This week’s article marks the conclusion of series of pieces on trends in the global economic landscape. In this edition, we outline the main investment themes and opportunities that have been created by what might be the biggest bubble in recent memory: The financial crisis of 2008.
Please, click the following link for part I of our piece on asset bubbles.
Please, click the following link for part II of our piece on asset bubbles.
Please, click the following link for part III of our piece on asset bubbles.
What goes up must come down
– Sir Isaac Newton (1642-1727)
It is likely that we are transitioning from a period of declining inflation to a period of rising inflation, similar to what happened in the mid- to late 1970s. While this may take some time to play out, the thesis is built on the following:
1) Governments and central banks have “solved” a crisis created by excess liquidity (the credit crunch) by spending and borrowing even more. History has shown that the only outcome of reckless fiscal and monetary policy is higher prices. In other words, printing money to boost growth at any cost will trigger rises in inflation.
2) The credit crunch will limit capital investment, meaning that capacity constraints will become more of a threat, and thus raise the likelihood of rising inflation.
3) The “easy money” from globalization has already been made, and we have run out of countries with declining unit wage costs to outsource to, which is also inherently inflationary.
