Davos Summit

Davos Summit

On Sunday January 25th the Davos summit finished.

This is the annual five day jamboree in Switzerland attended by the world’s ‘movers and shakers’. It is a time when the rest of us watch CNBC and wonder how these people are lucky enough to get an all expenses paid trip to one of the world’s most upmarket skiing resorts in the days after ‘blue Monday’, allegedly the most depressing day of the year.

About 2,500 not-quite-so-famous people get the opportunity to rub shoulders with the great and the good. This year they included Angela Merkel, Eric Schmidt of Google and Jack Ma of Alibaba.

The event is staged by the World Economic forum, an organisation ‘committed to improving the state of the world’, and has been running since 1971. It offers the chance to hear outlooks for the year from influential people, and also represents a huge networking opportunity.

So how has Davos fared in terms of its predictions? Reuters ran a piece recently, suggesting that these have not been too accurate in recent years.

For instance, last year Bank of Japan head, Haruhiko Kuroda, claimed that the Japanese economy had ‘completely changed’. In fact, it has since fallen back into recession.

In 2011 Christine Lagarde, head of the IMF, said the European economy had ‘turned the corner’, a matter of months before the Eurozone crisis. She advised people not to ‘short Europe,’ a strategy that turned out to be the best investment opportunity of that year.

In 2012 Nouriel Roubini forecast that Greece would leave the Euro currency bloc within a year. It is still there.

And in 2008 the head of the Kuwait Investment Authority highlighted the bargains in the US financial sector, shortly before the sub-prime crisis and the bankruptcy of Lehmanns.

In 2004 Bill Gates promised to rid the world of spam email…

Further back, in 1983 Arthur Scargill predicted the imminent collapse of capitalism.

On the other hand, NAFTA (North American Free Trade Agreement) was first proposed at Davos, and a Greek/Turkish war in 1987 was prevented after the two countries’ premiers met there. The event has also forecast the rise of the Emerging Markets, and the shale revolution in the US.

So what about this year’s predictions?

Ms Lagarde has said that this will be a ‘make or break’ year for the world economy. But every year since 2008 has arguably been such, so that’s not saying much.

Professor Peter Piot, the Belgian who discovered the Ebola virus in 1976, said that the world is vulnerable to an Ebola epidemic. ‘I bet everything I have that there will be other outbreaks.’ That sounds ominous.

Mark Carney, governor of the Bank of England, said that Quantitative Easing by the ECB may fuel ‘risk-taking’. This will be difficult to prove or disprove. More intriguingly, he said that UK inflation will be back to the Bank’s target level of 2% in two years. Given the CPI rate declined to 0.5% in December, and is forecast to drop to zero in April, this may not be as easy as it sounds.

But the ‘core’ rate is higher at 1.3%, and commodity prices may stage a rebound over that time period, so Mr Carney may prove right on that one.

Author: James Penn, Senior Portfolio Manager

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