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Market Viewpoints

"Madness is rare in individuals ­ but in groups, parties, nations, and ages it is the rule."

There is evidence to suggest that the “middle class” has been massively squeezed over the last few decades, with more middle income families dropping into the lower income set and with less of the national aggregate income accruing to the middle class. This shrinking middle class has a vast impact on consumption and ultimately on economic growth, corporate profitability and inflation. When middle income families can no longer afford to buy the goods and services that businesses are selling, the entire economy is dragged down from top to bottom. In Middle America, Middle England, Middle France, and just about everywhere there is disappointment with the state of things and the free market economy. If left unaddressed, this could prove destabilising. Perhaps a little “redistribution of wealth” might improve the quality and quantity of economic growth—and reduce the demand for more aggressive state interventions (or even dare I say a revolution) later. So what will 2016 be like? In short, it will be more of the same: Low growth, low inflation and low asset price increases. The Fed may have raised rates and projected four additional +0.25% rate increases next year, but in my view, they will be lucky to pull off two increases. Disinflation (if not deflation) is the bigger fear. Viewing the current global economic malaise as cyclical, is a mistake, as there are powerful structural forces at work.

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