Wealth Management Perspectives
Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other
financial instrument or to participate in any trading strategy. Please refer to important information, disclosures and qualifications at the end of this material.
WEALTH MANAGEMENT INVESTMENT RESOURCES|CHARTBOOK|BEYOND SECULAR STAGNATION
Beyond Secular Stagnation
Source: Morgan Stanley Wealth Management GIC.
growth rate of the US economy.Currently, long duration bonds are pricing a depressing scenario where real economic growth,
and in turn the neutral Fed Funds rate is assumed to be 150-250 basis points lower per year than during the 40 years preceding
the global financial crisis (GFC).
stuck in a virtuous negative feedback loop. We believe that consensus portfolio positioning reflects this view with overweights to
cash, bonds, gold, perceived stability (low beta), and low volatility.
disappointments; we see growth shortfalls as explained by a collision of four massive supercycles—demographics, productivity,
debt and commodities—all of which are in the process of troughing. While change in trend may be slow to develop, we believe
the worst of the growth drags are now behind us and the rate of change in major variables is or will soon be positive.
policy choices that have prevented pro-growth spending priorities, inhibited capital investment, promulgated regulation and
materially exacerbated income/wealth inequality. We estimate that these man-made obstacles collectively explain as much as
two-thirds to three quarters of the output gap.
populism are evident and mounting. Comprehensive corporate and personal tax reform, elimination of bureaucratic red tape,
review of entitlements and regulations might yield the most powerful longer term palliatives without imperiling debt/deficits.
These actions could become force multipliers, as fundamentally restoring confidence in government and reducing policy
uncertainty, could reignite entrepreneurial and animal spirits quickly.
reason to be optimistic about future returns.
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Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other
financial instrument or to participate in any trading strategy. Please refer to important information, disclosures and qualifications at the end of this material.
WEALTH MANAGEMENT INVESTMENT RESOURCES|CHARTBOOK|BEYOND SECULAR STAGNATION
Secular Stagnation: A Supercycle Perfect Storm Amplified
Policy Headwinds
Source: Morgan Stanley Wealth Management GIC.
As of February 28, 2017
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Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other
financial instrument or to participate in any trading strategy. Please refer to important information, disclosures and qualifications at the end of this material.
WEALTH MANAGEMENT INVESTMENT RESOURCES|CHARTBOOK|BEYOND SECULAR STAGNATION
The Supercycle Perfect Storm Has Been A Drag on Growth, But
Trends Are Bottoming
Source: Morgan Stanley Wealth Management GIC
Est. Ann.
Drag on
Growth
Consensus InterpretationGlobal Investment Committee Interpretation
Est. Timing of
Trough/Peak
Demographics0.3%-0.6%
Baby boomer retirements are persistent headwind;
labor-participation rate is in secular decline
because of skills gap and loss of middle skilled
jobs
The millennials are 15% to 20% larger than the retiring boomers
and are just now entering peak working age of 35. Labor-force
participation drag from disability claims and extended schooling
is also peaking, and we see the average retirement age
extending to 70 through the forecast period.
2021-22
Productivity0.5%-0.8%
Low capital investment has inhibited
improvements. Mix of service industries in the
economy is complicating factor; asset lite
business models have made this issue of capital
deepening materially worse
The latest wave of technology innovation has been overly
concentrated in winner take all business models.Technology
diffusion has been extremely low and is poised to rebound with
the material pick-up in economy wide R&D
2016-2017
Debt Overhang0.2%-0.5%
Debt to GDP ratios continue to increase and are
choking off the effective credit transmission
mechanism and the efficient allocation of capital;
QE has made this worse
Debt/net worth is what matters and it peaked in 2011-2012, the
household sector has deleveraged, and a new housing cycle is in
its early stages. Interest rates are near historic lowsand
government debt sustainability has increased by 10 to 15 years
with debt services costs down about 15% per year from original
forecasts
2011-2012
China Globalization
and Commodities0.1%-0.3%
China's historical infrastructure buildout is over,
leaving global excess capacity and material
imbalances. China's economic unwinding and
rebalancing will likely involve a hard landing and
their devaluing currency will systematically export
deflation
China has executed an economic soft landing: excesses are being
slowly eliminated; capital spending in energy, materials and
mining has been massively cut and for most commodities, global
demand is stabilizing or increasing. Supply/demand are reaching
an interim balance. Emerging markets economies remain solid
with strength likely to come from India in the next five to seven
years.
2014-2016
Supercycle Factors
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