious reform, our country will not be able to keep up with other nations.
Mr. Becker’s opinions reveal the potentially dwindling status of the United States as the economic center of the globe. Now more than ever, I believe investors must adopt a world-neutral view and stop seeing borders as investment barriers. An “I just want to own U.S. assets” mindset is a risky outlook on a forward-looking basis. Home bias should be eliminated, in my view.
Based on Mr. Becker’s evidence, I contend that it is prudent, even absolutely necessary, to test the baseline assumptions that the Congressional Budget Office (CBO) and Republicans and Democrats use in projecting long-term GDP growth trends. The current assumptions may not be accurate. Similar to how I stress test our portfolios, investors should stress test the CBO and overriding political assumptions.
Next time, I will address the thoughts offered by Paul Krugman, Nobel Laureate Economics Professor at Princeton University and New York Times columnist, on how to fix the economy through austerity.
Mr. Anderson’s office is at 600 Third Ave. SE, Ste. 100, Cedar Rapids.
Information contained herein has been obtained from sources considered to be reliable, but Morgan Stanley does not guarantee their accuracy or completeness. The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Tom Anderson is an executive director – wealth management, senior portfolio management director, family wealth director and financial advisor with Morgan Stanley.
