In England, an inventor is regarded almost as a crazy man, and in too many instances, invention ends in disappointment and poverty. In America, an inventor is honoured, help is forthcoming, and the exercise of ingenuity, the application of science to the work of man, is there the shortest road to wealth.
Our long-term Investment Megatrends
The Mean Reversion of Wealth-to-GDP
Asset prices have grown much faster than GDP for many years but, in the very long run, one cannot outgrow the other. This is embedded in economic growth theory, which dictates that national income is shared between capital and labour in a certain way. The ratio is not exactly the same from country to country (it depends on the efficiency of capital), but in most countries about 2/3 of national income goes to labour and 1/3 to capital.
One implication of this is that wealth-to-GDP is also long term stable. In the US, the mean value since 1950 is about 3.8 times. As of the last count (end of 2019) wealth-to-GDP was 5.45 times, suggesting that US wealth must fall about 30% in the years to come. In Europe, the picture is not quite so bad, but overvaluation still exists.
The three asset classes most likely to be affected by this are (in no particular order) bonds, equities and property. The growth theory behind this logic provides no guidance on timing, but a cautious approach is warranted.
As part of our commitment to responsible investing, we are signatories of the UN PRI and have linked this megatrend to the following UN Sustainable Development Goals: