It is interesting that many of my friends who read Bill Gross article finds it more and more technical. I have the same feeling too. So when Pimco talks about the new normal, and the DDRs - deleveraging, deglobalisation and re-regulation, it is great that we have our very own Dr Tony Tan to put it in simpler english for the rest of us.
From the speech by Dr Tan, my key takeaway is that as we enter into a world of sub-par growth and limited spending and leveraging, from a portfolio point of view, it pays to be cautious. Risk of inflation and deflation has both increased --> Probably means that if you do buy bonds, keep to those with short duration and of great credit quality. If you got housing loan, try to fix the rate now. If you pick individual stocks, do not overpay for growth, cuz the odds of high growth (in general) over the next few years are not high.
Emerging economies are likely to displace the G-7 as the world’s largest economies over the next 10-15 years, even if per capita incomes will still lag behind the developed economies. This relative outperformance will be driven by
(i) larger savings and domestic demand potential,
(ii) relatively healthy public and private sector balance
sheets,
(iii) policy flexibility, and
(iv) room for significant productivity catch-up.
The current Great Crisis has markedly accelerated such trends.
But the shift in economic power to the emerging world will also likely increase geopolitical risks. For one, the emerging economies, especially the BRICs will become key global powers and increasingly demand more say on world affairs. An awkward transition is likely to occur: In terms of military power the US is likely to be dominant for decades to come, and will be called upon to carry out most of the heavy lifting in global trouble spots. However, the US would still be heavily dependent on foreign countries including key emerging geopolitical rivals, to finance its large public debt.
The above mentioned political risk cannot be underestimated. It scares me to think about the problems that the world would face as more and more resources demanded in industrial countries are sourced from politically unstable
The risk of de-globalisation and re-regulation are growing. In the recent "punitive tariff" imposed on Chinese tires imported into US, we may infer that economic policy will be greatly impacted by political will. Even food giant Nestle threatened to move out of Switzerland if the Swiss government imposes a salary cap. Executive compensation has always been a thorny issue. But to allow the government to dictate salary based on populist view could be catastrophic.
Haha. Here I am thinking about world issues. Haiz, gotta wrap my head around my school work and things to be done. Focus.
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