Allow me to pant you a picture in your mind of a fair October night in an extravagant boardroom of one of the five largest banks in Canada. Around me are members of the bank, well dressed guests and former members of the Bank Of Canada. Great food and drinks were served as we eagerly awaited our special guest who was running late. He was the Chief Investment Officers of one of the 5 largest banks in Canada. And if you ever get a chance to listen to someone like him, I highly recommend that you do. He was very entertaining.
The Chief Investment Office spoke for 45 minutes on the economy in the United States, then Canada, then China, then Europe and then the rest of the world. He described the world economic engine like it was a living breathing animal with many organs moving and pumping to give the animal life.
He let us know right off the bat that his team had a $250,000,000 yearly research budget used each year.
To him the world economy was in very good shape in spite of any the news to the contrary. He also mentioned it was inappropriate to use words “crash” or “crisis” to describe every financial market dip.
The Chief Investment Officer described the U.S economy as one finally ready to raise its interest rates. He believed the interest rate rise would not have a significant negative impact on the overall US or world markets. He then went on to say that after the Federal Reserve raises its interest rates for the first time in seven years we should expect them to possibly do it again after they see how well the first interest rates raise was doing.
He did not foresee the Federal Reserve doing more Quantitative Easing programs. He opinion/research was that much of the money that was already created for the purpose of supporting the economy still needs to be released into the economy because the banks have been holding on to a lot of it for reserve puropses.
As far as Canada was concerned, he felt that Alberta and Saskatchewan would feel difficulties from the reduction in overall oil prices. But it all seemed manageable to him.
The emerging markets were the ones he felt offered the best investment rewards when you consider China in the last twenty years going from tiny villages with dirt as a floor to the second largest economy in the world. He then described the world’s dependency on China’s growth would need to be more realistic as you could not expect China to have double digit growth ever year as we have seen in previous years.
He then took us into a look at the Eurpean markets from the situations in Portugal, Italy, Greece and Spain and their continuing stability to Germany and France and their roles in the Eurpean Union. Somewhere in the conversation he mentioned Russia and then Australia and then the rest of the world.
His overall opinion of the world is that it was doing pretty good economically and he felt growth was certainly going to be the main part of 2016. He blew everyone away in the room with his descriptions and we all applauded.
After his presentation he opened the floor for anyone to ask questions. As I expected, I was going to have to be the one to possibly burst the bubble. Here was my question
Your entire presentation was thorough except for one thing. You never mentioned debt throughout your entire 45 minute presentation. How is the United States going to handle its current $20 trillion debt or its $123 trillion in unfunded liabilities.
The crowd hushed.
Being that the US Dollar is the reserve currency of the world, how is the economy going to grow if it raises its interest rates in the face of this dilemma?
He responded by saying that $20 trillion in debt is not difficult to handle for the US. But he did not talk about the $123 trillion in unfunded liabilities. How are they going to handle that.
In the first quarter of this year the markets have done the exact opposite of what the Chief Investment Officer lightly suggested would happen after the Fed rasised interesrt rates. He is correct on the growth rate of China slowing to something more normal and he may have a point about the markets over reacting to China’s economy.
I am not writing this article to ridicule anyone. I’m just making a point.
From 2004 to 2008 the financial research budget of this major bank was $1,000,000,000. That right. One Billion Dollars!
Yet I and others knew the financial meltdown that started its downturn in 2008 was going to happen four years beforehand… and these guys couldn’t figure it out after spending a B I L L I O N Dollars?
A member of the Bank of Canada made the most startling revelation to me in a private conversation after the event was over and we were mingling. She said that unless you are a contrarian, you will never be able to figure out a crash of that magnitude is possibly going to happen
My final point to remember…It’s not what you know. It what you think you kno0w that that isn’t so that will get you in trouble #BePrepared
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