Donald Amstad of Aberdeen Standard Investments proclaimed the developed world is on the brink of “financial, economic, social and political crisis” on Livewire in August 2019. To Don’s (and our) surprise, the video triggered massive debate ranging from the efficacy of monetary policy in the west to civil unrest and what it means for investors’ portfolios. We invited Don back for a follow-up interview. He says his concerns are still real and that he’s also becoming increasingly worried about Western companies borrowing cheap money to buy back stock and boost profits rather than invest back into the real economy.
“This happened in Japan in the late 1980s and led to the inflation of the Japanese equity market bubble that burst so spectacularly in 1990.”
In this video, Don discusses why financial engineering is unsustainable and could be the next big test for markets.
For more information on Aberdeen Standard's investment philosophy, including where they are finding the most compelling ideas, hit the contact button below. You can also follow Don's latest thoughts here.
It appears Don has bought right into the narrative that the increase in equity markets, particularly in the US, is because of super loose monetary policy and companies going nuts on share buybacks. Yet if you use the Bogle model to decompose share market growth, being dividends + earnings growth + change in PE, between them dividends and earnings have accounted for 97% of growth over the decade just gone. And before you say 'yes, but earnings have just gone up because of share buybacks', according to JP Morgan, buybacks have accounted for only 7% of EPS growth between 2006-18. Could his grim outlook be because he's a bear with no shares?
I'm jumping in here having not watched the video. These assessments of Japan versus the West are completely bunk without any serious assessment of the STRUCTURAL issues that have plagued the Japanese economy. I'm talking about the keiretsu and zaibatsu and the reluctance of Japanese corporations to adhere to a profit motive as the be all and end all in conducting business affairs. Just MASSIVE HOLES in analysis. MASSIVE. I like what you say though Don.