Benedicte Gravrand, Opalesque London: “The story that is not being told,” said Gerard Gardner, portfolio manager at London-based North Asset Management, “is that we are going through a fundamental retrenchment of US demand, based on US demographics. The result of this is that the global economy can no longer rely on the US consumer to generate demand, and therefore set prices. Our whole approach at North Asset Management is currently based on that fundamental view.”

Gardner argues that there has been a failure to recognise a natural demographic bubble, whereby many of the US baby boomers, who are now reaching retirement age, are becoming sellers of assets. Coupled with reduced access to credit, the result will be lower prices. Gardner notes the same underlying trend in relation to both housing and equities.

There are two aspects to the US downward demand shock: one comes in terms of collapsing real sales volumes (witness the auto industry); the other comes from the consumer’s unwillingness/inability to borrow money. As a result, Gardner forecasts that the US trade deficit will shrink dramatically in the next year, falling to an annualised $300 billion.

Decoupling? Many observers had talked about a decoupling between developed and emerging economies which would prevent global recession. According to Gardner, there has not been such a decoupling so far because growth in developing economies was dependent on demand in developed economies, fundamentally the US consumer. It is now necessary for the developing world to take on a new, pro-active role in relation to global growth.

“We ultimately must find a new demand base.” he said. “If we don’t get a demand recovery from outside the US, that will continue to affect asset prices.”

In this new environment, Gardner is predict......................

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