A hinge moment in history

12-31-2021
A hinge moment in history

New regime quietly unfolding as old year fades

 

“All life is a process of breaking down,” the great American author F. Scott Fitzgerald once wrote in an essay for Esquire. “But the blows that do the dramatic side of the work…don’t show their effect all at once.” The writer was referring to his personal challenges during the mid-1930s. But the observation could have applied to the global economy moving into 2022: We are only getting early glimpses of how transformational the pandemic has been. Full impacts are still to be seen.

Yet it is now abundantly clear that last year was a hinge moment in history. The world of tomorrow will resemble nothing of what we see today. Global supply chains are in unprecedented flux. The operative word in boardrooms is “decoupling.” Labour shortages are driving wages higher, while the conventions of office life have been completely shredded. Rather than an aberration, we are seeing the start of a profound shift in the trajectory of the global economy.

From an investment standpoint, a new regime is quietly unfolding. In fact, we are witnessing the endpoint of several Super Trends that have been firmly in place for decades. Prices are now rising at a rate not seen in 40 years. U.S. household wealth has increased by the largest amount since records began in the 1950s. Even ideas about how best to arrange and manage our societies are changing.

This shouldn’t be surprising. Crises always lead people to question economic orthodoxies. The trauma of the 1970s led to a collective repudiation of big government. Today, support for Keynesian-style macroeconomic management is back in vogue and Modern Monetary Theory has electrified the policy atmosphere.

Fitzgerald titled his classic essay “The Crack-Up” – focusing on the breaking-down, destructive side of life. But a sequel could have been written, with a focus on the opposite: building up. By definition, chaos – or some form of demolition – must come before creation. The challenge is that regime changes look like a single event in retrospect, but they are never experienced that way. Instead they are protracted periods, decades even, where the existing order disintegrates and is replaced with a new way forward. This is always messy. And, it is difficult for investors to be forward-looking when they are caught in the glare of incoming short-term data.

In these environments, the typical default is to anchor oneself to the prior investment regime. Today, most are still assuming that the slow-growth era of 2009-2020 and the associated investment leadership will remain in place. Forecasting higher economic growth is controversial, even transgressive. But, here, we are spoilt for lines of argument.  In particular, the post-pandemic situation contrasts starkly with the destruction of household wealth that accompanied 2008’s global financial crisis – setting up a very different economic cycle ahead.

To be sure, the coming world transition will be bumpy. Yet many Super Trends are spring-loaded to last for years. Investment leadership will change. More than ever, investors need to look out further and lean into long-term secular themes. Wide-angle global perspectives will be crucial to discern the path ahead and set the right investment roadmap.

We aim to do just that in the coming weeks. Watch for Forstrong’s best ideas about the world’s most important Super Trends — those enduring themes that will have the largest impact on capital markets. Our hope is that this will help investors make sense of the unfolding macro landscape.

Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. He specializes in global investment strategy and ETF trends. This article first appeared in "2022 Super Trends: World in Transition" on Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on Twitter at @TylerMordy and @ForstrongGlobal.

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