The Next Five Years
Poor management, frauds and eroding company or industry trends always will be in fashion, regardless of market conditions. That said, several new secular developments seem to be setting the stage for a rocky and below-trendline outlook for equity returns over the balance of this decade.
- Uneven economic growth in 2006-2010. After a period of speculation (like in the late 1990s) followed by unprecedented fiscal and monetary stimulation, the 2006-2010 economy is likely to make for a much more difficult period for corporate managers and investment managers to navigate. A period of lumpy and uneven economic and profit growth (and a continued debasing in the U.S. dollar) seems likely -- a rich environment for short-selling.
- Growing geopolitical danger. The geopolitical landscape has changed for the worse, and unfortunately, it is not likely to improve for years. This risk will almost certainly be accompanied by the headwinds of higher commodity and energy prices.
- A secular rise in the rate of inflation. The benign inflationary backdrop of the last two decades seems to be in the process of being reversed.
- A widening schism between haves and have-nots. The social and economic risks associated with the increasingly disenfranchised lower- and middle-income classes (and their deteriorating real incomes and lack of participation in the economic recovery/boom) pose an intermediate-term threat to the domestic economy.
- A brave new world reliant on asset appreciation is filled with risk. An economy based on continued asset appreciation (equities and homes), as compared with the more traditional role of wages and salaries as locomotives for growth, holds new risks. This will serve as a slippery and uncertain slope for policymakers and investors.
Editor's note: This column by Doug Kass is a special bonus for TheStreet.com
and RealMoney
readers. It first appeared on Street Insight
on May 15 at 9:34 a.m. EDT. To sign up for Street Insight
, where you can read Doug Kass' commentary in real time, please click here.
Doug Kass
RSS
