Though the market and economy have been looking up recently, Rob Arnott says he still expects a “3-D Hurricane” to cause problems in coming years.
The three Ds — debt, deficit, and demographics — should cause investors to lower their expectations, Arnott said during the keynote session of the ETF Virtual Summit, Advisor One reports. “We’re experiencing the early gusts of this 3-D hurricane,” he said. “Japan is getting it now, and Europe is closer than we are. Forward-looking, bonds and stocks will yield 2%. GDP growth will be closer to 1%. None of this is dangerous; it’s still growth. What is dangerous is an expectation of having more, and receiving less.”
Arnott said that in 2011, U.S. debt reached 100% of gross domestic product. But when Social Security, Medicare, and Medicaid liabilities are included, the figure is actually more like 600%. “If you owe six times your personal income, logic dictates that it is not sustainable,” he said.
Arnott also said that inflation is more of a problem than policymakers are letting on. If inflation were calculated the way it was back in 1980, he says it would be about 10% right now. “Who really believes their personal inflation rate was under 2% last year? They’re masking the real problem, and it gives a false sense of security,” he said.
Investors, Arnott says, should realize “what must happen will happen, and what cannot happen will not happen. You should evaluate how you get from point A to point B in that frame of mind, meaning taking the path of least resistance.”