Brave New World

Brave New World - Part II

Not many people, outside of bankers, realize that the world has begun to transform in the last few weeks and months - it may appear that the changes are/ will only be in the world of finance and investing, but, given the centrality of finance to the world of the last 2 decades, the changes will be everywhere.  But do not hold your breath – I’m not talking of 1-2 years, more like 3-5 years, or more, from now; after we have worked off the credit crisis and the real world recession that will follow. Here's what I think will be the shape of the ' brave new world' we are on the threshold of entering:

1. It is the end of the road for the 'cowboys' of finance - they will not range free and wild and instead will plough a narrow, safe and highly regulated furrow - it will be bankers of your fathers or (for some young ones) grandfathers generation that they will resemble. They will take deposits, and lend money prudently, with severe limits on leverage. Boring, but safe – that will be the banker’s mantra.

2. The world of finance will be a much smaller part of the brave new world - no longer will you bump into masses of highly paid 'money shufflers' at every party, every bar and hotel. There will be much less speculation, movements in asset prices will be small and only large investments of time and effort will yield decent returns – which will often be in single digits.

3. There will be fewer start-ups that will get funding – every business plan and idea will be scrutinized and weighed, debated and tested.

4. Older people in the US and EU will have to work longer and harder – standards of living will decline for the poor, perhaps even of the middle class.

5. China, and India, will gain in importance for the world (after slowing sharply in economic growth in the next 2-3 years), some parts of the Chinese miracle will be found to be hollow, but the infrastructure and cities and technology they have created will ensure that they get a bid for world leadership in the next 3 decades – with or without a major war!

That’s the imponderable, actually – we have 2 phases coinciding in the next few years – first, an economically challenging period and, second, the start of a period of transition of world leadership (that takes decades to play out) – both, separately, have been the cause of many of the major wars in history. Can we go through the next 5-10 years without a major (global/ semi-global) war? History is not on our side, but perhaps we have matured as a race?