5 (+3) Themes For The Next 5 Years http://www.zerohedge.com/news/2013-11-21/5-3-themes-next-5-years " The following five themes (and three bonus ones) are what UBS Andrew Cates believes will be of the greatest importance for global economic and capital markets outcomes for the next five years. There is little to surprise here but the aggregation of these factors and the increasingly binary outcomes of each of them suggest there may be a little more uncertainty about the future than most people sheepishly admit... Via UBS, We highlight five themes we expect will be dominant for global economic and capital market outcomes over the next five years. For the curious, we also mention a few themes that didnât quite make the cut, but are nevertheless worthy of consideration. #1 Right-sizing monetary policy Cleary, a major challenge facing central banks at some point in the next five years will be restoring ânormalityâ to monetary policy. The first task, in all probability, will be right-sizing bloated central bank balance sheets (followed by a normalisation of policy rates). The challenges for the central bankersâand market participantsâare both unprecedented and enormous. How will central banks manage that process? Can they manage it? What will be the implications for real economic activity, capital flows and asset prices? Those are all topics weâll explore in this theme. #2 Right-sizing fiscal policy As if monetary policy werenât enough, fiscal policy in many economiesâadvanced and emergingârequires right-sizing as well. For some, the focus is on deficit reduction. For others, it is debt stabilisation. And for still others, it is meeting demographic challenges to government spending and tax revenues. For some, it is all of the above. #3 Age of plutocracy In many advanced economies returns on capitalâphysical and humanâhave soared. Income and consumption distribution have become more skewed. Yet, populist backlashes against unequal outcomes are relative tepid. Indeed, business seems to be getting its way politicallyâwitness the reality of more corporate tax cuts than hikes in recent years or the new-found will to press ahead with globalisation via free-trade deals spanning (much of) the Pacific and the Atlantic. How long can an era of plutocracy last? What challenges lie ahead? #4 A world not re-balanced Although current account imbalances have shrunk since the outbreak of the financial crisis, much of the decline is due to recession and subpar recovery. Sources of domestic demand are few and largely concentrated in the US. Emerging economies, once the poster children for domestic-led growth and re-balancing, are now facing debt hangovers. Emerging economies, along with Europe and Japan, are returning to a greater reliance on net exports as their chief drivers of growth. The consequence is a return to a world of imbalanced growth. What are the implications for the world economy and asset pricing? #5 Technological innovation New technologies applied to energy extraction, information systems and manufacturing hold great promise for lifting potential growth around the world. How big might the impact be on real output? Who are the likely winners and losers of the next technological revolution? What are the implications forinvestment returns? Finally, we felt it important to consider key themes that didnât quite make the cut into our top-five. That doesnât mean they wonât occasionally capture the attention of investors and policy makers. But in our opinion they arenât likely to be as durably important as the five weâve listed above. Here are some of those candidates: Eurozone risk Just because Eurozone sovereign risk premiums have declined does not mean all is permanently solved. The European monetary union remains incomplete and hence fundamentally flawed. Moreover, the prospects for a more robust re-design of the Eurozoneâwhich would include a banking union with single resolution authority and mutualised deposit insurance, plus enhanced labour mobility or fiscal transfersâremain bleak. So, too, do the prospects for re-employing the millions left jobless in Europeâs periphery, chief among them young people. Against that backdrop, âexitâ or âbreakupâ, but also political stress, will form a spectre hanging over the single currency project for considerably longer. Japan rising? Or Japan setting? âAbenomicsâ is not hype. Itâs decisive. If Japan can restore inflation, achieve a reasonable rate of GDP growth, raise potential output, and rein in its explosive debt dynamics, it and the world economy will be vastly better off. Investors would have much to cheer. But if âAbenomicsâ fails, Japan will probably return to its deflationary malaise of recent years and could be potentially on an irreversible course to default via hyper-inflation. A great deal is at stake. How will it turn out? Emerging reforming? Or emerging deforming? As we have noted in a series of reports over the past two years, productivity growth is slowing rapidly in emerging economies. Equally, relative returns on capital are slumping. And debt trajectories are unsustainable in many emerging economies, including China. A common prescription is required to get emerging back on track: Reform. To be sure, the required reforms differ considerably from country to country, but the overarching question is whether emerging politics and policy can deliver. Weâre sceptical, not because the challenges arenât recognized (witness the reform language of Chinaâs 3rd Plenary session or of Mexicoâs reformminded president). Rather, reformers are up against vested interests, such as the banks and state-owned enterprises in China, nationalism in Mexico, or business, labour and legal opposition in India. Absent a crisis, reform is politically very difficult and, for now, most of the emerging complex is not sufficiently in crisis mode to embark on reform. "