If you told your friends and family that you went to a psychic to foretell your future, some of them would laugh at you. But if you told them that you attended a conference where market strategists and economists predicted the long-run future of the market and the economy they might want to hear more.
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But really? I would wager that psychics, market strategists and economists would have about the same track record predicting the future. That said, here are a few prognostications of what the future might hold.
Crime
Pro-lifers, or more appropriately “pro-birthers,” are basking in their victory with the overturning of Roe v. Wade by the Supreme Court. But being “pro-life” is not the same as being “pro quality of life.” Many babies will be born to poor and single mothers who cannot afford to travel for abortions and do not have the financial wherewithal or parenting skills to provide a good upbringing. Government programs to help these families will have limited success unless the kids are raised in stable homes with proper supervision. So, we might see an increase in crime in about 15 to 18 years when many of them will grow into young adults without the requisite skills and prospects to lead productive lives. Easy access to guns will only exacerbate the problem.
Inflation
It will be difficult to bring inflation back down to 2%. COVID is proving to be difficult to conquer because the coronavirus mutates, rendering vaccines less effective. New rounds of COVID are hurting the Chinese economy. Part of the problem lies with their draconian policies of completely shutting down cities even when there is only a few cases of COVID infections. It is limiting the production of goods exported to the west. China reported that its economy expanded by an anemic 0.4 percent from April through June compared with the same period last year.
Demographics is leading to a shortage of workers in America and China. The working age population (20 to 65 years) has peaked in both countries. Consequently, productivity has to improve for their economies to show healthy growth. Absent productivity improvements, you can expect slow and sluggish growth coupled with higher inflation because a growing senior population will demand more goods and services, which a shrinking working age population might not be able to supply.
The good news on the inflation front is that the dollar has reached multi-decade highs against major currencies including the euro and Japanese yen and could head higher still. So, imports will be cheaper but at the expense of export growth because American-made goods will be more expensive.
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Interest rates
Expect real interest rates — interest rates minus inflation — to remain significantly negative. You might have expected a massive sell-off in bonds leading to huge increases in rates because of high inflation. This scenario is not manifesting because there is no other place to safely invest money. The stock market is mired in a bear market and so investors are afraid to sell bonds to allocate more to stocks.
On an optimistic note, long-term rates could be low because investors are expecting inflation to subside. A sign that the bear market is ending could lead to a massive transfer of dollars from the bond market to the stock market, causing rates to rise. Stocks are one of the best hedges against inflation, so it makes sense that rising stock prices could lead to a greater allocation to stocks from bonds, leading to rising interest rates.
Stocks of exporters might not do as well as the broad market because a strong dollar will impede their international sales.
Corruption at the local level
Many smaller city newspapers are struggling to survive. Their investigative journalists were the watchdog of local politics and other matters. Now there are fewer of them to hold state and local politicians’ accountable. With this check and balance eroding, could we expect more local and lower-level corruption?
Democracy
Democracy will be in peril if Trump and the GOP succeeds in getting their politicians to decide elections rather than voters. America will lose its moral authority on demanding free and fair elections in other countries. This will embolden dictators, despots and tyrants around the world to further tighten their grip on their autocratic rule. A reminder that dictatorships are likelier than democracies to start wars.
Climate change
Climate change is a clear, present and the biggest danger to our quality of life and possibly the survival of many on our planet. Although the majority of the conservative populace are beginning to believe so, their political leaders are slow to act. It seems that the problem could be contained by some combination of mitigation, adaptation and geoengineering.
Murad Antia, now retired, taught finance at the Muma College of Business, University of South Florida in Tampa.
