InvestmentEurope’s Pan-European Lausanne summit’s day 2 has kicked-off with keynote speaker Stéphane Garelli (pictured), professor at the International Institute for Management Development and at the University of Lausanne.
Garelli, who is also director of the World Competitiveness Yearbook, has answered investors’ questions with much humor.
Garelli said there is recovery almost everywhere in the world even though it does not reach fantastic levels before getting into the facts.
Are facts reality?
He raised the issue of trusting facts (essentially figures) that are provided in the investment universe or not. “Could we trust GDP growth figures? There is a problem of credibility and comprehensiveness of these figures. Plus, they do not inform whether it is good or bad for a country at a sustainable or ethical level,” Garelli pointed out.
World Competitiveness Yearbook’s director argued facts do not necessarily lead to rational behaviour, taking the example of the market caps of automotive companies Tesla and Ford. Tesla’s market cap has become larger than that of Ford but looking at the facts, Ford sold nearly 7 million cars in 2016, which is more than 80 times Tesla’s production.
Speaking of economy globally, Garelli assessed printed money has not gone to the real economy. “We would have had inflation if so,” he said before highlighting that competition on tax rates cuts will prevail over the coming years.
Considering the plans of US president Donald Trump, Garelli said he had no doubt they will rise US financial debt which currently stands at $19.5trn. Should we worry he asked before recalling Trump saying to US magazines that he is the king of debt and loves to play with it.
Garelli said some 22% of US companies were vulnerable because of their debt level. The situation in China is no better he warned, highlighting debt level in Chinese corporations is enormous and that 20% of China’s debt dwells in shadow banking.
Garelli casted doubt on whether Trump’s plans will be effectively applicable. Deregulation is a major component of Trump’s programme. Is the Dodd-Frank act at threat? This is a question mark said Garelli who made there a funny comparison. “The Volcker rule is 297,000 words against 181,283 words for the New Testament. The difference between them? The New Testament provides you lots of hope.”
Commenting on the Brexit agenda, Garelli highlighted four phases : withdrawal, future relationship, transition, ratification. Negotiations between the European Union and the United Kingdom are expected to last for two years. “Do you think they will stick to the agenda? No,” said Garelli, recalling that some negotiations between Switzerland and the European Union have last longer than expected. “And we are a small country,” he added.
According to Garelli, the UK has no other choice but to cut corporate tax rates to remain attractive.
“We are going to land in a much realistic approach in second half of 2017,” he said when asked about the current positive market sentiment towards Trump’s presidency and Brexit.
Two other topics highlighted by Garelli were robotics and the millennials generation.
Before that, he underlined companies are submerged with cash at the moment. The 50 US largest companies have $1.1trn of cash and five tech companies (Apple, Microsoft, Alphabet, Cisco, Oracle) hold half of it ($504bn). The issue there he said is to get most of that cash onshore.
Garelli also referred to studies that found out 75% of the S&P companies will have disappeared by 2027 and that back to the 1950s, companies were living for over 60 years whereas nowadays they exist for less than 20 years.
Lausanne summit’s keynote speaker argued robo-advisory is an opportunity for business development but reckoned investors will need to speak with a human eventually.
Robotics change the competences of humans Garelli believes. “Offshoring creates blue collar jobs, onshoring white collar jobs. The effects of that are social unrest and early deindustrialisation,” he said.
“Robots have beaten chess, go and poker’s world champions. If a robot could beat the poker world champion, it means robot knows how to lie,” Garelli added.
Garelli has an optimistic view on robotics though. “Robots are more competent than humans but have lower comprehension. Plug is still the ultimate weapon,” he said referring to people who are afraid of seeing robots taking over humanity.
Talking about millennials, he called “the selfie generation”, Garelli said they are the first generation to have the choice. If they do not want to work for a firm, they won’t.
Are asset managers missing to target millennials as clients? Yes answered Garelli. “They are not only missing them but asset managers need to adopt a different mindset to attract them. If they do not have money, their parents have,” he pointed out.
Later in the discussion, Garelli assessed it was not the time for universal income, a measure that finds much echo within the millennials’ community.
As a conclusion, Garelli highlighted Neanderthal had larger brain than current human but a good news is that human bodies’ cells are renewing every three months.
“It means that if you make you a mistake, in three years from now, you will not be responsible for what you have done,” he said.