By: Randy Myers
The path to investment success is always riddled with challenges. In 2020 there were more of them than usual, often only tangentially connected to the forces that normally drive financial markets. It was a year of social upheaval and protest, the impeachment of a U.S. president followed by a divisive presidential election, and a global pandemic that by late October had claimed more than 220,000 lives in the U.S. and more than 1.1 million around the world. The pandemic threw the global economy into a recession, costs millions their jobs, imposed massive pressure on businesses in the travel, entertainment and hospitality industries, and forced most white-collar workers to leave their offices and work from home. Many will likely continue to work from home at least part of the time after the pandemic passes, reshaping the workplace and perhaps the commercial real estate market.
While the near-term outlook for investors may be uncertain, Mark Blyth, professor of international political economy at Brown University, suggests it’s not without opportunity. Coauthor of the newly published book “Angrynomics,” Blyth was the leadoff speaker at the Stable Value Investment Association’s 2020 Fall Forum, which for the first time was conducted virtually. More than 340 members of the SVIA community participated in the two-day conference held on October 14 and 15.
Blyth’s new book, as reflected in its title, explores the rising tide of anger evident in segments of the population, whether they are middle-class workers who feel they’ve lost ground economically or minorities who feel they’ve been mistreated by police and other authorities. One underlying catalyst for their anger, Blyth noted, has been the growth in economic inequality over the past few decades.
“The high wage-growth story we had really stops around 1983 and peters out for a large part of the wage distribution beginning in the 1990s, not just in the United States but across most of the rich countries of the world,” Blyth said. Then, just as the cost of living began outpacing income gains for many Americans, they also found themselves assuming increased responsibility for funding their own health care and retirement accounts. Economic frustration boiled over into resentment and anger. Those sentiments were then exacerbated by the arrival of the COVID-19 pandemic and its economic fallout.
The net result, Blyth said, is a U.S. economy that has begun to rebound but will have distinct winners and losers going forward, with low interest rates likely prevailing for a long time. But investors, he suggested, should be able to find opportunity amid the commotion if they’re alert to the structural changes that are underway. Those changes include a boost in productivity as remote work lets employees spend less time commuting and traveling and more time doing their jobs. Blyth also suggested we’re on the cusp of a new technological revolution built on Big Data and emerging technologies like artificial intelligence, 3D printing and robotics.
Blyth reminded his audience that the pandemic won’t be around in its current devastating form forever given that numerous vaccines are under development. Investors, he said, must see through this moment and recognize where long-term value is to be found. He predicted that global travel will eventually resume and that current high rates of unemployment and low borrowing costs will lead to massive investments in infrastructure—which in turn will require the issuance of bonds offering positive yields. He also suggested that Europe will be spending trillions of dollars on decarbonization initiatives and that the U.S. ultimately will follow Europe’s lead.
“The take-home is this: This too shall pass,” Blyth said. “Discount the noise. There is a tremendous opportunity here, particularly for longer-term focused investment. Think through how to deploy capital rather than preserve it.”
As part of that exercise, Blyth suggested that investing in decarbonization may prove almost obligatory. “If you don’t invest, and no one invests, the payoff is symmetric—we’re all dead,” he said. “If you invest and get a tenth of it right, you will make a great deal of money. If we all invest in it, because we all need it and most of it works out, you’ve just participated in the greatest industrial revolution since the Industrial Revolution.”
A happy corollary, Blyth added, is that an economic revival driven by investments in infrastructure and decarbonization could help cool the anger and partisanship now evident in society by helping to reduce income inequality. It also could dampen the populism that’s bubbled to the surface in the current environment.
“If the world we’ve guilt is inherently volatile, if it is basically producing a very skewed income distribution, then that is inherently unstable and problematic,” he explained. “We should think about how we alter that view, how we lower that wall. If we do that, populism disappears. Populism is not a thing, it’s a reaction to a thing—to people being left behind. That’s an economic problem. We can fix economic problems.”
