Investors face multiple risks and concerns, including COVID-19 (and its variants), inflation, and interest rates. Speaking to Bloomberg, three Wall Street giants – Cathie Wood of Ark Investment, senior economic advisor at Allianz SE Mohamed A. El-Erian and chairman of Guggenheim Investments Scott Minerd – shared their own worries about the future.
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Wood told Bloomberg that deflation, not inflation, is the biggest risk, adding that three major deflationary forces are brewing. On the innovation side, she noted that today we are in a time we have never been in before. “You have to go back to the phone, to electricity and to the car to see three major technology-enabled sources of innovation evolving at the same time.” Today we have five platforms: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology – all of which are deflationary, ”she said.
The good news is that this is good deflation causing a boom in economic activity, at least where the innovation is happening, Wood added. “The problem is that this innovation will disrupt the traditional world order very much. But when disruptive innovations develop so quickly, there will be disintermediation and disruption. Companies that have learned to please short-term shareholders – who want their profits and want them now – have used their levers to buy back stocks and pay dividends. Companies haven’t invested enough in innovation and we will see more and more carnage over the next five to ten years. “
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What worries Mohamed El-Erian most is inequality, both within and between countries, he told Bloomberg. “And it’s something that financial markets are dismissing as a social problem, not really an economic or financial problem. And we risked the problem of inequality gaining momentum. COVID was already the big inequality maker, but instead of going back to where we came from, we are now creating the momentum so that inequality can worsen and become more important in disrupting all sorts of things in our society, ”he says.
El-Erian added that as we slowly get out of the pandemic, the aftermath of the pandemic is creating different dynamics around the world. “If you are in a developing country today, you can no longer assume that companies will come to you. The burden is always more on you when you come to the employer. And that’s the real problem when education is lagging behind, when technology is lagging behind. So I’m worried that this massive process will get bigger and bigger if we’re not careful. “
He pointed out that there is a correct notion that inequality can inspire people to work harder and perform better, but there comes a point where it comes from encouraging people to do good things, to actually affect not only economic well-being but also social and political well-being.
“I don’t think the American dream is dead,” said El-Erian. “I think it’s harder to achieve. If you don’t have the right training to begin with, if you don’t have a range of assets to start with, you envision a much steeper curve and that’s a real problem for too many people. “
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After all, the biggest risk for Guggenheim’s Minerd is the sustainability of the global payments system, he told Bloomberg.
“And I prefer sustainability to vulnerability because the real key here is keeping the global payments system going and we’ve had so many hacks, terrorist attacks and the Colonial Pipeline incident,” he clarified. “It seems that we are extremely vulnerable to an attack on the payment system of the financial markets – and not only here in the US, but in Europe.”
He added that a synchronized attack would essentially bring the global financial market to its knees. “The first reaction would likely be that securities prices would crash, and the second would be that we would probably have to close all of the world’s stock exchanges to find out how to restore the global payments system.”
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In addition, Minerd rates the likelihood of it happening to be very high. “We need international cooperation to assess the risk and find out how we can harden the existing system in the short term and modernize it in the long term,” he added. “But for that you need a new generation of technology and whether it’s blockchain or whatever, it has to be modernized.”
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Last updated: September 30, 2021
This article originally appeared on GOBankingRates.com: Deflation, Inequality and Hackers Encompass Top Economic Concerns of 3 Prominent Wall Street Experts