Robeco interviewed Pippa Malmgren, former advisor of US presidents Ronald Reagan and George W. Bush. In Part I she discusses geopolitical tensions, the immigration issue and the rise of the individual against the establishment.
The new Trump era may signal some changes in the world order –will the US really take a step back on the international stage? Geopolitics and its impact on the financial world is something we need to get used to.
“Geopolitics is a scary topic for most people, but they need to get more comfortable with it, because it’s here now and it’s going to be with us for another 20 years. I grew up in the Cold War and I can assure you: people invested and made money during that period, even at the height of the tensions. So it’s just a question of getting accustomed to the situation. Nations have conflicting national interests and we’re seeing that right now. But which aspect is most important today?”
“The US together with Nato have definitely had a lot of stress with Russia. America has also certainly had its share of tension with China too, particularly over the South China Sea. But now that we have a new president, it’s unclear what kind of relationship there will be. He has been accused by some of being President Putin’s best friend, and by others of being a real threat to the stability of international relations. So we first have to figure out what the real situation is.”
“A lot of people assume Donald Trump means war and Hillary Clinton means peace. But when I spent time talking to Russian and Chinese officials, they had the opposite view. In their view it was Clinton who had a long and clear track record of being aggressive. When the US moved their military forces from the Middle East to the Pacific, the Chinese saw Clinton as being much more hawkish, and Donald Trump – in their view – has already said that he doesn’t want to spend a lot of money on wars.”
“He doesn’t want to spend money outside the country. In fact, he wants the US to stop being involved on an international level. One thing I find fascinating – and I have worked for two previous presidents, Reagan and George W. Bush – is that throughout my entire life I have heard non-Americans say ‘You Americans are too aggressive and involved, you should get out of international affairs’. Now Trump is saying he wants to get out, everybody’s response is ‘Wait! Don’t leave!’. I guess, if you are the international superpower, whatever you do you can’t win.”
Rising populism and the potential disintegration of the Eurozone will be major issues for 2017. Grassroots dissatisfaction compounded by the burden of immigrants flowing into the region may force countries to seek their own solutions.
“I felt this populist uprising was going to happen. And from that I also predicted both Brexit and Trump. And these are things that seem to have surprised everybody else. So, why do we keep being surprised? The answer is: people have been in a lot of pain since the financial crisis. They were gracious and willing to wait while their governments said ‘let us add more money to the world economy and things will get better’. This was years ago now and people have run out of patience.”
“So they are starting to ask their political leaders why they are in charge if they can’t deliver better results – ‘I’ve been patient with you, but now I’m throwing you out.’ That’s behind both Trump’s victory and Brexit, it’s also behind the ‘no’ vote in Italy. And it’s behind the elections now in France and in the Netherlands. Everywhere the public is saying they want a better situation. What do they mean?”
“In Europe what they are saying is: we have youth unemployment at ridiculously high levels – the Italian number just came out at 39%. We live in a world where that is just not acceptable. What a catastrophic waste of human talent. Some of these young people in Europe between the ages of 20 and 40 will never have a job or a career. This is inexcusable in today’s society. So the public are voting against this. Especially when money can be found to bailout the big banks that have lost nearly 100% of their share value, but for the kid with no job, there’s no money.”
“The immigration issue is exacerbating the feeling of pain. It’s not the cause, but it’s not helping. On the other hand, I don’t think Europeans are all that xenophobic. I think the bottom line issue is they want exactly what the British have asked for and that is access to the single market and a hard border. That’s not the same as a closed border. Nobody is saying they don’t want any immigrants. They’re saying they would prefer there to be a more effective process.”
“I think Britain will come out of Brexit with a more open immigration policy than it had before, in the sense that prior to Brexit they were only able to choose citizens from the European Union when they hired workers. Now they get to choose from Americans, Indians, New Zealanders, Japanese… It will create a more competitive environment; I don’t know if the rest of Europe is ready for this. But I think that’s where Britain is heading.”
“As for Western Europe, it needs immigration. It’s got an aging population; it needs an influx of young energy. The question is: what kind of immigration do you want? That’s a reasonable question. And every nation will answer it a little differently.”
In 2016 the people made themselves heard and those in authority are now taking stock. It will be interesting to see whether this results in a return to a more level playing field, to an environment that focuses on growth at all levels.
“Quantitative easing has benefited those that own assets at the expense of those that don’t. There’s an economist that nobody remembers, he is Swedish and called Knut Wicksell, and he said ‘the interest rate is an instrument of social justice, because it balances the interests of the savers with those of the speculators’. When the government comes and firmly tilts the playing field in favor of the speculators, which is what QE does, people will eventually notice and get mad about this.”
“Inflation is also something that benefits those who hold assets and hurts those who don’t. So we have to ask ourselves how we can protect the most vulnerable members of our society. Having said that, the best way to create growth is through innovation and calculated risk-taking. How do you stimulate that? Generally, by lowering taxes and having less regulation.”
“Right now, around the world, the US and Britain have low taxes and intend to reduce these further, while the European Union is saying they like their high level of taxation and regulation, but it comes at the expense of young unemployed people. So the people in Europe are not necessarily going to vote for the end of the European Union, but they are going to ask for a move in a very different direction.”
“You don’t have to have a dichotomy of being either for or against the European Union. You just want something that is less invasive, less damaging to growth prospects. Money is like water, it will move to the place where it faces the least resistance: the lowest tax rates and the least regulatory pain. Because of Brexit and the US recovery, the world is going to look at the map and say ’where should I put my money to work?’.”
“They’re going to go to places that are more welcoming to capital. The EU is not very welcoming right now, and its citizens are not happy with the direction in which things are moving. Why can’t you have an EU that is receptive to open, productive capital investment? The two are not mutually exclusive.”
There is so much data and information at our disposal, we sometimes forget to really look at what is happening and listen to what people are saying. Brexit and Trump’s victory: two major events that we ‘misread’ in 2016.
“We believe the answer lies in the numbers. So we like data, Big Data, metadata, algorithms. We think this is where the truth is. And yet we completely missed Brexit and Trump. One of the reasons I thought the Trump victory was obvious was from looking at the pictures of all his campaign rallies. They were completely full of people. The lines were two or three blocks long. Everybody wanted to get in. If you looked at pictures of the Clinton rallies, all the seats were empty.”
“This sounds so childlike; it’s almost embarrassing for a fund manager to say ‘I looked at the pictures’. But can pictures tell you more than the polls? Yes. And in this case they did. Polls are numbers. We have a tendency to be blind in one eye: we only look at the world through a quantitative lens and all I’m saying is: let’s add a qualitative one too. We missed the silent movement that took place, both in the Brexit campaign and in Trump’s election. Maybe it’s because we like to talk to the people we already know. In a populist world, it might be the people you don’t know, who hold the power.”
“So, all of us need to get out of our silos, get out into the world a little bit more and look further than the data. And this will get more important. Because in a world where growth is generally rising and inflation is low – the world we used to have – you can rely on data and numbers, because you have real trends. But now we’re in a world where geopolitics and government policies – qualitative factors – are very volatile and highly uncertain and this is going to disrupt the models and will make it harder to take a purely quantitative approach to investing.”
Ever-increasing regulation strengthens the position of those with the capacity to implement it. Risk can never be totally eliminated and too many rules can choke the very innovation we need to make progress.
“Governments thought they could make banking safer by regulating it more. This had the opposite result. The more rules and regulations, the easier it is for a few big companies to ‘play’ the system and the harder it is for the smaller firms. You also reduce innovation and competition. And you can’t regulate losses and risks away. Investors should understand that and take responsibility. The idea that governments can remove these risks and make things safe, is just not true.”
As a percentage of GDP, the financial services sector has definitely become smaller than it was. But it will become much more innovative. All sorts of developments are occurring in finance. People say, with Brexit, the City of London will lose its position as a financial service center. I have the opposite view. I think the City will have a bigger position than ever before. And the reason is that if they have less regulation and lower taxes, the money will move there. It will be hard for the British to have tighter regulation and higher taxes than the
Eurozone. People tend to have the idea that Brexit will mean the City of London gets smaller; but why should it?”
“We have a tendency to take the past and extrapolate it to the future. Why do we do this? It has never worked. The future is different because it hasn’t happened yet. In financial services we all sign documents that say ‘past performance is no indication for future returns’, and yet we seem to believe that past performance tells us where the economy is going. Really? It strikes me as just too incredible that we think like this.”
Read also Part II of this interview: ‘Investors will experience a steep learning curve’
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。
商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会