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    Three chief investment officers share their biggest fears

    victorlei

    February 7, 2023

    Investors are getting optimistic, and markets are pumping. But hope is a dangerous thing.

    Andor did what he had to do, so our portfolios could have a better future.

    So let’s not get complacent. Only the paranoid survive.

    Bloomberg asked three Chief Investment Officers who manage a combined $2T what they see as the next big risk (5-10 year horizon).

    1/ Longer, deeper recessions — Karen Karniol-Tambour of Bridgewater Associates. She’s concerned that future recessions will be more painful.

    • Markets were on easy mode in the past decade. With low inflation, the Fed could rescue the economy by pumping money and lowering interest rates at the first sign of trouble.
    • In the future, lingering inflation will make it more difficult for banks to use monetary policy to jumpstart the economy.

    2/ Lack of workers — Henry McVey of KKR. One question: Where are they?! Engaged, happy and earning workers are the special sauce in a growing economy.

    • Why? Labor growth and productivity significantly impacts GDP.
    • The problem: Labor force growth is half of what it was in the 2000s, and employees are also feeling disengaged.

    Companies need to figure out how to retain employees, inflation needs to stay down, and workers need to return.

    3/ Climate risks fueling inflation — Saira Malik of Nuveen. We’ve seen what happens when the renewable energy world isn’t ready for the transition… It leads to $5+ gas gallons.

    The transition isn’t slowing, and here’s an example of one problem scenario:

    • Grid infrastructure, batteries and EVs need cobalt, copper, lithium and nickel.
    • Malik expects copper demand to double by 2035 — but US production has fallen by 50% in the past 25 years.

    Why not just mine more? Well, setting up a copper mine can take 16 years. And what happens when supply can’t meet demand? Inflation.

    All roads lead back to inflation — the Vader to our retirement plans.

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