Mr X. – more conflicted than ever about the 2016 outlook – poses some tough questions to BCA’s editorial board.
Mr. X is a long-time BCA client who visits our offices toward the end of each year to discuss the economic and financial market outlook.
This year, he rightly pointed out that extreme monetary policies continue to create major economic and financial distortions that ultimately will have significant unintended negative consequences. As well, he forced us to acknowledge that there has again been little progress in reducing elevated debt levels around the world. Meanwhile, economic growth remains dangerously fragile and deflation is a risk.
Indeed, we were not able to assuage Mr. X’s fears.
We wish we had grounds for being more optimistic, but it is a challenging investing environment. A more positive stance on risk assets would be warranted should the corporate earnings outlook improve significantly, though the odds of that seem low at the moment. The other way to improve future return prospects is for asset prices to decline and establish attractive valuations. That is enough of a threat to warn against an aggressive investment stance and is why we recommend no more than a benchmark weighting in equities. And we would not argue strongly against a modest underweight.
To read the edited transcript of our recent conversation, please click here: Stuck In A Rut.