Trends Watch: November 3, 2016
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies Snyderman.
This week, Elana talks to Andrew Oskoui, Portfolio Manager and Principal, Blue Tower Asset Management.
What is your outlook on the alternative investment industry?
There will continue to be increasing demand from investors for transparency in their investments. I expect that investors will also be more sensitive to poor performance and will hold managers more accountable.
What is your outlook on the economy?
I find that it is easier to make accurate long-term economic predictions than short-term ones. Some long-term trends we can expect to continue are increases in labor productivity from technology, decreasing workforce participation and decreasing capital expenditures by corporations. This technological transformation will place a deflationary pressure on the real economy. I predict corporations will use more capital on acquisitions, share buybacks and dividends. This will inflate the value of equities which will trade at higher multiples than their historic norms.
What keeps you up at night?
Currently, my two biggest concerns regarding world investment markets are the unsustainable growth of the U.S. national debt and market manipulation by central banks and governments. If you include intragovernmental debt, the U.S. National Debt is almost $20 trillion and some estimates of federal unfunded liabilities place those at over $100 trillion. If current deficits are maintained, this will eventually lead to severe issues. I do not believe there will be a political will to pay off this debt in real terms and therefore the debt will be monetized, leading to a sharp increase in inflation and interest rates. This will be a huge hit to fixed-income securities.
Fixed-income has traditionally been seen as less risky than equities, but in this kind of environment the reverse may be true. Instead of a risk-free return, investors in treasuries are receiving return-free risk.
The main dangers of market manipulation by governments are the creation of asset bubbles and misallocation of capital. This is most obviously seen in China which has seen a huge boom of debt-fueled infrastructure investment; much of which I predict will not provide a positive return on investment.