Speaking at a SMSF Members Association event held in Sydney, ABC Bullion chief economist Jordan Eliseo claimed that despite the rally in share markets for the majority of the post-GFC environment and that employment rates and deficits have declined, there has been “no meaningful recovery from the GFC in any way”.
“Debt levels today are even worse than where they were when the GFC hit,” said Mr Eliseo.
“Not just in dollar terms [either]. In dollar terms debts levels are around $60 trillion-$70 trillion higher, according to McKinsey [Global Institute], but as a percentage of economic output, a percentage of gross domestic product [GDP], debt ratios have also increased all across the developed world.”
Mr Eliseo said the rise in Chinese debt levels, which have risen from 130 per cent to 280 per cent of GDP in the past seven years, was particularly concerning for Australia.
“The [GFC] occurred because of this generational build-up in debt and the problem hasn’t been addressed, so we probably need to still keep things cautious,” he said.
At the same time, Mr Eliseo said there is an ageing population that “no government in the western world knows how to address in terms of having an honest conversation in terms of what it can pay to do and pay for in the future”.
“People haven’t accordingly positioned their portfolios to take notice of the fact that there are going to be some difficult times ahead,” he said.
The easiest option for the government to deal with welfare payments, Mr Eliseo said, is the “constant devaluation of money”.
“So you want a $100 pension payment, you’ll still get it, it just won’t buy you as much as what it used to,” he said.
Mr Eliseo said that as a result of some of these factors he was suspicious of certain types of traditional assets, such as government bonds and equities.
“If we look at [US Treasury] government bonds, that’s a chart that goes back 110 years, and you can see this incredible bull market that started in the 1980s, and has been running almost uninterrupted since,” he said.
“The last 30 years-plus, people have been able to compound their wealth in government bonds, US Treasuries, at 6.5 per cent per annum. That is extraordinary.”
Mr Eliseo warned the next 30 years won’t look like this for investors, however.
“It doesn’t mean you shouldn’t have any bonds in your portfolio because effectively they don’t all share the same risk and return characteristics, but the idea that the bond market is going to be fantastically safe or profitable in the coming years [is one] I’m highly suspicious of,” he said.
Mr Eliseo said he also has concerns in relation to equities with a breakdown of the ASX from two months ago showing 48 per cent of the market is financials.
“[This is] a reflection of the highest private debt levels in the world, and an uninterrupted 30-year property bull market that has seen the big four become the fabulous enterprises that they have,” he said.
He said that while investing in international shares may help diversify SMSF portfolios, investors need to be very cautious of what they’re actually investing in.
“The idea that I’ll just be a buy-and-hold overseas investor, and that’ll bring diversification from the local stock market, I would be highly suspicious that’s going to prove to be that successful,” he added.