Life after the next financial crisis

3 Financial crisis stopwatch concept
By Ian Fraser

10 January 2019

Ian Fraser looks at the most resilient investment options and career paths, in the final instalment of his investigation into the next potential financial crisis.

In the event of another global crisis, there are unlikely to be many safe havens as so many assets and geographies are correlated nowadays. Another problem is how much more politically fragmented and fractious the international community is today than it was a decade ago.

A co-ordinated approach to international rescue and re-stimulus of the economy, along the lines of what the then UK Prime Minister Gordon Brown pulled off during the G20 London Summit in April 2009, has become improbable.

For Stephany Griffith-Jones, Financial Markets Director at the Initiative for Policy Dialogue at Columbia University, New York, investors’ best bet will be AAA-rated government bonds, with those issued by Germany and the Netherlands among her favoured ones.

Ann Pettifor, economist and author of The Coming First World Debt Crisis, sees economies with their own central banks, currencies and the soundest institutions as likely to be the most resilient, “especially countries with current account surpluses such as Japan, Germany and China.”

But she warned that countries with high levels of foreign liabilities, like the UK, will prove more vulnerable.

Central banks will return to quantitative easing as the fragility of the stock market becomes obvious

Steve Keen, Professor of Economics at Kingston University London, does not believe any asset class will prove safe in the event of a full-blown crisis, “as they all become correlated”, even though he does think gold could briefly rise in value.

He sees the currencies of countries that avoided the fallout of the crisis in 2008 through continued private sector borrowing as among the most vulnerable.

“That means Canada and Australia, maybe South Korea and France (but of course it uses the euro, so no deal),” he explained.

Steve suggests one solution for private investors will be to sell out of equities ahead of the downturn, stay in cash for a period, then reinvest when central banks embark on a fresh batch of QE.

He said: “I think central banks will return to quantitative easing as the fragility of the stock market becomes obvious.

"So being in cash while they work this out, and being ready to buy back in when they restart it, makes sense.”

Russell Napier, Co-founder of online investment analysis portal ERIC, and a Non-executive Director of the Scottish Investment Trust, believes it is the economies with low debt-to-GDP ratios that will prove to be the most resilient, adding these are mainly found in Asia, excluding China.

This could include places like Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand and Vietnam.

Russell said: “These countries don’t have high debt-to-GDP ratios, they have not made huge promises to their people in the form of pensions and healthcare, and won’t need to take extreme measures to bail out their financial sectors.”

He warns, however, that the risk facing such countries is that “they are in the front line of the new cold war that’s breaking out between China and America”.

What are the most resilient career paths?

Who is best placed to ride out such an economic storm?

Clearly, the most vulnerable areas are going to be financial services and professional services focused on financial engineering – many careers in these areas are already under threat from machine learning and artificial intelligence, but there would likely be mass layoffs in the event of another crisis on the scale of 2008.

Accountancy isn’t safe. Blockchain could make huge inroads into accountancy

Jobs and salaries are more likely to hold up in areas like engineering, medicine and science. “And as long as they focus on good accounting and not creative accounting and financial engineering, accountants should be alright,” says Stephany.

Russell is less optimistic about the future for accountants, crisis or no. He argued: “Accountancy isn’t safe. Blockchain could make huge inroads into accountancy.”

Ann, however, believes that one area where there is sure to be persistent demand for expertise is climate change related work. “There will be plenty of well-paid employment among climate scientists and people to manage floods, managing energy efficiency, new green technologies and all of those other environmental issues.

"That is where the jobs are going to be, and also in the financing of that process.”

If the crisis of 2008 had been better handled, a lot of things would have been different now. However, the remedies introduced at the time have already led to some grotesque consequences including surging global indebtedness and political shocks around the world.

Given the perfect storm of rising interest rates, quantitative tightening, a belligerent populist in the White House, a more fractured international community, and clear pressure points in emerging markets, another crisis seems inevitable. As the Rolling Stone journalist Matt Taibbi puts it: “Debt was the crack cocaine of the early 21st century. And we bailed out the dealers.”

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