An economy haunted by zombies? Thats the future, according to Odey fund manager – Financial News

A portfolio manager at one of Londons leading hedge funds has warned of a future haunted by a more soviet outcome from countries defending their economies from coronavirus.

Tim Bond, partner and portfolio manager at Odey Asset Management, told FN's sister title MarketWatch: Dog will no longer eat dog. Instead, all will run with the pack and for the pack in a post-recession period characterised by reduced dividends and buybacks and softer growth.

Bond has examined how thefinancial world will look post-coronavirusin countries faced with the burden of hefty economic rescue packages.

It is, perhaps, possible to imagine a more soviet outcome from the swing in the power pendulum, he said. An economic landscape haunted by zombie companies on permanent state aid support and national resources, allocated in accordance with whatever short-term objective might prolong a politicians period in office.

It is also plausible that global multinationals start to fragment into national parts, as a function of the requirement for nation state resilience. That will reverse much of the oligopolisation that has occurred over the past 30 years.

Odey Asset Management, which hasmore than$3bn funds under management, was established in 1991 by billionaire Crispin Odey.

Read:Crispin Odey almost doubled profits before fresh performance slump

Bond thinks it is vanishingly improbable that everything goes back to normal once the virus is contained.

Businesses have been caught over-levered and insufficiently reserved, he said. They will prioritise managing down debt burdens and building cash reserves in the wake of this crisis. Dividends and buybacks are going to fall much more than profits; both because of a higher corporate saving rate and because of government requirements.

Households, having experienced howjobs and income can vanish literally overnight, will want to save, he said, adding: When employment returnswe should expect that households will wish to save at a higher level than the pre-crisis average.

This would mean people spending less, meaning the overall fiscal cost of the crisis would dent gross domestic product.

These behavioural factors have led me to conclude, he said, that the post-recession period will be characterised by much softer growth than I had previously been thinking.

This virus will most likely terminate the laissez-faire globalised economic model. Since this model had already stopped working long before the crisis started, that is no bad thing. We should remember that the prevailing economic system had entered a self-reinforcing negative loop of declining productivity, slowing trend growth, stagnating real living standards and rising inequality a good 15 years ago.

The current crisis should therefore strongly reinforce the political pressure to ensure that economies are managed in a way that benefits most of their citizens.

Read: Marshall Wace builds short bets against UK stocks, while Odey pockets millions

He thinks, counter-intuitively, the world could see some positives for trend growth rates coming from a shift in power away from large business entities and back to the people. The effects would come from de-globalised labor markets forcinghigher rates of business investmentover the long term, boosting productivity growth.

Bond said we should bear in mind a happier post-1945 outcome: When the major economies experienced 25 years of exceptionally strong productivity and overall GDP growth, the benefits of which were disseminated very broadly across society.

This article was published by FN's sister titleMarketWatch

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An economy haunted by zombies? Thats the future, according to Odey fund manager - Financial News

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