Conference Presentation, Panel
When Past Performance Is a Guide: Using History to Make Sense of the Post-Crisis World
Milken InstituteDaniel Arbess, Ben Funnell, Mitchell Julis, Peter Thiel, Niall Ferguson, Mitch Julis
- Peter Thiel outlines two divergent future scenarios based on the fracking revolution: if the technology is effective, Bernanke-style policies will sustain rising stock markets and constrained commodity prices akin to the 1930s; conversely, if fracking is an exaggeration, the world faces a third major bubble collapse within three decades.
- Thiel warns that oil prices remaining above 2003 levels render the narrative of technological progress counterfactual and anticipates a return to Malthusian stagnation without dramatic technological breakthroughs, further exacerbated by demographic shifts that Bob Gordon projects could reduce US GDP growth from 2% to 0.8%.
- Thiel posits that negative real interest rates of minus 0.6% suggest broken economic models, predicting that regulatory restraints and structural issues will prevent fiscal or monetary expansion from driving capital deployment, potentially leading to a US "stationary state" similar to Japan.
- Thiel identifies a significant cultural risk where widespread belief that the next generation will be worse off could cause a substitution of leisure for work, mirroring European trends, alongside a shift in venture capital where investors now demand traction within one to two years instead of planning 20 to 30 years ahead.
- Mitch Julis expects that societal tipping points, feedback loops, and nonlinearity will render spreadsheet dynamics insufficient, likely resulting in patterns of overshoot, collapse, and oscillation.
- Julis suggests the Euro mechanism will bind disparate cultures together despite imperfections due to the historical costs of war, while also projecting that the intergenerational transfer of baby boomer wealth will drive capital toward higher education, medical research, and business cluster creation.
- Julis advises investors to navigate a complex world by combining the return of capital with long-term compounding to achieve staying power and earnings power if unidirectional predictions fail.
- Ben Funnell forecasts that as long as the Euro system remains intact, Germany will experience a reversal of 2000s dynamics featuring inflation exceeding interest rates and negative real bond yields, leading to inflation of real assets and specifically advising investment in German real estate.
- Funnell notes that without addressing income inequality, political polarization will make it difficult for the US to agree on a path forward.
- Dan Arbus anticipates that even if the Federal Reserve hits unemployment targets via tailwinds from energy and housing, the economy may not be in an inflationary environment, preventing liquidity withdrawal.
- Arbus suggests a complex mechanism where strict inflation and nominal GDP targets combined with direct central bank-to-government capital transfer could avoid creating new interest-bearing debt.
- Arbus projects a "great reconvergence" where the US-to-China per capita GDP ratio drops below two to one by the mid-century, while maintaining that the US will remain the most dynamic economic model due to energy innovation and housing recovery, despite China facing massive challenges in rebalancing its economy.
- Arbus highlights a significant wealth gap where monetary policy replaced 12 trillion of lost wealth but only 2 trillion of housing wealth was recovered, leaving a 5 trillion dollar hole for the majority of people.
- Arbus expresses concern that the limits of quantitative easing are being reached as money supply increases remain anemic and funds are not being loaned into the economy, noting that a lack of fiscal action has turned fiscal policy into a headwind rather than a tailwind for recovery.
- Arbus forecasts that the mismatch between long-duration capital allocation needs and short-duration investor timelines creates a major problem in the current low-return, low-velocity environment.