BEVERLY HILLS — Risks to the global market landscape were a major talking point during the first day of the Milken Institute Global Conference— perhaps unsurprisingly, given recent trepidation over a possible recession.
What was surprising, however, was the failure of Milken panelists to agree on the most likely source of turbulence. There’s usually something resembling consensus around the biggest risk, whether it may be the US-China trade war, or the Federal Reserve.
But not right now.
Without a clear-cut adversary, both the investing landscape and the economy are as uncertain as it’s been in some time. That’s forced experts like those speaking at Milken to shift into a more defensive stance, even as financial markets stay strong in the immediate term.
It all fits with the cautiously optimistic tone that characterized the first-day panels at Milken. While there are still returns to be gleaned in the market, most everyone is looking over their shoulder, waiting for a different bogeyman to emerge.
Provided below are the biggest fears laid out by 10 experts across two separate Milken panels.
Lara Warner — Group Chief Risk Officer, Credit Suisse
“I hate to say, but it has to come back to Europe. I do worry that we’re in a period where small earthquakes can lead to large tsunamis. And it seems to be the place that is most fragile.”
“We just talked about the United States, and some of the disparities between the states and the federal government. Europe, in many ways, is an example of that, as a region. I think it’s highly likely, with a number of elections coming in the next year or so, that we will see some shocks.”
“Our concern is: you have those shocks, no monetary options, no fiscal options, frankly, not-as-developed financial markets as you see here in the US. Some, but not strong exposure to the Asian region, which is probably the bouyant area around the globe. That’s the place we’re most worried about.”
Ronald O’Hanley — President and CEO, State Street Corporation
“I don’t know if it’s a risk, or a phenomenon, but I think it’s this idea that, since everything requires technology, what are the scale requirements? And are we seeing inevitable consolidation across every industry?
“We’re in the situation now, in financial services, that, between regulation and how to effectively employ technology, it’s no longer too big to fail. It’s too small to scale. And I think that’s happening in industries around the world. It’s great to develop the app. But the app doesn’t work unless you develop the platform. And you can’t develop the platform unless you have scale.
“How do we think, as investors, about what to invest in, that’s ultimately going to achieve the kind of scale we think we need.”
Scott Minerd — Chief Investment Officer, Guggenheim Partners
“I’m concerned about the butterfly effect. That risk premia are so low, assets are so highly valued, that all these unresolved issues — whether it be in Europe, or Latin America, or elsewhere — make it so that, just like 1998 with the Asian crisis, an event like devaluing the Thai baht will set off a chain reaction that we’re not prepared for.
“Longer term, the real risk I see is we will end up back in an inflationary malaise because we don’t have real policy solutions. What we’re living through today looks like a lot of the 1940s and the 1950s. And ultimately, when the 60s came, with the expansion of the deficit with the Vietnam War, inflation began to take off.
“We’re just like the proverbial frog in the pot of water. How do you boil a frog? You just put it in cold water, turn on the heat, and slowly let the pot come to a boil.”
David Hunt — President and CEO, PGIM, The Investment Management Business of Prudential
“The systematic undervaluation of risk premia is a major risk. But we all suffer from fighting the last war. And I think we’re all very much aware of what happened in the great financial crisis.
“The next crisis is going to come from a different place. I think it’s going to come from technology and cyber. If I were looking for the thing that worries me the most, it would be an actual attack on the infrastructure of the financial markets that really bursts into it and creates a shutdown of the major pipes we use to do business. It’s something we spend a lot of time working on and investing in.”
Tom Finke — Chairman and CEO, Barings
“When we’re investing, we’re wondering what’s going to disrupt the companies that we may be investing in today, and are they aware of it? What changes or disrupts an industry that we’re long currently? It’s a lot to keep you up at night.”
Joseph Naggar — Partner and Head of Structured Products, GoldenTree Asset Management LP
“From a macro, top-down perspective, we’re most closely watching the US dollar, which is up about 9% in the last year. Oil is sort of getting in the mid-70s. Things that will change this goldilocks environment. It’s a race between the central banks and slower growth, and the central banks right now are winning. Things like that could change the macro environment.”
Mark Machin — President and CEO, Canada Pension Plan Investment Board
“Isolationism in all of its forms.”
Sir Michael Hintze — Group Executive Chairman and Senior Investment Officer, CQS
“Energy. Oil is about 3 to 3.5% of global GDP. The other energy pieces are about 2%. That price change will actually change the world. But if you really want to know what keeps me up at night, it’s the global pandemic issue. That’ll destroy the world.
“If you look at what happened when SARS hit, only 37 people died. The reality is that knocked global GDP down 3-4% pretty much overnight. That’s something that could take us to the cleaners.”
Elif Bilgi Zapparoli — Co-Head of Global Capital Markets, Bank of America Merrill Lynch
“Low interest rates. It allows for mispricing of risk.”
Mark Attanasio — Cofounder and Managing Partner, Crescent Capital Group LP
“If you look at the growth of the stock market in the United States and wage growth. You see huge outperformance for how stocks have grown while wages have stayed relatively flat while growing. The good news is, that keeps inflation down. The bad news is, it’s created all kinds of divides in this country that may be irreparable if they’re not changed soon.”
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