Halfway through the year in 2019, FundForum International was a platform to discuss global macroeconomic issues. Michael Hasenstab, executive vice president, portfolio manager, CIO, Franklin Templeton, was one such delegate who voiced his perspective on those macroeconomic topics.
Michael Hasenstab is the self-nominated voice of concern regarding the world’s macroeconomic and geopolitical prospects. To him, pessimism is a necessity in the face of complacency on behalf of investors and companies.
Three key points
Hasenstab identifies three key problems that face the world moving forward: complacency, unconventional policy and extreme populism. Extreme risk taking in a climate of rising inflation threatens the world’s financial markets. Supply and demand of skilled labour contributes to wage-price inflation. There is little supply of skilled labour relative to demand and as a consequence it is increasingly difficult to employ foreign workers. Skilled workers are hence becoming more expensive, increasing wage-price inflation.
"Just because a policy is unconventional does not mean it will have a bad result; Hasenstab believes quantitative easing (QE) prevented a great depression."
Unconventional fiscal policies for policy makers are again in play, some in reaction to wage-price inflation. Governments now run unconventional policies, particularly in interest rates, and there are higher prices on the bond market than we have ever seen before.
Just because a policy is unconventional does not mean it will have a bad result; Hasenstab believes quantitative easing (QE) prevented a great depression. However, China and the East have never been so financially and economically prominent in past historical instances – today’s situation is historically incomparable.
What is China's role?
The main concern accompanying China’s arrival as the newest major player in global geopolitics is the risk of fissures opening between superpowers. Hasenstab is certain that we have now passed any possibility of open trade on a global scale. Higher tariffs on a range of goods means that it will be more difficult to import them, and even manufacture abroad.
The prevalence of extreme politics throughout the world only further adds to global tensions. Income inequality and resulting frustrations has largely been the instigator of extreme political preferences amongst populations. The rise of populism across the globe inevitably means spending more money – a serious issue when huge deficits are already present.
"Governments now run unconventional policies, particularly in interest rates, and there are higher prices on the bond market than we have ever seen before."
Combined with unconventional fiscal policies and complacency in investment, a dangerous economic environment that flirts with disaster has been formed. For the purposes of avoiding such an eventuality we need to think along the lines of risk and consequence. It would be foolish to be unprepared for the effects on the global economy of a collapse in geopolitical relations might have.
Hasenstab is not convinced he his right, or rather hopes not, but his hypothesis predicting never before seen macroeconomic conditions presents a grounding voice.
Watch Michael Hasenstab discuss taking a global macro perspective on investing and why we're seeing a lot of investors taking a more defensive stance.