In recent years, an unmistakable backlash against globalization has swept the developed world. It’s not clear that this trend is permanent, but if the world becomes more nationalistic and countries organize their agenda around politics and not economics, that’s a huge change. “Global growth will likely be on a declining trajectory,” McMillan adds. Blaming the surge in populism on a handful of opportunistic politicians misses the reality of very real changes in the 21st century business environment. The rise of disruptive businesses has redefined the meaning of Benjamin Graham’s classic metric, the margin of safety.

David Giroux, T. Rowe Price’s chief investment officer and head of equity and multi-asset strategy, estimates that 30.6% of the S&P 500 is at risk for secular disruption. But the range could be anywhere from 20% to 35%.

Modeling this is extremely challenging. Take the asset management industry, which is being turned upside down by passive investing. If 30% of the S&P 500 is likely to be deleted from the index, merged into stronger businesses or marginalized into a shadow of what they once were (think of U.S. Steel, the world’s largest company 60 years ago), do people really want to place all their faith in index funds? At the same time, picking winners and losers also can be a perilous exercise.

To prove their own value in a world where a rising percentage of value stocks are secularly challenged, active managers will need to identify the next round of at-risk businesses before the market does, Giroux said at a November press event. Another of his takeaways is that the number of attractive industries and companies is shrinking. Inevitably, disruption will spawn a whole new generation of companies and industries, but in the last decade a growing number of these concerns have chosen to remain in private hands far longer than previous generations of start-ups have.

The Next Recession

The implications of disruption extend far beyond investing. Fewer and fewer workers have safe jobs.

At John Mauldin’s Strategic Investment Conference last March, Gundlach openly wondered about how voters around the world, who have elected a wave of angry populists in every continent during good economic times, would behave come the next recession.

Orlando thinks there’s a reasonable chance Democrats run the table in the 2020 election. The last time that happened was in 2008, and financial markets, which had nowhere to go but up, reflated for the next decade. But today’s world is a very different place, and so are today’s Democrats.

BlackRock, the world’s largest money manager, estimates the odds of a recession are only 19% in 2019, but thinks they will rise 38% in 2020 and 54% in 2021. Ironically, its research finds that in the calendar year preceding U.S. recessions since 1978, the S&P 500 has outperformed developed foreign markets, a 60/40 portfolio and U.S. Treasurys.

And several observers don’t see any recession on the horizon. Robert Browne, chief investment officer of Northern Trust, declared in late September that the odds of a recession in the next five years were less than 20%. His view is an outlier, and he acknowledges that the next five years could see rolling recessions in industries like energy, home building, retailing and many others, with some negative quarters of GDP sprinkled in along the way. And a profits recession like the one seen in 2015 is certainly in the cards.

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