“The impact will wear off in the second half of 2021 and then we are back to the slower growth for longer trend by the second quarter of 2021,” he says. The good news is that NTAM doesn’t expect another significant dip.
The bad news is that brisk short-term growth could take unemployment down to the 7% area. If activity moderates in early 2021 and growth returns to the 2% area, any return to the 4%-5% level of unemployment the U.S. has experienced since 2015 could take years.“From a social and political perspective, it will not be tolerated,” Browne predicts.
Citing the work of economist Hyman Minsky, who became famous for his work on financial crises after the Great Recession, Browne says the European model may not be better. “But it is kinder, softer and more socially and politically acceptable,” he says. “You [may] have a different set of losers from today’s. You may not have extreme winners.”
Neither Browne nor the NTAM report specifically addressed the issue of small businesses, who traditionally have generated an estimated 50% of the jobs in America. They also have provided much of the political support for so-called Friedman-style market capitalization.
During the pandemic many of these businesses have been deemed non-essential by the government and their owners have been forced to watch their customers go to the Amazon's, Target's, Home Depot's and McDonald's of the world. Many small business owners as likely to blame the government for their problems as much as the concept as capitalism. But whatever happens, bitterness is likely to linger.
Globalization Peaks, ESG Takes Off
In NTAM’s view, tensions between America and China are likely to remain high. Until recently, the two economic giants have managed to co-exist in relative harmony. But that relationship was based on a hopeful belief that China would gradually move in the direction of quasi-democratic capitalism like Taiwan and South Korea. Today, it’s clear China isn’t going down that path.
Doing business in China could well become a “make it or break it” ESG issue in the next decade and companies may be forced to make supply chain decisions. “Facebook and Google may have to decide to do business in one place or another,” Browne says. Partly because of the different nature of its device business, Apple may be able to continue operating in both places.
NTAM doesn’t expect global trade to unravel, but it is likely to plateau. As a share of global GDP, “it has already peaked,” Browne notes.
Deglobalization and a loss of faith in Milton Friedman-style capitalism aren’t the only threats to equity prices in the next decade. NTAM sees climate risk as perhaps the biggest threat. “Particularly vulnerable are natural resource and emerging market stocks,” the report states. “Relatively fragile economies could be especially sensitive to climate-related regulation as they are still in the early stages of maturation.”
Investors could be well-advised to get out in front of any asset repricing caused by climate change. Avoiding certain companies and industries permits investors from engaging in the “fruitless task of attempting to map out every global warming scenario.”