Wall Street Titans Target the Economy’s Three Biggest Risks: Deflation, Inequality, and Hackers

Wall Street Titans opinions

The risks facing investors and the global economy are innumerable and growing. But the great titans of Wall Street have a clear idea of ​​which are the most urgent for the coming years. In several interviews with the Bloomberg agency, three of the world’s largest investors and market experts give their opinion on the issues they consider key: deflation, growing inequality and the possibility of a cyberattack that damages the global payments system.

Wood: Deflation

For Cathie Wood, director of Ark Investment and expert in technological bets, the danger is not the inflationary wave that many experts fear. “The underlying assumption is that we are in an inflationary period driven by disruptions in the supply chain”, comparing it to the 1970s. But “I really believe that we will not go back there and that anyone planning their investments in the face of that scenario will probably make mistakes.”. Instead, “three great deflationary forces are brewing.”

“On the innovation side, today we are in a period that we have never been in. Today, we have five platforms: DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain technology, all of which are deflationary. Then we have electric vehicles and battery pack system technology,” whose prices plummet 28% every time production doubles. After several cycles, prices may end up sinking, Wood explains. “And then there are industrial robots, whose costs are also falling by more than 20% for each cycle.”

In return, there is a risk of “bad deflation” in the markets. “In recent years there has been a significant increase in risk aversion in the market. Companies have not been investing enough in innovation and we are going to see a lot of carnage more and more over the next five to ten years.”

Regarding the supply chain crisis, his theory is that “companies, to catch up, have placed double and triple orders. And once they see prices go down, they will withdraw those orders. So I think there could be a great fall in the prices of raw materials, since the consumer has gone from consumer goods, which are only a third of consumption, to consuming services”. A change that could cause an imminent slowdown in inflation, as central banks have been expecting.

Wall Street Titans

El-Erian: Inequality

For Mohamed El-Erian, Senior Economic Advisor at Allianz SE, the main risk is inequality. “And it is something that the financial markets put aside as a social problem, not really an economic or financial problem. And we have risked that the issue of inequality will gain momentum. Covid has already been the great imbalance, but instead to go back to where we came from, now we are creating the dynamics so that inequality worsens,” he warns.

In his opinion, the main risk lies in the inequality of opportunities. “Think of the people whose jobs have been displaced by this big step towards digitization, who have no financial assets, to begin with and are not benefiting from rising prices. Also, they are hoping to buy a home and have been shut out of the housing market. And if that wasn’t enough, if they are unemployed, suddenly there is a skills mismatch.”

The solution is simple: “Invest in physical and human infrastructure. It’s about allowing people to do more and improve. It’s about giving people opportunities for transformation. It starts at a very young age, in daycare, exposing people to bright future minds to education. It continues throughout school and college.” And above all, it is open to anyone, regardless of their wealth or that of their parents, a task to which governments should apply themselves.

Minerd: Cyberattacks

For Scott Minerd, president of Guggenheim Investments, the main threat is the global payments system, the ‘pipes’ that carry money from one place to another and that allow the international economy to function. “I choose the word sustainability over the word vulnerability, because the real key here is to keep the global payment system running, and we’ve had so many hacks, terrorist attacks, ransomware kidnappings. We seem to be extremely vulnerable to an attack on the payment system. payment of financial markets,” he explains.

If there were a timed attack, “they would essentially bring the global financial market to its knees. The first answer would probably be that stock prices would collapse, and the second is that we would have to shut down every stock market in the world while we try to figure out how to restore the market. global payment system,” he warns.

The problem is that, like pipes, this mechanism is something that “is there” and that nobody seems to care about. “And it actually requires a high degree of international cooperation. You need a real macro look, which means that there must be someone or some group of people looking at how everything is interconnected and where the potential vulnerabilities are,” says Minerd.

And the key, in his opinion, is that everything related to the Internet is vulnerable. “One of the comments I made to people about cryptocurrencies, in general, is: ‘Why do I need to transact over the internet? Why can’t I text you?’ There are other ways to transfer things, right? Even if the blockchain was eternal, safe, perfect and robust and nobody could be robbed through it -which is not true-, it has a weak point: the internet. you load internet, you have won”.