In another session, John Brynjolfsson, the managing director at investment management firm Armored Wolf in Aliso Viejo, Calif., and a veteran of Pimco, said his job seeking frequent alpha opportunities for clients in the global economy means focusing on the difference between real and generic asset allocation, which means real quantities denominated for consumption-in other words, adjusted for inflation.
"Our clients, they would all like to make a lot of money, but making a lot of money in an environment like the 1920s Weimer Republic didn't buy anybody a loaf of bread," he said during his presentation, "Global Macro Outlook and Real Asset Allocation." "So making a lot of money by itself isn't the right metric, the real metric is to grow purchasing power."
Brynjolfsson said that we have a three-speed global economy right now, one is Europe and its recessionary blues, another is the muddling United States and then there is the thriving developing world. But almost every country of import in the world, he said, is growing slower than it did in the five years leading up to the 2008 financial crisis. "The risk is of an event on the downside," he said. Globally, he said we might be looking at 3.5% or 4% global GDP growth, but the math is being turned on its ear by developing world growth in places like China that have been growing at 8% while the developed world grows at 1%-2% and loses population.
"Within a few years, the developing world will account for more than 50% of GDP growth," he said. "And for the businesses than I'm in where I'm looking at raw materials and commodities and global currencies, it's the movement of physical goods and materials that are driving the equation. ... The developed world is more focused on intangible products like downloading iTunes." These developing countries will focus more on internal growth as exports shrink.
However, the global growth prospects next year are predicated on three things, he said: that the U.S. will not fall into a recession, that the emerging markets will respond with the strong economic policy tools they've created and that Europe will tackle their credit crisis.
"The third assumption, I'm not going to buy it," Brynjolfsson said. "I don't think the Europeans are going to logically figure out a way to solve their problems because just at a guttural level there is not a union of mind. ... The German people do not want to see a situation where their savings and austerity and prudence are being used to pay for the retirement plans of Southern Europeans. And frankly, southern Europeans don't want to be part of a German federation."
-Eric Rasmussen