5 (+3) Themes For The Next 5 Years

Tyler Durden's picture

The following five themes (and three bonus ones) are what UBS Andrew Cates believes will be of the greatest importance for global economic and capital markets outcomes for the next five years. There is little to surprise here but the aggregation of these factors and the increasingly binary outcomes of each of them suggest there may be a little more uncertainty about the future than most people sheepishly admit...


Via UBS,

We highlight five themes we expect will be dominant for global economic and capital market outcomes over the next five years. For the curious, we also mention a few themes that didn’t quite make the cut, but are nevertheless worthy of consideration.

#1 Right-sizing monetary policy

Cleary, a major challenge facing central banks at some point in the next five years will be restoring ‘normality’ to monetary policy. The first task, in all probability, will be right-sizing bloated central bank balance sheets (followed by a normalisation of policy rates). The challenges for the central bankers—and market participants—are both unprecedented and enormous. How will central banks manage that process? Can they manage it? What will be the implications for real economic activity, capital flows and asset prices? Those are all topics we’ll explore in this theme.

#2 Right-sizing fiscal policy

As if monetary policy weren’t enough, fiscal policy in many economies—advanced and emerging—requires right-sizing as well. For some, the focus is on deficit reduction. For others, it is debt stabilisation. And for still others, it is meeting demographic challenges to government spending and tax revenues. For some, it is all of the above.

#3 Age of plutocracy

In many advanced economies returns on capital—physical and human—have soared. Income and consumption distribution have become more skewed. Yet, populist backlashes against unequal outcomes are relative tepid. Indeed, business seems to be getting its way politically—witness the reality of more corporate tax cuts than hikes in recent years or the new-found will to press ahead with globalisation via free-trade deals spanning (much of) the Pacific and the Atlantic. How long can an era of plutocracy last? What challenges lie ahead?

#4 A world not re-balanced

Although current account imbalances have shrunk since the outbreak of the financial crisis, much of the decline is due to recession and subpar recovery. Sources of domestic demand are few and largely concentrated in the US. Emerging economies, once the poster children for domestic-led growth and re-balancing, are now facing debt hangovers. Emerging economies, along with Europe and Japan, are returning to a greater reliance on net exports as their chief drivers of growth. The consequence is a return to a world of imbalanced growth. What are the implications for the world economy and asset pricing?

#5 Technological innovation

New technologies applied to energy extraction, information systems and manufacturing hold great promise for lifting potential growth around the world. How big might the impact be on real output? Who are the likely winners and losers of the next technological revolution? What are the implications forinvestment returns?

Finally, we felt it important to consider key themes that didn’t quite make the cut into our top-five. That doesn’t mean they won’t occasionally capture the attention of investors and policy makers. But in our opinion they aren’t likely to be as durably important as the five we’ve listed above. Here are some of those candidates:

Eurozone risk

Just because Eurozone sovereign risk premiums have declined does not mean all is permanently solved. The European monetary union remains incomplete and hence fundamentally flawed. Moreover, the prospects for a more robust re-design of the Eurozone—which would include a banking union with single resolution authority and mutualised deposit insurance, plus enhanced labour mobility or fiscal transfers—remain bleak. So, too, do the prospects for re-employing the millions left jobless in Europe’s periphery, chief among them young people. Against that backdrop, ‘exit’ or ‘breakup’, but also political stress, will form a spectre hanging over the single currency project for considerably longer.

Japan rising? Or Japan setting?

‘Abenomics’ is not hype. It’s decisive. If Japan can restore inflation, achieve a reasonable rate of GDP growth, raise potential output, and rein in its explosive debt dynamics, it and the world economy will be vastly better off. Investors would have much to cheer. But if ‘Abenomics’ fails, Japan will probably return to its deflationary malaise of recent years and could be potentially on an irreversible course to default via hyper-inflation. A great deal is at stake. How will it turn out?

Emerging reforming? Or emerging deforming?

As we have noted in a series of reports over the past two years, productivity growth is slowing rapidly in emerging economies. Equally, relative returns on capital are slumping. And debt trajectories are unsustainable in many emerging economies, including China. A common prescription is required to get emerging back on track: Reform. To be sure, the required reforms differ considerably from country to country, but the overarching question is whether emerging politics and policy can deliver. We’re sceptical, not because the challenges aren’t recognized (witness the reform language of China’s 3rd Plenary session or of Mexico’s reformminded president). Rather, reformers are up against vested interests, such as the banks and state-owned enterprises in China, nationalism in Mexico, or business, labour and legal opposition in India. Absent a crisis, reform is politically very difficult and, for now, most of the emerging complex is not sufficiently in crisis mode to embark on reform.



[ZH: So apart from all that... why not BTFATH?!!]

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Traianus Augustus's picture

UBS to english dictionary

Right-sizing = FUBAR

dasein211's picture

The new technology is digital currency. All currency are just public agreements to use that item as a medium of exchange. It's usually criminal/licentious elements that decide which way we go with what technology. VHS vs beta- porn industry decided. Ak-47- war criminals decided. Art, music, food, politics- these things were all at societies fringes at one time and as they became more mainstream they gained value. No difference here.

OutLookingIn's picture

The article covers,

These essentials;

1/ Could be inflation, or maybe deflation

2/ Hyperinflation? Or, maybe not

3/ Stocks higher? Or, maybe lower

4/ More currency printing, or maybe not

5/ A market crash? Or just a "flesh wound" correction

"Your arms and legs are off! Just a flesh wound. Come back you coward!"

LynRobison's picture

In the article "right-sizing" fiscal and monetary policy means "moar" borrowed money for both.

In the "Japan rising? Or Japan setting?" section, they forgot "or Japan disappearing (in a cloud of radiation from Fukushima)".



Anusocracy's picture

1) Maintain control.

2) Keep the sheeple asleep.

3) Steal more money.

4) Find new boogie men.

5) Expand worldwide governmental structures.

Race Car Driver's picture

> ... just public agreements to use that item as a medium of exchange.

I junked you for your ignorance. Who gets to 'agree' to use this new technology? Who creates it?

But most omportantly - why would 'the public' want a digital currency that could be tracked nine ways to Sunday? And before you say 'convenience' - ponder on how convenient it is that .gov knows everything you purchase or spend your digital currency on and what that might mean to you if they don't like what you're doing with 'public' currency?

And, before you say it can't be tracked - look at what the internet has become. It's digital. It's all the same technology.

The Ring couldn't be used for good because it was only designed for evil.

Same with this electronic technology. It was designed to track everything its users do, say, look at ... etc..

M9L's picture

Enough with the doom and gloom BS already, just be happy S&P has broken all time high, key macro indicators in the US are on the rise, not a rockstar rise but still. Do not forget that two percent of 15tn is still a lot of $$$.

I like zero hedge, but posts like "uuu there is another balck swan in the works and everyone else are stupid lemings" make me like it less.

Dr. Engali's picture

Yet you continue to come here and contribute nothing of value. If you don't like it then don't read it.

prains's picture

M 0.9L


you should start limbering up dude.....take the top lip and pull hard up....take the bottom lip and pull down hard...repeat daily.....so when your face finally does get ripped off.... you'll have stretched yourself into it... oh and.......



Fuck off

LawsofPhysics's picture

"If Japan can restore inflation,"  ---  LMFAO!!!!!

Deflation is a myth, inflation is theft.  No society/currency has ever collapsed/died because their purchasing power was too strong.

Professorlocknload's picture

  We must destroy the currency to save it, maybe? Because it isn't doing what it is told?

  Stands to reason within the bureaucracy, where most anything macabre does. We're again at that point in the political cycle where insanity is in. Mustn't buck the trend.


Herd Redirection Committee's picture

Deflation...  Is good for savers, and workers(if the price of goods deflate more/faster than their wages do).  Its terrible for the highly leveraged, and the big borrowers.

So say your 'superpower' was the ability to loan money to any and all cronies, by creating said money out of thin air.  In what environment would your cronies prosper the most in?  Inflation or deflation?  And can deflation ever result in policy that causes inflation??

lasvegaspersona's picture


And I thought it was hopeless.

Seems all that has to happen is for the pros to get it right....what a relief...yeah...just fix things and all will be well.

Chief_Illiniwek's picture

Yes - but is it recycleable?

Dr. Engali's picture

Isn't this nice? I guess that the SEC doesn't have watching porn on the job cornered.:

Homer Simpson would be proud: Nuclear regulators crack firewalls to access porn


Professorlocknload's picture

Yeah, Doc. But don't fret, Zerocare is hack proof. Yes?

RaceToTheBottom's picture

They should account for the black swan.

Not Too Important's picture

There is only 1 primary theme for the next 5 years - the Fukushima worldwide radiation plume:

"The only thing to consider, for all those breathing on or after 3/11, is the effect of the powdered uranium and plutonium that was blown worldwide (which is still circulating in the atmosphere) in our lungs, and how quickly it will kill us.

There is no fixing this. They could make all of Japan disappear, filter every drop of ocean water worldwide, clean up every square inch of land, and it would have no effect whatsoever on what is already in our lungs.

One particle, 10 particles, 1,000 particles – it's over."

The map:


All above from Enenews.com.

Everything, every moment, every financial consideration, will revolve around our shortened future. All DNA is melting.

Not Too Important's picture

There is no escape:

"Going underground doesn't solve a thing. All of the 'chosen' have uranium and plutonium in their lungs, unless they were breathing filtered air before 3/11, and since.

And there will never be an 'earth' they can return to. The radiation levels will just continue to increase, for 700 million years. Within 100 years every existing NPP will have cracked open to atmosphere, whether from natural causes, such as earthquakes or accidents; unnatural causes, such as war; or simply from material fatigue. No NPP was designed to survive over 50 years. Add another 50 years of rot, and you'll start to see the bigger picture.

They will all eventually fall apart. Every last one of them.

That's why this is so sad. Everyone in the business knew this going in 50 years ago, but the profits were too huge to pass up. Plain and simple."



bobbydelgreco's picture

there 's only 1 question how long can plutocracy last? i'm sorry to say a very long time so zhers sell your pm's & buy stocks

Save_America1st's picture



The Ministry of Truth


WTFUD's picture

via UBS
who gives a flying fuck what this criminal enterprise thinks?