The headwinds to the global economy are well-documented and financial markets are steeped in uncertainty. Obviously, nobody knows what’s going to happen. Some people are apocalyptic, some are sanguine, expecting a prolonged low-growth malaise. Very few are optimistic about the future.
I think it will be better than most people predict it’s going to be partly because the feedback loop is so negative. A few years ago, economists were predicting 3% GDP growth and 3% inflation and 6% unemployment into perpetuity. We mistakenly believed that we were in a “goldilocks” business cycle brought about by artful management of monetary policy. Everyone, including myself, bought into those assumptions because it was conventional wisdom, it resembled what we had experienced historically, and it was compelling. The deficiencies of those assumptions are glaringly obvious today but it made a ton of sense at the time. It’s human nature to forecast our current situation (whether it is good or bad) into perpetuity. We think it will always be the same and in reality, it is always changing. We’ve always been in a cycle and we always will be. We don’t understand where we are in the cycle until we’re looking at it over our shoulder. A decade ago we were too optimistic. Now I think we’re too pessimistic.
Middle-class consumption drives the global economy. The picture isn’t great for the developed countries. In the United States, we’re still recovering from the real estate crash but we’ve done a lot to heal our personal balance sheets (now it’s Congress’ turn). Europe is going to be working through its currency woes for years. In my opinion, the Euro as it is today will not exist in a decade. It might be a four country currency zone.
I’m extremely optimistic about the rising middle class in the emerging market economies: Asia, India, Latin America and Africa. I’d like to give the world a Coke… and some Kentucky Fried Chicken, and an iPhone and a Wal-Mart in every town. Someday it will happen and our clients will benefit from it.