Unwinding the “mess” created by quantitative easing is the key short-term problem facing the global economy, says Edward Bonham Carter, chief executive and chairman of Jupiter Asset Management.
Mr Bonham Carter, speaking at the 2018 PAM Annual Dinner, laid out the short, medium and long term issues he was mulling on behalf of his clients and business.
“One of the big questions is how the hell do we get out of this QE mess?,” Mr Bonham Carter said.
“We’ve never done this before in modern financial systems. We all know economic behaviour, financial behaviour [is distorted] and the cost of capital has been artificially reduced in both real and nominal terms. All sorts of unintended consequences have happened other than the fact it’s bailed out the system.”
This pointed particularly to questions over inflation, and whether low rates will persist through the unusual combination of low unemployment yet stagnant wage growth.
“Given this level of QE, if you’d asked most of the experts eight years ago, what would the inflation rate be? Most of them, and certainly me, would have [predicted it would be] much, much higher than it is today.”
Moving into the medium term, Mr Bonham Carter said the issue of populism, while cliched, remained important.
“Underneath [populism] is not just inequality, but a significant lack of trust in experts and the so-called elite. There’s a very real question around how that will continue to manifest itself in political systems and how that interacts with economies and markets.”
Mr Bonham Carter said he was surprised markets had been so resilient in the face of the current populists—President Trump in particular. This could change if “serious protectionism” became widespread.
Mr Bonham Carter also touched on the issues likely to have impact on the lives of his “children and grandchildren” the two most prominent being demographic and technological shifts.
Populations in most countries would be forced into “some combination” of retiring later, saving more, and cutting benefits as the ratio of workers to the elderly becomes “seriously challenged”. Meanwhile the population boom in Sub-Saharan Africa would put migratory pressure on more advanced economies “unless Africa gets up the wealth scale quite quickly”.
Finally, Mr Bonham Carter encouraged those present to consider what their organisational “edge” is, as the financial services sector comes under pressure from technology, its own burgeoning size, and an increasingly complex world.
“I have a personal view that the financial sector generally has got too big as a percent of GDP and I suspect we’re facing a reconstruction of the financial world… there will be some strong survivors and some [that won’t survive],” he said.
“Work out what your edge is… Really start to analyse what your value add is and how defensible it is.”
Edward Bonham Carter joined Jupiter Asset Management in 1994. He formerly worked at Schroeders and Electra Investment Trust during his 35-year career.
The 2018 PAM Annual Dinner for wealth management chief executives was held at The Dorchester Hotel in London on Tuesday 11 September 2018. The dinner was attended by 42 people, and was sponsored by BNY Mellon Pershing (lead sponsor), Jupiter Asset Management, and co-sponsors InvestCloud and WDX.