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January 23, 2013 at 07:12 AM
Rob Arnott’s keynote session at the ETF Virtual Summit on Wednesday focused on the coming 3-D hurricane—debt, deficit and demography. After hearing Arnott’s bleak assessment, he might consider adding a fourth “D” for depression.
The chairman and founder of Research Affiliates and the pioneer of fundamental indexing joined host Tom Lydon for a short interview about his economic and market outlook and specific strategies for 2013.
Beginning with the country’s debt situation, Arnott (left) noted, “We are a family that measures our success by how much money we spend. We have a GFP, gross family product. It feels great to go out and buy a car we can’t afford and a house we can’t afford. Until the bill comes due all is well. Then it all falls apart.”
He added that in 2011, U.S. debt reached 100% of GDP, but if its Social Security liability and Medicare and Medicaid liabilities are factored in, the debt rises to 600% of GDP.
“If you owe six times your personal income, logic dictates that it is not sustainable,” Arnott said.
From an investment standpoint, he said it’s best to realize “what must happen will happen and what cannot happen will not happen. You should evaluate how you get from point A to point B in that frame of mind, meaning taking the path of least resistance.”
