It seems to me that the greatest risk, beyond all others, and fortunately unlikely, would be some form of military conflict with China. Were such a catastrophe to occur the decline would be much greater.
Combat with Russia is also a possibility, but less likely, as it is generally recognized, I believe in both countries, that we each have a mutually annihilating ability. However, rising NATO-related tensions could seriously dampen the markets.
Next, also less likely, is some form of domestic civil unrest, pitting those with more against those with less. This is theoretically possible if a highly and aggressively conservative political party were to gain control of the government, leaving the under-employed and insufficiently salaried workers in an inflation increased desperation, with a “nothing to lose” group attitude, prompting civil disobedience-based rioting.
The inverse possibility is that of an American far left, socialist party, enacting legislation resulting in a lack of profit-making potential for businesses. Without the prospect of profit there is no justification for those with capital to invest and without investment many businesses will fail.
A continuing and likely increasing inflation, and the government doing that which is necessary to curtail inflation, will result in it being more difficult to achieve and maintain profitability.
Difficult to assess, but easy to predict, is that by mid-century half the world’s population will be Muslim. If a significant segment of Muslims accepts Koranic preaching’s of convert or kill infidels, the results could be tragic.
The spread of contagious physical disease is clearly possible, with the economic outcome impossible to predict.
Racial unrest, reflecting in part, the failure of public education to provide the education necessary for other than menial job employment, is a continuing problem.
The likely growing recognition that price/earnings ratios are the number of years, at current annual earning levels, required for the company to earn the current price of a publicly traded stock might result, in the case of high P/E stocks, in of a mass withdrawal of funds. This possibility may be remote, however, since available alternatives having similar liquidity are limited. Also, professional money managers are remunerated by keeping funds productively employed and prefer not to liquidate portfolios and return assets to their clients.
Are these enough to give pause to the high level of optimism which seems to be infecting investors?
I have edited and made a few text changes from that which was originally posted on my blog of January 7, 2022. Continued immigration problems, lessened women’s rights, state election policies and law changes, and gun control strife, prompt an updating of this former posting.
Arthur Lipper, Chairman arthurlipper@gmal.com
British Far East Holdings Ltd.