What are three of the biggest stars on Wall Street worried about over the next 5 to 10 years? Bloomberg asked that question of Cathie Wood (founder, ARK Investment Management), Mohamed El-Erian (chief economic advisor to Allianz SE and Bloomberg columnist) and Scott Minerd (chairman, Guggenheim Investments). Here’s a brief rundown of their answers.
Wood sees three major deflationary storms brewing. Though we’re in an innovation period like never before, all of the five platforms—DNA sequencing, robotics, energy storage, AI, and blockchain technology—are deflationary. As the technology advances, costs will drop. This is good deflation as it will produce a boom in the innovation sector of the market. But the corollary is bad deflation, led by investors who don’t want to take risks on innovation. Wood also points to interesting signals in cyclicals. In trying to catch up to increased consumer spending, businesses have been double- and triple-ordering, which could lead to a big drop in commodities when prices start coming down.
The most worrisome thing El-Erian sees is inequality, both domestically and globally. Financial markets treat it as a social problem instead of an economic or financial issue, and Covid worsened wealth inequality. The rich are better off than they were before Covid, while the bottom half are worse off. If incremental income and wealth continue to go to the rich, that will become a problem of demand which will turn into a problem of growth. El-Erian predicts this divergence as long-term, meaning the world will become more and more unequal. His solution? Invest in human and physical infrastructure, to enable people to do more and do better.
The number one risk Minerd sees is the sustainability of the global payment system. The U.S. and Europe appear vulnerable to an attack against the payment system of the markets: Fedwire, DTCC, SWIFT, Euroclear. And since there isn’t a lot of focus on it, the probability of an attack is high. International cooperation will be necessary to assess the risk and eventually modernize the system through a new generation of technology. But in the short term, central banks and exchanges need to take a good look at their systems, and Minerd predicts there will be a lot of patches in the meantime.