Reversed Reaction
Pfäffikon SZ, Switzerland – The composition of the society is more than ever a political discussion. I have already mentioned that the demographic gorilla is a major unknown factor for investors. In the U.S. investors cheer on tax cuts and stricter immigration policies. Targeted investments in infrastructure are the icing on the ‘investment cake.’ The key question is whether this is shortsighted.
Guessing
Nobody can tell what for impact demographic shifts will have on the economy of a country. Changed purchasing behavior (whether via the internet) leaves deep traces in many business models that until recently were classified as untouchable. Today’s investors are targeting largely to erratic developments, which are difficult to estimate. Social media is, for example, a buzzword often heard, but who will be (financially) successful and ultimately left is guessing and, therefore, gambling.
Investing
Meanwhile, investors attach too much importance to tax cuts and investments in infrastructure. The upside potential of corporate profits is at most 10% based on tax cuts. After all, many fares are already at low levels since the financial crisis in 2008. Fiscal routes are becoming more difficult and less socially tolerated. Additionally, the financial capacity of governments to invest extra is more limited as many debt problems are far from solved.
Education
Perhaps the best factor in which should be invested threatens to get covered with snow. The higher the population is educated, the greater the chance that they can easily get an economy back on track. Another advantage is that in areas where highly educated find their employ, the unskilled, of all people, benefit extra. It should be noted that low-skilled immigrants are not always willing to start at the bottom of the ladder, although this just creates opportunities.
Several leaders, especially those from the U.S., are probably not realizing that the reaction that they want to elicit is reversed and perishable. Ultimately, it revolves around a healthy demographic composition, and not around a financially hollowed and tax-driven nation. Given the recent market reaction, just a few investors realize that there is more of the same perks on the stove. Knowledge, skills, and education encourage a nation much more than fiscal or financial incentives will ever generate.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.
