Crispin Odey, a London-based hedge fund manager, warned that the standard of living in the developed world will come down sharply in the future.
Not in the near term, he said (at the Morningstar investment conference in London yesterday), but eventually.
It has to do with the fact that emerging markets have not yet revalued their currencies, and developed countries will not raise interest rates until they do.
Eventually, he said, salary gaps in the emerging and developed worlds will close. This will go on to shape future thinking about the economy.
Context: Right now, emerging markets like China keep wages low, which supports their heavy export business, but hurts Western economies like the U.S., which currently outsources rather than produce goods in the U.S. Until emerging markets revalue their currencies, this will continue.
But once they do –
A wave of inflation will come when emerging markets post current account deficits and workers’ wages converge, according to Odey. His comments were reported by CityWire UK.
The fact that it hasn’t happened yet and won’t for a while is one reason why the U.S. won’t raise interest rates yet, Odey says. [Raising interest rates would only make it harder for us to pay back obligations to China, for example.]
“We will not see any interest rate rise until wage inflation is well on the up. When it does come through, it will take us out like a flood.”
The west can try to speed up the process through quantitative easing, he says. Quantitative easing should speed up the process of wage rises in emerging markets, which then translates into a bullish factor for the West, which is becoming increasingly competitive despite emerging market resistance.
Being invested in the West is the best place to be when this happens, according to Odey.
Fun fact: Crispin Odey is the manager who taught Hugh Hendry.