Many independent advisors at Raymond James’ national conference came to Orlando to learn about the business and tour the Disney area this week. On Tuesday, author and former presidential advisor Pippa Malmgren took them on a worldwide trip through the trends shaping today’s global economy.
Her talk, delivered to a crowd of about 2,000 advisors and 2,000 other guests, outlined why politics have become unpredictable and prices are on the rise. But she also shared why innovation in the U.S. continues to be good news for investors and why global turmoil should keep pushing investors towards U.S. companies.
Reforms and new technology emerging in Mexico, Texas, the Midwest and other areas “are promising,” Malmgren says.
“I say Mexico is the new China, the U.S. is absolutely hitting the ball out of the park, which gets major investors excited,” the popular author explained.
“You can get a view in your head that is a little bit out of date. I talk to the biggest companies and investors to share exactly what is happening vs. what you think is happening,” she said.
The speaker, who wrote the bestseller “Signals: The Breakdown of the Social Contract and the Rise of Geopolitics,” resonated with the audience by connecting all the dots between economic and political trends at home and abroad.
1. Inflation is Back
With the fall of the Berlin wall, “We got lots of workers, a disinflationary climate and Walmart, as well as a peace dividend, meaning there was less spent on nukes,” the speaker stated.
“But now, we no no longer have emerging-market workers pushing wages and prices down,” Malmgren, an economist, said. “Now, we’ve got inflation.”
“Inflation is back. It’s a genuine, real phenomenon that’s come after a decade of central banks moving to create it – surprise, surprise!” she said.
Younger generations have never experienced inflation. “And it’s going to be one of most important things to focus on,” Malmgren said.
“I’m not talking about epic inflation and hyperinflation,” she explained. But we should see at least the 1% to 2.5% of the past few years – “and a little more,” which will have “a sign impact on the asset allocation of pension funds or [holdings of] institutional investors.”
Rather than looking just at the data on prices, check out what you’re consuming. “The cereal box is big but the quantity inside is” smaller than before, Mulmgren said. “Companies’ input costs are up.”
Though firms want to raise prices, they first tinker with other strategies. “They want you, the consumer to eat the gap [between what they pay for inputs and what they are charging]. I call it shrinkflation,” the economist said.
“When the major, cheapest provider in the world has rising prices,” she said of China, “we cannot assume that emerging-market workers will always drive prices down. Today, they are driving them up – and there are many consequences.”
2. Global Stress, Contests
Geopolitical tensions are on the rise, too, as “countries contest for materials in an inflationary environment,” she says. “China wants pork or it will have trouble – meaning political dissent.”
The push for raw materials and food, namely protein, is why we see China building roads and ports all over the world and Russia move to set up footholds from the Arctic to the Mediterranean.
While this strategy has its merits, she said, “It’s ironic” that China was considered the future and “America was toast” until growth in China’s booming economy slowed.
“China is experiencing inflation as workers say they are not willing to work for nothing,” Malmgren explained. By some calculations, “It’s 30 times cheaper to produce in Mexico rather than China.”
This is why, she asserts, “Mexico is the new China.” Economic reforms are happening in Mexico that have allowed foreign investors to move into the energy sector, for instance, and Mexico’s level of quality control meets U.S. standards.
3. Innovate or Else
Today, the movement of some jobs and manufacturing – so-called reshoring or onshoring – “is absolutely happening,” the speaker says.
“U.S. innovation is extraordinary. How, in comparison, will China innovate?” she asked. That country is putting in place “a new great digital firewall” that keeps Chinese out of many English-language applications (like Dropbox, Google, etc.).
In contrast, “What’s happening in the U.S. … with computing power and free access to it here, people take advantage of it” and that spurs new technologies and businesses, she said.
“Look where people are not looking,” Malmgren stated, pointing to Austin, Texas. “There is technological innovation happening across the U.S. …, which is expanding every day.”
“If you look at the choices for investors – I think I like the U.S.,” she said.
— Check out World’s Best Cities to Launch a Fintech Firm: Deloitte Report on ThinkAdvisor.