Debt holds the key for future
Capital controls and political turmoil will both play their part in the global economy. David Lee reports from The Scotsman’s investment seminar
The global investment community is accumulating enormous debt levels which could precipitate a new economic crisis, an investment seminar organised by Scotsman Conferences heard.
Russell Napier, an expert in financial markets, said: “We are living in an exceptional period of history with exceptional levels of debt, as high as at the end of World War Two – but the situation is worse than it was in the past because the private sector is also very heavily indebted.
“We need some idea of where debt is going if we are to invest successfully.”
Napier said the US Government’s debt:gdp ratio was at 100 per cent, but this rose to 120 per cent when private sector debt was factored in.
“Without a shadow of doubt, the level of debt is higher than it has ever been in relation to our economy. The idea that we are getting gearing under control is absolute nonsense.”
Napier raised the spectre of capital controls and feared a referendum to increase the power of Turkey’s President Erdogan on 16 April could be a trigger-point for a “dangerously indebted” global financial system.
He said: “If Erdogan wins, he will become a dictator in Turkey and he has borrowed $400 billion.
“Not long after the vote, something will happen, potentially in the form of capital controls, which will mean Turkey will not be paying back its $400 billion of debt. That will be a shock to the world financial system.”
Napier said in this context, his advice to investors was: “Be very cautious. Take a multi-asset approach and don’t just go for equities.”
Chairman Bill Jamieson had introduced the event – Investing in a post-brexit World – by noting that the feared impacts of Brexit had not yet materialised: “The Dow Jones is up 20 per cent since last June, the FTSE up 23 per cent. What could possibly go wrong?”
Merryn Somerset-webb, editorin-chief of Moneyweek, also raised the prospect of greater government controls over the economy.
She argued that the votes for Brexit and Trump were a sign that people wanted politicians to do more, not less.
Quoting fellow Financial Times columnist, Gillian Tett, she said: “To explain the results, follow the verb. Hillary Clinton’s slogan was ‘I’m with her’ – rubbish, no verb. Trump campaigned to ‘Make America great again’.
In the EU referendum, we had ‘Stronger in’ – again no verb– against ‘Take back control’. It’s all about the verb, where the action is.
“People are asking their governments to be sovereign – and this means a conscious reaction against globalisation, against the supra-national bodies like the European Union, the International Monetary Fund and the Word Trade Organisation which have seized all the power.
“Populism is not a rebellion against politicians – it’s propolitician, a plea for them to be more like politicians and take action.”
It was also a rebellion, she argued, against the power of big business – and governments were heeding the message that they should intervene more to look after the people’s interests rather than big utilities and large corporates.
“Governments have nothing left in their coffers, so they need to find somewhere cash is available – and it is sitting on the balance sheets of the big corporates,” said Somerset-webb.
“The more I see money sitting on the balance sheets of big companies like Apple, the more I expect governments to come for it.
“I also expect beneficial tax positions enjoyed by the likes of ebay and Facebook to end.