Research break & broad comments

I have been doing some research into aging populations, dementia and the care sector over the last 4 to 6 weeks, so I have not been commenting on a lot of economic and market issues.  Needless to say the financial services industry appears in no way prepared to deal with the human issues associated with increasing rates of dementia and service structures in general remain mired in denial.

Economic concerns remain of course the same: weak growth dynamics in the US, world trade growth, China debt and slowing growth dynamics, European structural weakness and the depth of the decline post crisis, significant consumer and sovereign debt, demographics, income and wealth inequality, high market valuations and little margin for leeway in the event of a market or economic shock (interest rates and QE maxed out in most instances).  

Growth risks going forward suggest a negatively skewed distribution of potential GDP growth outcomes and return distributions suggest significant risk of negative returns over fairly long time horizons.  I share many of the same concerns as John Hussman, but my economic growth assumptions for risk management would be below his, indicating a potentially much worse risk outcome for global equity market returns.

It is a moot question whether the investment industry has appropriately modelled risks to return and hence income and capital withdrawal profiles on most portfolios.   Leverage is also of concern, especially in markets with poor regulatory investor protection mandates (note Canada) and I suggest that the time to have reformed the financial industry from transaction to best interests has likely passed for those who have not yet passed through this loop (again Canada). 

One of the reasons I feel that has driven markets forward has been due to increasing income inequality and historically high levels of profits that have pushed marginal allocation of income and profits towards investment assets.  This is a dynamic that will break at some point, either threw an economic/market shock or through its own impact on growth in economic demand.

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