We reported (04/06/2017) prior to the UK General Election 2017:
There is a minor risk of a hung parliament where, like 2010, the new government may have to collaborate to hold office. This would make managing the Brexit process untenable. The loss of political and economic confidence that would ensue would bring chaos to the UK. Should there be an outright victory to Labor, we would see a reversion to the 1950/70’s style politics that would also be a disaster.
Little did we realize how close to the mark we would be. PM May’s electoral disaster has profound repercussions for the UK. Firstly Brexit becomes a challenge at the negotiation table because of the weakened hand PM May presents to the EU. Secondly, Jeremy Corbyn’s success at the polls will force the Conservatives to move to the centre-left of UK politics to capture Corbyn’s new found friends – the 18-34 year demographic that has recently discovered politics and utopian self-interest.
This is a disaster for the UK and will not end well. May’s leadership will be under constant challenge for the next 5 years. One of her few chances of success depends on being able to negotiate a quick exit from the EU. This is unlikely.
As has happened in Australia in 2016, the UK and with a 9% confidence level in US Congress reflecting the rising distrust voters have for politicians. This is a trend that will continue around the world for the foreseeable future. The unintended consequence of voter distrust however is that political confidence begins to fail and economic confidence collapses soon after.
In the United States the Democratic – Republican flash point continues to escalate. President Trump is beginning to claw back a few points against the “Deep State” influence working inside government. Investigations are building cases on leaks and corruption. Trump is slowly gaining momentum with his agenda despite the continual challenge of the left agenda.
Unfortunately the first directly attributable acts of violence have occurred with a Republican Congressman and two police officers wounded at an annual practice baseball session for Congress politicians. The use of violence in political discourse is inherently evil itself and not in keeping with the liberal-democratic tradition that has benefited humanity. Since 2015 we have witnessed an increasing breakdown of civil discourse – a cornerstone of a free society. This marks the first violence of the civil strife we predict emerging in the US. We anticipate this will continue to escalate over the next few years. It will not end well and directly reflects the internal divisions that continue to rent US civil society.
At the same time we move slowly towards The End of the Long Game, the last gasp of the “Industrial Revolution Cycle” that commenced in 1783. We still view the September 2017 – March 2018 time window as the time for that final top, to be followed by the downward phase of the cycle. As always rebirth follows endings and the advance of humanity continues.
This worsening political discord in the US and other liberal democratic countries merely reflect the changing cycle mentioned previously. Given the magnitude of the cycle involved – one that builds and destroys empires, we can glimpse directly at the political and economic forces shaping events and the changes to come.
It’s 2025, and 800,000 tons of used high strength steel is coming up for auction.
The steel made up the Keystone XL pipeline, finally completed in 2019, two years after the project launched with great fanfare after approval by the Trump administration. The pipeline was built at a cost of about $7 billion, bringing oil from the Canadian tar sands to the US, with a pit stop in the town of Baker, Montana, to pick up US crude from the Bakken formation. At its peak, it carried over 500,000 barrels a day for processing at refineries in Texas and Louisiana.
But in 2025, no one wants the oil.
The Keystone XL will go down as the world’s last great fossil fuels infrastructure project. TransCanada, the pipeline’s operator, charged about $10 per barrel for the transportation services, which means the pipeline extension earned about $5 million per day, or $1.8 billion per year. But after shutting down less than four years into its expected 40 year operational life, it never paid back its costs.
The Keystone XL closed thanks to a confluence of technologies that came together faster than anyone in the oil and gas industry had ever seen. It’s hard to blame them — the transformation of the transportation sector over the last several years has been the biggest, fastest change in the history of human civilization, causing the bankruptcy of blue chip companies like Exxon Mobil and General Motors, and directly impacting over $10 trillion in economic output.
And blame for it can be traced to a beguilingly simple, yet fatal problem: the internal combustion engine has too many moving parts.
Let’s bring this back to today: Big Oil is perhaps the most feared and respected industry in history. Oil is warming the planet — cars and trucks contribute about 15% of global fossil fuels emissions — yet this fact barely dents its use. Oil fuels the most politically volatile regions in the world, yet we’ve decided to send military aid to unstable and untrustworthy dictators, because their oil is critical to our own security. For the last century, oil has dominated our economics and our politics. Oil is power.
Yet I argue here that technology is about to undo a century of political and economic dominance by oil. Big Oil will be cut down in the next decade by a combination of smartphone apps, long-life batteries, and simpler gearing. And as is always the case with new technology, the undoing will occur far faster than anyone thought possible.
To understand why Big Oil is in far weaker a position than anyone realizes, let’s take a closer look at the lynchpin of oil’s grip on our lives: the internal combustion engine, and the modern vehicle drivetrain.
Cars are complicated.
Behind the hum of a running engine lies a carefully balanced dance between sheathed steel pistons, intermeshed gears, and spinning rods — a choreography that lasts for millions of revolutions. But millions is not enough, and as we all have experienced, these parts eventually wear, and fail. Oil caps leak. Belts fray. Transmissions seize.
And this list raises an interesting observation: None of these failures exist in an electric vehicle.
The point has been most often driven home by Tony Seba, a Stanford professor and guru of “disruption”, who revels in pointing out that an internal combustion engine drivetrain contains about 2,000 parts, while an electric vehicle drivetrain contains about 20. All other things being equal, a system with fewer moving parts will be more reliable than a system with more moving parts.
Current estimates for the lifetime today’s electric vehicles are over 500,000 miles.
The ramifications of this are huge, and bear repeating. Ten years ago, when I bought my Prius, it was common for friends to ask how long the battery would last — a battery replacement at 100,000 miles would easily negate the value of improved fuel efficiency. But today there are anecdotal stories of Prius’s logging over 600,000 miles on a single battery.
The story for Teslas is unfolding similarly. Tesloop, a Tesla-centric ride-hailing company has already driven its first Model S for more 200,000 miles, and seen only an 6% loss in battery life. A battery lifetime of 1,000,000 miles may even be in reach.
This increased lifetime translates directly to a lower cost of ownership: extending an EVs life by 3–4 X means an EVs capital cost, per mile, is 1/3 or 1/4 that of a gasoline-powered vehicle. Better still, the cost of switching from gasoline to electricity delivers another savings of about 1/3 to 1/4 per mile. And electric vehicles do not need oil changes, air filters, or timing belt replacements; the 200,000 mile Tesloop never even had its brakes replaced. The most significant repair cost on an electric vehicle is from worn tires.
For emphasis: The total cost of owning an electric vehicle is, over its entire life, roughly 1/4 to 1/3 the cost of a gasoline-powered vehicle.
Of course, with a 500,000 mile life a car will last 40–50 years. And it seems absurd to expect a single person to own just one car in her life.
But of course a person won’t own just one car. The most likely scenario is that, thanks to software, a person won’t own any.
Here is the problem with electric vehicle economics: A dollar today, invested into the stock market at a 7% average annual rate of return, will be worth $15 in 40 years. Another way of saying this is the value, today, of that 40th year of vehicle use is approximately 1/15th that of the first.
The consumer simply has little incentive to care whether or not a vehicle lasts 40 years. By that point the car will have outmoded technology, inefficient operation, and probably a layer of rust. No one wants their car to outlive their marriage.
But that investment logic looks very different if you are driving a vehicle for a living.
A New York City cab driver puts in, on average, 180 miles per shift (well within the range of a modern EV battery), or perhaps 50,000 miles per work year. At that usage rate, the same vehicle will last roughly 10 years. The economics, and the social acceptance, get better.
And if the vehicle was owned by a cab company, and shared by drivers, the miles per year can perhaps double again. Now the capital is depreciated in 5 years, not 10. This is, from a company’s perspective, a perfectly normal investment horizon.
A fleet can profit from an electric vehicle in a way that an individual owner cannot.
Here is a quick, top-down analysis on what it’s worth to switch to EVs: The IRS allows charges of 53.5¢ per mile in 2017, a number clearly derived for gasoline vehicles. At 1/4 the price, a fleet electric vehicle should cost only 13¢ per mile, a savings of 40¢ per mile.
40¢ per mile is not chump change — if you are a NYC cab driver putting 50,000 miles a year onto a vehicle, that’s $20,000 in savings each year. But a taxi ride in NYC today costs $2/mile; that same ride, priced at $1.60 per mile, will still cost significantly more than the 53.5¢ for driving the vehicle you already own. The most significant cost of driving is still the driver.
And here is what is disruptive for Big Oil: Self-driving vehicles get to combine the capital savings from the improved lifetime of EVs, with the savings from eliminating the driver.
The costs of electric self-driving cars will be so low, it will be cheaper to hail a ride than to drive the car you already own.
Today we view automobiles not merely as transportation, but as potent symbols of money, sex, and power. Yet cars are also fundamentally a technology. And history has told us that technologies can be disrupted in the blink of an eye.
Take as an example my own 1999 job interview with the Eastman Kodak company. It did not go well.
At the end of 1998, my father had gotten me a digital camera as a present to celebrate completion of my PhD. The camera took VGA resolution pictures — about 0.3 megapixels — and saved them to floppy disks. By comparison, a conventional film camera had a nominal resolution of about 6 megapixels. When printed, my photos looked more like impressionist art than reality.
However, that awful, awful camera was really easy to use. I never had to go to the store to buy film. I never had to get pictures printed. I never had to sort through a shoebox full of crappy photos. Looking at pictures became fun.
I asked my interviewer what Kodak thought of the rise of digital; she replied it was not a concern, that film would be around for decades. I looked at her like she was nuts. But she wasn’t nuts, she was just deep in the Kodak culture, a world where film had always been dominant, and always would be.
This graph plots the total units sold of film cameras (grey) versus digital (blue, bars cut off). In 1998, when I got my camera, the market share of digital wasn’t even measured. It was a rounding error.
By 2005, the market share of film cameras were a rounding error.
In seven years, the camera industry had flipped. The film cameras went from residing on our desks, to a sale on Craigslist, to a landfill. Kodak, a company who reached a peak market value of $30 billion in 1997, declared bankruptcy in 2012. An insurmountable giant was gone.
That was fast. But industries can turn even faster: In 2007, Nokia had 50% of the mobile phone market, and its market cap reached $150 billion. But that was also the year Apple introduced the first smartphone. By the summer of 2012, Nokia’s market share had dipped below 5%, and its market cap fell to just $6 billion.
In less than five years, another company went from dominance to afterthought.A quarter-by-quarter summary of Nokia’s market share in cell phones. From Statista.
Big Oil believes it is different. I am less optimistic for them.
An autonomous vehicle will cost about $0.13 per mile to operate, and even less as battery life improves. By comparison, your 20 miles per gallon automobile costs $0.10 per mile to refuel if gasoline is $2/gallon, and that is before paying for insurance, repairs, or parking. Add those, and the price of operating a vehicle you have already paid off shoots to $0.20 per mile, or more.
And this is what will kill oil: It will cost less to hail an autonomous electric vehicle than to drive the car that you already own.
If you think this reasoning is too coarse, consider the recent analysis from the consulting company RethinkX (run by the aforementioned Tony Seba), which built a much more detailed, sophisticated model to explicitly analyze the future costs of autonomous vehicles. Here is a sampling of what they predict:
Self-driving cars will launch around 2021
A private ride will be priced at 16¢ per mile, falling to 10¢ over time.
A shared ride will be priced at 5¢ per mile, falling to 3¢ over time.
By 2022, oil use will have peaked
By 2023, used car prices will crash as people give up their vehicles. New car sales for individuals will drop to nearly zero.
By 2030, gasoline use for cars will have dropped to near zero, and total crude oil use will have dropped by 30% compared to today.
The driver behind all this is simple: Given a choice, people will select the cheaper option.
Your initial reaction may be to believe that cars are somehow different — they are built into the fabric of our culture. But consider how people have proven more than happy to sell seemingly unyielding parts of their culture for far less money. Think about how long a beloved mom and pop store lasts after Walmart moves into town, or how hard we try to “Buy American” when a cheaper option from China emerges.
And autonomous vehicles will not only be cheaper, but more convenient as well — there is no need to focus on driving, there will be fewer accidents, and no need to circle the lot for parking. And your garage suddenly becomes a sunroom.
For the moment, let’s make the assumption that the RethinkX team has their analysis right (and I broadly agree): Self-driving EVs will be approved worldwide starting around 2021, and adoption will occur in less than a decade.
How screwed is Big Oil?
Perhaps the metaphors with film camera or cell phones are stretched. Perhaps the better way to analyze oil is to consider the fate of another fossil fuel: coal.
The coal market is experiencing a shock today similar to what oil will experience in the 2020s. Below is a plot of total coal production and consumption in the US, from 2001 to today. As inexpensive natural gas has pushed coal out of the market, coal consumption has dropped roughly 25%, similar to the 30% drop that RethinkX anticipates for oil. And it happened in just a decade.
The result is not pretty. The major coal companies, who all borrowed to finance capital improvements while times were good, were caught unaware. As coal prices crashed, their loan payments became a larger and larger part of their balance sheets; while the coal companies could continue to pay for operations, they could not pay their creditors.
The four largest coal producers lost 99.9% of their market value over the last 6 years. Today, over half of coal is being mined by companies in some form of bankruptcy.
When self-driving cars are released, consumption of oil will similarly collapse.
Oil drilling will cease, as existing fields become sufficient to meet demand. Refiners, whose huge capital investments are dedicated to producing gasoline for automobiles, will write off their loans, and many will go under entirely. Even some pipeline operators, historically the most profitable portion of the oil business, will be challenged as high cost supply such as the Canadian tar sands stop producing.
A decade from now, many investors in oil may be wiped out. Oil will still be in widespread use, even under this scenario — applications such as road tarring are not as amenable to disruption by software. But much of today’s oil drilling, transport, and refining infrastructure will be redundant, or ill-fit to handle the heavier oils needed for powering ships, heating buildings, or making asphalt. And like today’s coal companies, oil companies like TransCanada may have no money left to clean up the mess they’ve left.
Of course, it would be better for the environment, investors, and society if oil companies curtailed their investing today, in preparation for the long winter ahead. Belief in global warming or the risks of oil spills is no longer needed to oppose oil projects — oil infrastructure like the Keystone XL will become a stranded asset before it can ever return its investment.
Unless we have the wisdom not to build it.
The battle over oil has historically been a personal battle — a skirmish between tribes over politics and morality, over how we define ourselves and our future. But the battle over self-driving cars will be fought on a different front. It will be about reliability, efficiency, and cost. And for the first time, Big Oil will be on the weaker side.
Within just a few years, Big Oil will stagger and start to fall. For anyone who feels uneasy about this, I want to emphasize that this prediction isn’t driven by environmental righteousness or some left-leaning fantasy. It’s nothing personal. It’s just business.
 Thinking about how fast a technology will flip is worth another post on its own. Suffice it to say that the key issues are (1) how big is the improvement?, and (2) is there a channel to market already established? The improvement in this case is a drop in cost of >2X — that’s pretty large. And the channel to market — smartphones — is already deployed. As of a year ago, 15% of Americans had hailed a ride using an app, so there is a small barrier to entry as people learn this new behavior, but certainly no larger than the barrier to smartphone adoption was in 2007. So as I said, I broadly believe that the roll-out will occur in about a decade. But any more detail would require an entirely new post.
Housing affordability is attracting the attention of politicians as concern rises that a housing bubble has made homes too expensive. So far, none of the discussions have really addressed the problems. Several key points can be made here from a futurist perspective.
The housing problem…..
Sitting on the left wing agenda is the view that negative gearing of investment properties is a necessary step to making housing more affordable. Government is short of cash. You can see this happening in most liberal democratic countries around the world and should merely be seen as another tax grab. For this reason alone politicians will close the negative gearing window.
Cancelling negative gearing will have the long term effect of driving up rents causing a severe shortage of rental properties. That wont affect the politicians however who vote for the negative gearing “reform” as they will have disappeared into retirement.
Pre-2016 election talk suggested a grandfather clause to existing investment property holders. The time between initiating the legislation to when it goes into effect creates a window for people to grab up properties for investment purposes. The short and sharp buying frenzy in conjunction with this kind of policy or news would be typical of a major long term top for Australian property markets. This kind of event is common in financial markets when changes of trend occur at the end of a long term market. Policy or news has caught up too late. It always results in a major reversal. We might anticipate the peak of the Australian property market would last decades.
Other proposed measures include first home owners being allowed to access superannuation to form a deposit. When first home owner grants were introduced in 2000, property prices for new homes jumped by multiples of the $7000 grant. This reflected the increased purchasing power an extra $7000 had on loan to valuation ratios. If super is allowed into the equation we’ll see property prices once again jump higher as builders respond to improved loan ratios.
Part of the affordability solution……..
One issue that never gets discussed is the supply related issues created by government themselves. In many capital cities around the world, including Australia, housing affordability is often the unintended consequence of regulatory bottlenecks where zoning, building regulations and permits choke the flow of new supply and drive up the cost of housing. Clearly this needs to be addressed and would go a long way towards addressing the affordability issue.Another issue under the microscope where investors hold a property seeking only capital gains by leaving the property untenanted. If governments must be seen to be doing something, a tax on properties untenanted for longer than say 3 months would take the heat off buyers as they realize the benefits renting over buying bring in an overheated property market.
Suffice to say the long term direction of Australian property values are coming to a head in conjunction with other Australian and global social, political and economic issues. Housing affordability is just another issue along with many others whose origins lie decades in the past and whose solution cannot be answered by politicians or central planners
How many things do we own, that are common today, that didn’t exist 10 years ago? The list is probably longer than you think.
Prior to the iPhone coming out in 2007, we didn’t have smartphones with mobile apps, decent phone cameras for photos/videos, mobile maps, mobile weather, or even mobile shopping.
None of the mobile apps we use today existed 10 years ago: Twitter, Facebook, Youtube, Instagram, Snapchat, Uber, Facetime, LinkedIn, Lyft, Whatsapp, Netflix, Pandora, or Pokemon Go.
Several major companies didn’t exist a decade ago. Airbnb, Tinder, Fitbit, Spotify, Dropbox, Quora, Tumblr, Kickstarter, Hulu, Pinterest, Buzzfeed, Indigogo, Udacity, or Jet.com just to name a few.
Ten years ago very few people were talking about crowdfunding, the sharing economy, social media marketing, search engine optimization, app developers, cloud storage, data mining, mobile gaming, gesture controls, chatbots, data analytics, virtual reality, 3D printers, or drone delivery.
At the same time we are seeing the decline of many of the things that were in common use 10-20 years ago. Fax machines, wired phones, taxi drivers, newspapers, desktop computers, video cameras, camera film, VCRs, DVD players, record players, typewriters, yellow pages, video rental shops, and printed maps have all seen their industry peak and are facing dwindling markets.
If we leapfrog ahead ten years and take notice of the radically different lives we will be living, we will notice how a few key technologies paved the way for massive new industries.
Here is a glimpse of a stunningly different future that will come into view over the next decade.
Also known as additive manufacturing, 3D printing has already begun to enter our lives in major ways. In the future 3D printers will be even more common than paper printers are today.
1. 3D printed makeup for women. Just insert a person’s face and the machine will be programmed to apply the exact makeup pattern requested by the user.
2. 3D printed replacement teeth, printed inside the mouth.
3. Swarmbot printing systems will be used to produce large buildings and physical structures, working 24/7 until they’re completed.
4. Scan and print custom designed clothing at retail clothing stores.
5. Scan and print custom designed shoes at specialty shoe stores.
6. Expectant mothers will request 3D printed models of their unborn baby.
7. Police departments will produce 3D printed “mug shots” and “shapies” generated from a person’s DNA.
8. Trash that is sorted and cleaned and turned into material that can be 3D printed.
The VR/AR world is set to explode around us as headsets and glasses drop in price so they’re affordable for most consumers. At the same time, game designers and “experience” producers are racing to create the first “killer apps” in this emerging industry.
9. Theme park rides that mix physical rides with VR experiences.
10. Live broadcasts of major league sports games (football, soccer, hockey, and more) in Virtual Reality.
11. Full-length VR movies.
12. Physical and psychological therapy done through VR.
13. Physical drone racing done through VR headsets.
14. VR speed dating sites.
15. For education and training, we will see a growing number of modules done in both virtual and augmented reality.
16. VR and AR tours will be commonly used in the sale of future real estate.
Drones are quickly transitioning from hobbyist toys to sophisticated business tools very quickly. They will touch our lives in thousands of different ways.
17. Fireworks dropped from drones. Our ability to “ignite and drop” fireworks from the sky will dramatically change both how they’re made and the artistry used to display them.
18. Concert swarms that produce a spatial cacophony of sound coming from 1,000 speaker drones simultaneously.
19. Banner-pulling drones. Old school advertising brought closer to earth.
20. Bird frightening drones for crops like sunflowers where birds can destroy an entire field in a matter of hours.
21. Livestock monitoring drones for tracking cows, sheep, geese, and more.
22. Three-dimensional treasure hunts done with drones.
23. Prankster Drones – Send random stuff to random people and video their reactions.
24. Entertainment drones (with projectors) that fly in and perform unusual forms of live comedy and entertainment.
Driverless technology will change transportation more significantly than the invention of the automobile itself.
25. Queuing stations for driverless cars as a replacement for a dwindling number of parking lots.
26. Crash-proof cars. Volvo already says their cars will be crash-proof before 2020.
27. Driverless car hailing apps. Much like signaling Uber and Lyft, only without the drivers.
28. Large fleet ownership of driverless cars (some companies will own millions of driverless cars).
29. Electric cars will routinely win major races like the Daytona 500, Monaco Grand Prix, and the Indy 500.
30. In-car work and entertainment systems to keep people busy and entertained as a driverless car takes them to their destination.
31. In-car advertising. This will be a delicate balance between offsetting the cost of operation and being too annoying for the passengers.
32. Electric car charging in less than 5 minutes.
Internet of Things
The Internet of things is the network of physical devices, vehicles, and buildings embedded with electronics, software, sensors, and actuators designed to communicate with users as well as other devices. We are currently experiencing exponential growth in IoT devices as billions of new ones come online every year.
33. Smart chairs, smart beds, and smart pillows that will self-adjust to minimize pressure points and optimize comfort.
34. Sensor-laced clothing.
35. “Print and Pin” payment systems that uses a biometric mark (fingerprint) plus a pin number.
36. Smart plates, bowls and cups to keep track of what we eat and drink.
37. Smart trashcan that will signal for a trash truck when they’re full.
38. Ownership networks. As we learn to track the location of everything we own, we will also track the changing value of each item to create a complete ownership network.
39. Self-retrieving shoes where you call them by name, through your smartphone, and your shoes will come to you.
40. Smart mailboxes that let you know when mail has arrived and how important it is.
Even though healthcare is a bloated and bureaucratic industry, innovative entrepreneurs are on the verge of disrupting this entire industry.
41. Hyper-personalized precision-based pharmaceuticals produced by 3D pill printers.
42. Ingestible data collectors, filled with sensors, to give a daily internal health scan and report.
43. Prosthetic limbs controlled by AI.
44. Real-time blood scanners.
45. Peer-to-peer health insurance.
46. Facetime-like checkups without needing a doctor’s appointment.
47. Full-body physical health scanners offering instant AI medical diagnosis, located in most pharmacies
48. Intraoral cameras for smartphones for DYI dental checkups.
Artificial Intelligence (AI)
Much like hot and cold running water, we will soon be able to “pipe-in” artificial intelligence to any existing digital system.
49. Best selling biographies written by artificial intelligence.
50. Legal documents written by artificial intelligence.
51. AI-menu selection, based on diet, for both restaurants and at home.
52. Full body pet scanners with instant AI medical diagnosis.
53. AI selection of movies and television shows based on moods, ratings, and personal preferences.
54. Much like the last item, AI music selection will be based on moods, ratings, and musical tastes.
55. AI sleep-optimizers will control all of the environmental factors – heat, light, sound, oxygen levels, smells, positioning, vibration levels, and more.
56. AI hackers. Sooner or later someone will figure out how to use even our best AI technology for all the wrong purposes.
Future transportation will come in many forms ranging from locomotion on an individual level to ultra high-speed tube transportation on a far grander scale.
57. Unmanned aviation – personal drone transportation.
58. 360-degree video transportation monitoring cameras at most intersections in major cities throughout the world.
59. Everywhere wireless. With highflying solar powered drones, CubeSats, and Google’s Project Loon, wireless Internet connections will soon be everywhere.
60. Black boxes for drones to record information in the event of an accident.
61. Air-breathing hypersonic propulsion for commercial aircraft. Fast is never fast enough.
62. Robotic follow-behind-you luggage, to make airline travel easier.
63. Robotic dog walkers and robotic people walkers.
64. Ultra high-speed tube transportation. As we look closely at the advances over the past couple decades, it’s easy to see that we are on the precipices of a dramatic breakthrough in ultra high-speed transportation. Businesses are demanding it. People are demanding it. And the only thing lacking is a few people capable of mustering the political will to make it happen.
As I began assembling this list, a number of items didn’t fit well in other categories.
65. Bitcoin loans for houses, cars, business equipment and more.
66. Self-filling water bottles with built-in atmospheric water harvesters.
67. Reputation networks. With the proliferation of personal information on websites and in databases throughout the Internet, reputation networks will be designed to monitor, alert, and repair individual reputations.
68. Atmospheric energy harvesters. Our atmosphere is filled with both ambient and concentrated forms of energy ranging from sunlight to lightning bolts that can be both collected and stored.
69. Pet education centers, such as boarding schools for dogs and horses, to improve an animal’s IQ.
70. Robotic bricklayers. With several early prototypes already operational, these will become common over the next decade.
71. Privacy bill of rights. Privacy has become an increasingly complicated topic, but one that is foundational to our existence on planet earth.
There’s a phenomenon called the Peltzman Effect, named after Dr. Sam Peltzman, a renowned professor of economics from the University of Chicago Business School, who studied auto accidents.
He found that when you introduce more safety features like seat belts into cars, the number of fatalities and injuries doesn’t drop. The reason is that people compensate for it. When we have a safety net in place, people will take more risks.
That probably is true with other areas as well.
As life becomes easier, we take risks with our time. As our financial worries are met, we begin thinking about becoming an entrepreneur, inventor, or artist. When life becomes too routine, we search for ways to introduce chaos.
Even though we see reports that billions of jobs will disappear over the coming decades, we will never run out of work.
As humans, we were never meant to live cushy lives of luxury. Without risk and chaos as part of our daily struggle our lives seem unfulfilled. While we work hard to eliminate it, we always manage to find new ways to bring it back.
Yes, we’re working towards a better world ahead, but only marginally better. That’s where we do our best work.
Today’s economies are dramatically changing, triggered by development in emerging markets, the accelerated rise of new technologies, sustainability policies, and changing consumer preferences around ownership. Digitization, increasing automation, and new business models have revolutionized other industries, and automotive will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity.
1. Driven by shared mobility, connectivity services, and feature upgrades, new business models could expand automotive revenue pools by about 30 percent, adding up to $1.5 trillion.
2. Despite a shift toward shared mobility, vehicle unit sales will continue to grow, but likely at a lower rate of about 2 percent per year.
3. Consumer mobility behavior is changing, leading to up to one out of ten cars sold in 2030 potentially being a shared vehicle and the subsequent rise of a market for fit-for-purpose mobility solutions.
4. City type will replace country or region as the most relevant segmentation dimension that determines mobility behavior and, thus, the speed and scope of the automotive revolution.
5. Once technological and regulatory issues have been resolved, up to 15 percent of new cars sold in 2030 could be fully autonomous.
6. Electrified vehicles are becoming viable and competitive; however, the speed of their adoption will vary strongly at the local level.
7. Within a more complex and diversified mobility-industry landscape, incumbent players will be forced to compete simultaneously on multiple fronts and cooperate with competitors.
8. New market entrants are expected to target initially only specific, economically attractive segments and activities along the value chain before potentially exploring further fields.
Automotive incumbents cannot predict the future of the industry with certainty. They can, however, make strategic moves now to shape the industry’s evolution. To get ahead of the inevitable disruption, incumbent players need to implement a four-pronged strategic approach:
As crude oil falls below US$28.00 per barrel we see a selling climax developing. The final low on this sell off could be anywhere between $12.00 to $27.00 and would lead to a major turning point for the beleaguered oil market. This will complete our oil market predictions first made in 2011 when we predicted US$12.00 per barrel. The final oil market low may well occur in conjunction with a bottom in US stock markets.
Once the lows are in we will release our predictions for oil for the next couple of years. We will also shortly update our “End of the Long Game 2009-2018” scenario.
Greece’s Finance Minister Yanis Varoufakis has come out to reveal the quite shocking and anti-democratic events that took place during the last Eurogroup meeting. First, they do hate Yanis’ guts, for he understands far more about the economy than anyone in Brussels. At their demand, any further discussions will be without him. What led to the EU breaking off was exactly what we reported previously — they do not want any member state to EVER allow the people to vote on the euro. Brussels has become a DICTATORSHIP and is so arrogant without any just cause, believing that they know better than the people.
We are watching the total collapse of Democracy and the birth of a new era — Economic Totalitarianism from arrogant people who are totally clueless beyond their own greed for power and money.
Editor Note: Greece is the end of the beginning for the EZ and the beginning of a long period of political, social and economic instability that co-incides with the topping phase of the upward phase of the Industrial Revolution cycle that began in 1783-85.
In February 2015, Canada legalized physician-assisted dying — a first among countries with common-law systems, in which law is often developed by judges through case decisions and precedent. The Supreme Court of Canada issued the decision in Carter v. Canada
The judgment portends changes outside Canada. Imitation is a feature of the common-law world, and if physician-assisted dying is litigated in England, India, or South Africa, for example, odds are high that judges would draw on the Canadian Court’s reasoning. Societies are also changing, and in coming decades aging populations with growing affluence and incidence of chronic illness will increasingly question the medical and legal orthodoxies regarding the end of life. Given the flow of legal ideas and shifting demographics, change and convergence around physician-assisted dying as a standard of care seem inevitable.
These developments will trouble people who instinctively find legalized physician-assisted dying repellent. But increasingly, society is acknowledging that denying people the right to die with dignity and safety is even more repellent.
Editor’s Note: This is in line with our prediction that euthanasia will become commonplace in liberal-democratic nations around the world. Our prediction remains on track and we should see euthanasia being mainstream by 2025.
Of greater concern is the risk that failing governments will cause a rise in “iatrogenic-induced deaths” as the continued breakdown of societies accelerates.
Advances in nanotechnology will be a key enabler of technological advance in the next decade. The integration of information technology, biotechnology, materials sciences, and nanotechnology will generate a dramatic increase in innovation. Read this Alert to see how your personal and business life might be affected pretty soon.
What is changing?
Older technologies will continue lateral ‘sidewise development’ into new markets and applications .
Current high-visibility investments and technology breakthroughs will be needed to realize the full potential of nanotechnology.
Technologies like nanotechnology will be used to establish a maintenance free environment (i.e. self -cleansing glass, self-repairing concrete).
Nanotechnology will produce new goods with new properties at a smaller scale that may use far less resources.
Future uses of genetic data, software, and nanotechnology will help detect and treat disease at the genetic or molecular level.
Modern healthcare technologies and prevention strategies will have the potential to extend the life expectancy of people.
Molecular ‘robots’ could be designed to enter the body and eat plaque.
Nanotechnology will enable lives to be saved by digestible cameras and machines made from particles 50,000 times as small as a human hair.
Smart nano-materials will facilitate the development of textiles that detect biotoxins.
The global market for nanotechnologies will reach $1 trillion or more within 20 years.
Progress in nanotechnology will depend heavily on R&D investments.
Expect the greater use of new materials with an emphasis on not just boosting performance but also improving efficiency.
Materials and nanotechnology will enable the development of new devices with unforeseen capabilities.
Nanotechnology will replace most current wearable technology.
Discoveries in nanotechnology will lead to unprecedented understanding and control over the fundamental building blocks of all physical things.
Nanotechnology could be used to help reduce battery weight and lighten other products.
The U.S. Air Force believes that nanotechnology will have a direct application for both flight and space travel.
Nanotechnologies will pave the way for developing hybrid energy solutions.
Nanotechnology could provide solutions for sensing.
Nanotechnology will also spawn new technologies for manipulating DNA.
Biotechnology and nanotechnology will provide greater potential for destruction.
To find the sources and more resources on Shaping Tomorrow about ‘The Future of Your Workplace’ some of which were used in this Trend Alert, ‘Small is beautiful – Nano futures surround you’, or ask us for a customised, in-depth GIST report on this or any other topic of interest to you. Also, click here to find out how Shaping Tomorrow can help your organization rapidly assess and respond to these and other key issues affecting your business.
Solar costs are set to drop with new technologies and manufacturing techniques. This will impact on the energy industry with relief of burden on coal, oil and gas sources of energy and their resultant impact on the environment. There will still be a need for electricity utilities but their role will be reduced.
Online education is already making rapid inroads into traditional education processes .at university and school levels. For government this is extremely challenging as technology is rapidly ripping central control away and placing it firmly in the hands of the consumer. Education costs will decline and we will witness the old institutions crumble in the face of emerging competition and new delivery methods.
Blockchain based technologies will make a huge impact on decentralizing and revolutionizing the way transactions in banking, finance and law happen. Not to mention computer programming, scientific research and communications. Blockchain technology came to public awareness with the emergence of Bitcoin. Its roots extend however from cryptography – the science of coding and decoding messages for the purposes of privacy.
Climate change will not be a social or political issue in the minds of the public within 5 years. That’s not to say that change does not need to happen – a lot still needs to change to improve the quality of environment and human and planetary sustainability. Emerging technologies will help a lot and education of people in the way they treat their environment will result in significant environmental improvement even in the next 6 years.
A digital healthcare revolution is commencing now where people will soon be able to monitor their own health and respond as needed. New technologies controlled from a smart phone will be able to monitor all major health aspects including ‘wet’ analysis of blood, heart, breath, urine and other sampling tests. If results warrant, your device will be able to recommend various responses including taking yourself to hospital if required or calling an ambulance in extreme cases. Once again competition and technology are making old modes of doing things irrelevant. Often these shifts are occurring where government has taken over an industry and underfunding and lack of adaption have made the industry inefficient and ineffective.
The coming global depression lasting 8 to 13 years commencing anytime between now and 2018. The coming together of many factors including the level of indebtedness of liberal democratic countries, aging demographics, the inability of global economic growth to accelerate and the crushing level of regulation facing most societies. Cyclically we are also witnessing the peaking of a cycle that spans the massive growth of the west – the Industrial Revolution. As this cycle peaks after some 230 years of growth so we enter the down phase of the cycle in which contraction and liquidation of all the dead wood of that growth phase gets swept away. Thus the path is cleared allowing the birth of a new phase of human growth and development. These cycles occur at many different levels of human existence – at the individual, societal, ethnic and nation state levels.
Part II: the Bear Argument
We also point out our alternative scenario which, if, going to happen, is starting now. This scenario suggests stock market prices are peaking in what was a false move to the upside over 2009-2014. This implies that the stock market correction which began in 2000 is still underway and has many years left to unfold. It also implies that stock markets are about to undergo a rapid and relentless decline to their 2009 low points and most probably lower. Falling oil, gold, metal and bond prices over the last few months support this scenario which suggests economies are still undergoing this huge consolidation.
The current divergence between stock markets and commodities indicate a major topping process is underway. In addition Austrian Business Cycle Theory suggests a massive divergence between the amounts of new money coming into the system on a year on year basis is diverging with capital goods prices such as stocks and real estate. This implies the system cannot support asset prices at their current high levels. Even if the US Fed were to begin another round of quantitative easing it would not be enough to sustain asset values – especially stocks at current levels. If this scenario emerges over the next six months we can predict this will give rise to an economic depression lasting 8 to 13 years before an economic recovery gets underway. See the chart below to get a sense of the disparity between M2 Money Supply growth – non seasonally adjusted compared to the weekly DJIA close.
The alternative view suggests it is the resumption of the bear phase of an ongoing correction since 2000. The massive money supply pumping had created the sub-prime bubble that should have been left to sort itself out in the 2008-2009 phase. Since then we have seen bubbles in commodities, education, shares and real estate. The divergence seen in the above M2 NSA Money Supply – DJIA graph illustrates how much worse the situation has grown with stock prices occupying high levels and the amount of new money coming into the system remaining static. This is untenable.
Summary of expectations – short term bull market scenario
• Expect stock markets to correct more deeply over 2015 (14720, 15340 (DJIA) and 1738, 1814 (SP500)) against a growing bullish optimism before beginning an upward exponential surge in stock, commodity and real estate prices. Anticipate any decline of stock markets or economic data to be met by central banks restarting their QE programs. 14720, 15340 (DJIA) and 1738, 1814 (SP500)
• The collapse of oil prices in the last quarter of 2014 creates a potential game changer for most economies as cheaper energy prices flow through to Main Street. It is likely Crude Oil prices will be capped for the next few years at around US$80 per barrel. This takes the pressure off consumer prices but once again translates into higher share and real estate prices.
• Anticipate consumer price inflation to remain low in the US, UK, EU and Japan. At the same time higher than normal unemployment and the potential for continuing stagnant economic activity will prevail. At this time we anticipate seeing US consumer inflation increase dramatically with the potential to see 4-6% very quickly. The only thing really holding CPI figures down at present, is falling oil prices in late 2014.
• Interest rates will start to rise in 2015 as central banks try to normalize credit markets.
• • Expect credit markets to re-price themselves if inflation does kick up creating a liquidity trap for central banks.
• Anticipate the US, Japan, UK and German stock markets to benefit at the expense of emerging markets as cash gets sucked from the periphery to the centre. Similarly the US dollar will continue to strengthen as money floods back to the centre from the periphery.
• Expect a collapse in stock and commodity prices followed by economic contraction where both inflation and high unemployment are experienced at the same time after this spike in stock and commodity markets prices. This may not happen for another 3 years as the ‘Roaring Teens” finishes up.
• Anticipate social and political dislocation in many countries including the US to continue to escalate.
Summary of expectations – short term bear market scenario
• Expect stock markets to begin a relentless stair step down punctuated with savage counter rallies. The nature of the decline will tell us if this is a correction in a broader ongoing bull market or the beginning of the bear market. One clue would be if the correction points mentioned here are taken out in one continuous uninterrupted decline (14720, 15340 (DJIA) and 1738, 1814 (SP500)). Anticipate any decline of stock markets or economic data to be met by central banks escalating their QE programs. 14720, 15340 (DJIA) and 1738, 1814 (SP500)
• We might also anticipate inflation to break out in an unprecedented way especially in the US, UK and Japan and central banks will be unable to contain it. At the same time higher than normal unemployment and continuing stagnant economic activity will prevail. Interest rates may rally sharply on rising inflation and start to rise as central banks try to normalize credit markets in 2015 before plunging as evidence of the growing bear market gathers.
• The coming phase will be difficult to read as markets enter their final death throws and competing bullish and bearish forces play out.
• The coming depression that unfolds will last 8 to 13 years.
• Anticipate increasing social and political dislocation in many countries including the US.
Conclusion & End Game
Whether we have a few more months or years of twilight before the beginning of a new “Dark Age”, suffice to say, that from now onwards we can expect increasingly tough times punctuated by phases of optimism. And of course the coming generation of correction will not merely be confined to asset prices and the vagaries of fiat money and bad economics, but also to societies and politics, both domestic and geo-political. Generations of people will learn about long forgotten natural laws and how it applies to human behavior. Social mood will have become dark and this will also express itself through every aspect of society, both culturally and economically. Music, the arts, fashion, crime, politics, social mood and drama will all reflect the new paradigm. The growing social political and economic tensions we have witnessed a harbinger of what is to come. This phase will reset the stage for a new beginning for people from which a new and sustained social and economic recovery will slowly begin. By the time that point has arrived however, the nature of our societies and the way we relate with people and between nations will have changed. The wrangling about why it had to happen will be well underway.
This post isn’t so much a proud proclamation of the future as a call for debate, perhaps some interesting dinner party conversation starters. What do you think?
I think the biggest changes for the next 4 years will be the following:
1) A Thinner Internet
The internet will become more seamless, more pervasive, personal and even predictive. It will spread across more devices but in thinner, more context specific layers.
From the notification layer on our phone, to “card” like app design, to apps that run invisibly in the background to wake only when required.
From fridges that on a glance show the weather, to clocks that show when we’re late with colours, to watches that tell us if we need to head right or left with a vibration. Amazon Echo as a ambient helper.
Our phones unlock in trusted places, our cars pick the coffee shop we may want, Siri, Cortana, Google now, all become personal assistants that guide us. Anticipatory or Predictive computing will be a huge development that we all talk about for the next few years as we begin to outsource our cognitive functions ( and trade privacy). Far fetched? How many phone numbers do you now know? What about birthdays?
We used to search the web, we used to go deep in, and navigate, in the near future the web bubbles up to a surface that we glance at, in more places and in less deep ways. It becomes key contextual information.
How can your business move into this thin layer, how does it become a contextual nudge or key information at the right time.
2) The post privacy age.
A generation of people simply won’t understand the concept of privacy. A generation of people who’ve grown up sharing geotagged images of their most personal moments, who’ve had every gmail read, who’ve lived with loyalty cards and financial dashboards won’t get for one second what was once possible, privacy.
Instead a generation of people will have grown up having traded it. Their Target app gave them bigger discounts, they used Facebook for free, they got retargeted ads from newspapers we once paid for.
From better healthcare from the analysis of anonymous healthcare, from more efficient smart cities from sharing user data, from thermostats that save energy by knowing where you are, or whether it’s Cortana or Google Lollypop becoming your personal assistant.
We will soon grow up in an age of near perfect information, and when we realize that when more people, know more things, there are some clear benefits, the topic won’t be about how we keep privacy but what we trade it for, where to draw the new line and how we learn to trust those with it.
What does this mean for marketers? How can they destroy assumptions about privacy, why can’t we offer more personal ads? What about more personal offers? Let’s think about how to reward people who chose to share data, it could be the new micro currency of the web.
3) The decline of the middle class in the developed world.
From Denver to Dover, Berlin to Bucharest, whether it’s the fault of the global economic downturn, quantitative easing, the internet or labor automation, it seems like a clear trend in rising income inequality and in particular the transfer of wealth upwards and it’s hard to see anything reversing this.
Will we somehow see more working and middle class jobs appearing? With the rise of automation, the global movements of talent and the rise of technology to make industry more efficient, it’s impossible to see this happening.
Will property ownership revert back to the masses? You’d be a fool to see how this can happen unless those in power stop serving their own interests.
The future “virtual” or real high street and mall from the future will be dominated by the extremes. From Burberry and Louis Vitton at the top, to the masses of bargain retailers, dollar stores, pound shops, payday loan and pawnshops of the bottom, it’s hard to see how anyone in the middle can survive.
The share price of Tesco, Sainsbury’s, Sears, JC Penney testifies to this. Be careful where your consumer is going. The Middle is a terrible place to be.
4) Mature Money.
Advertising and marketing have always obsessed with the young, but never more so and never more pointlessly.
Not only do the young have less influence than the media would have us believe, but they also suffer from having relatively little money and no loyalty whatsoever.
Yet the everlasting debate is about how to target and segment millennials or digital natives, and never how to target the old.
The over 50’s now have over 80% of most developed nations wealth, they have more free time, look set to live far longer, are way healthier and more engaged in brands than before. Yet the world of marketing abandons them to look at the trendy money.
Youth finances have never looked worse, youth unemployment is high, the cost of living is crippling, university fees in many countries are staggering and their future looks massively uncertain.Meanwhile the baby boomers sit on assets rocketing in value, drawing healthy pensions well into the future, and look for ways to spend it.
The trend lines are clear, so what can your business do about it?
5) Non Ownership
A lot of history is cyclical, people react and rebel against our past. For a generation of people that grew up in an age of post war rations, economic hardship, expensive electrical items, we’ve seen the reaction in the ultimate in consumer boom. We can now buy massive TV’s for less than $400, that we need not replace for years. In real terms cars and clothing are incredibly cheap, we’ve chickens for 2 dollars, the only thing that is expensive and limited is time.
A generation of people who’ve grown up with this abundance may turn against it. The most expensive and best phone in the world is $1000, the most most appropriate laptop costs the same. Armed with these devices we need not buy a 100 items they now replace. From the sharing economy making renting trendy, to a group of people unable to buy houses and that don’t see the stigma in renting, to hardware that becomes new due to software updates, to the digitization and streaming of once physical items. It could be we’re on the verge of a new type of consumerism, where armed with a past of excess, a present of limited finances and a future of resource scarcity, we chose to own fewer, better, more adaptable items.
Sadly Humans are not built to last as long, the sort of ultimate in built-in-obsolescence and as we age, we do so asymmetrically.
When expensive modern medicine is able to keep people alive for longer, with ever diminishing returns, at what point do we accept that an aging unproductive population isn’t sustainable.
What becomes of the new retiring age? When do we agree to treatments? what constitutes action that is in the interest of the person? What does this mean for countries with government provided healthcare?
It’s a bit grim to dwell on it and the marketing implications are less clear, so just a philosophical issue to chat about and think about for the holiday dinner party season.
Hope you liked them, this is a call for debate, not a proclamation of the fixed, so what do you think? What other issues do you forsee?
A combination of factors is bringing India to the “Sweet Spot’.
A population of workers with an average age of around 35 combined with the arrival of a new government may be pulling Incredible India to where, at last, its population and vigor may carry it aloft. Like China in the early 80’s and 90’s, India has the potential to achieve rapid growth. But due to lack of political will, religious divisions, corruption, poverty, a massive overhang of the post-colonial era when Marxist-socialist solutions were the fashion and lack of capital, India’s progress has been slow.
The analogy is of an aircraft taking off. The back wheels are still on the ground but the nose has lifted up. This has been the case for some time with the deadweight of the various factors holding her back. This is about to change. Continue reading →
Updating the main theme of this website we showed in our last lead article ‘A Generation of Correction’ how the big picture view had resolved itself into two clear scenarios. We painted the broad brush strokes showing those scenarios. Now the picture has advanced sufficiently enough to reveal the direction ahead.
To recap firstly, we are witnessing in our lifetime the completion of large scale cycles of human endeavor and activity with the attendant dislocation and reallocation of social, economic and political activity. The article does not attempt to make trading or investment recommendations, however an understanding of the broad brush strokes both economically and politically may serve to enhance your perspective on what emerges next. The scale of forces at work in societies and economies is so huge that the current social, economic and political drama is taking decades to unfold. This is the topping and completion process of an economic cycle that has been going on for over 200 hundred years. By the time it is finished, it may well have spanned generations of people. On a historical note, we are witnessing the completion of the growth phase of the industrial revolution that began around 1783-5. These cycles affect all industrialized nations including China which joined the industrial revolution much later. Given the length of time involved we anticipate this having a generational impact and may not be completed for decades to come.
We had seen our previous forecast, ‘The Five Act Drama’, invalidated as the so called economic recovery since 2009 continued. The phase 2000 to 2009 which included the dotcom bubble collapse, the post 9/11 recovery and Iraq War followed by the subprime mortgage debacle were all part of a major degree of correction occurring in the late stages of the Industrial Revolution Cycle that began around 1785. We had concluded that the logical outcome of the economic peak in 2007 and the following financial crisis (GFC), that a major downturn with attendant declines in asset values and income levels was underway and that this process would continue into 2016 and possibly as late as 2024. The tenacious strength of the recovery since the GFC surprised us but also revealed alternative cyclic viewpoints. The ‘animal spirits’ that drove bull markets and buoyed economic activity from the 80’s to 2000 along withthe animal spirits of the central bankers whose hubris has now reached giddying heights illustrates the scope of those bull markets and gives rise to what is happening now with a clear scenario emerging.
In the first quarter of 2014 we observed stock markets pushing to new highs. At the same time, the massive US Federal Reserve intervention known as quantitative easing (QE) had started to be wound back. Unemployment levels have continued to fall modestly and economic activity has continued to sputter along in the US and other liberal democratic nations. The effect of QE has had the effect of fuelling asset prices with only marginal improvement in economic activity. The effect of not allowing spontaneous ordering to take place with the required liquidation of malinvestments of the last 20-30 years has been to stall the potential of a recovery that is founded on real growth and productivity.
Realignments normally occur with structural economic or political realisations and to this end there is no shortage of potential factors. These include the potential for significantly higher bond interest rates, political scandal, general economic failure, student loans, China, Europe, etc. Despite all the worries of Main Street underperformance compared to stock and commodity markets, it appears QE is having the effect of distorting all relationships between markets and their ability to fairly price. Ultimately this too will result in unintended consequences and only prolongs the inevitable. One result will be the utter demolition of the myth that is Keynesian economics.
Our previous scenario was based on the assumption that the beginning of the correction (and completion of the growth phase) of the Industrial Revolution Cycle began in 2000 with the bursting of the Dotcom bubble. Since then asset values have effectively moved sideways to higher in a broad band and currently stand at the upper levels of those bands. In real terms however, asset values are broadly lower reflecting the massive money printing that has occurred. This is also reflected in sputtering global economic activity and rising political and social frustration about the political-economic situation. From another perspective this may be seen as the result of 40 years of fiat money and the economic and social dislocation that occurs when money has no store of value.
At time of writing, US money supply growth figures indicate the potential in 2014 for a mild correction of asset values due to weakening US M2 money supply growth. In effect the US Federal Reserve has failed to transfer money printing to Main Street as banks still remain resistant to large scale lending. This is in part due to distorted interest rates making it unprofitable and risky to lend.This mild correction is merely a pause in the asset appreciation we have witnessed over the last 5 years caused by QE programs. Any excessive fall in asset values will be met by significant QE stimulus in the short term.
The fact is, the largest investment bubble in the history of humankind is unfolding right on schedule. By schedule we don’t mean time dependent but that what is unfolding is form dependent. All economic bubbles return to the starting point from whence they came. The massive money printing undertaken by central banks, the dislocation of market pricing shows a growing divergence between stocks for example and the rest of the stock market and the relentless chase for yield. Whilst divergence is indicative of major stock market tops, the topping phase can go on for a long time. We have already seen the breaking from the uptrend of many markets including gold and silver, base metals, interest rates and currencies. Human history is littered with examples of failed nations, whose prosperity and future was cut short by depreciation of money values. What makes this era any different? The modern fiat money experiment has been going on for a mere 42 years. The economic system of industrialized nations resets or reforms roughly every 40 years and so it appears we are right on time for the next reset. Given the culmination of history, cycles, accumulation of knowledge and human hubris it appears technology changes but the nature of humankind does not.
One aspect worth considering is the level of political hubris maintained by many liberal democratic countries whose politicians firmly believe that they have the skill and tools necessary to engineer recovery. Until this hubris is totally wiped away along with the hopes and dreams of the people represented, there is not much scope for real change at a societal, political or economic level. Indeed one factor contributing to the economic malaise is the inability of most markets to clear out the malinvestment most industrialized nations suffer. Typical of this is the gridlock in the US political system where entrenched self-interest stops any real or meaningful change. The weight of US economic recovery has been placed firmly on the shoulders of the Fed. US politicians are incapable of undertaking any real economic restructuring and this has the effect of prolonging the contraction phase of the cycle. Meanwhile the hubris continues, restructuring remains on the side-lines and most industrial nations face high unemployment and debt levels, unaffordable social security programs and large ageing populations starting their transition to retirement.
Interestingly, in this next phase, all of this will come to a head. In the last cyclic correction of the same magnitude – 1710 to 1785, great things were achieved with the advance of the sciences, arts and many new inventions and discoveries. That phase concluded however with the French Revolution and Napoleonic Wars. This next phase will end the same way as humanity forgets itself and its past. It will also be accompanied by many new inventions, discoveries and advances along with the wars and other upheavals. Like all plays (the world is certainly a stage), this year 2014/15 is where the drama reveals the direction and thrust of things to come for the next 20 – 30 years or so.
In effect the recovery from the GFC is the last gasp of the fiat money boom that has been in effect since Nixon left the gold standard. Economic growth since the late sixties has been largely sponsored by credit that has left the liberal democratic economies bloated with debt, regulation and fiat money. To see how this pans out graphically, refer to the accompanying chart. The recovery since 2009 has been boosted by massive cash injections (read printing) of money into the industrialised economies boosting asset prices (read inflationary) as Keynesian orthodoxy suggests boosting asset prices will eventually lead to a follow through in consumer spending. Industrial nation governments are doing their best to boost spending in the finest tradition of neo-Keynes. The printing however is having the harmful effect of dislocating markets and the traditional matrix of pricing set by the markets is breaking down, together with a worrying disconnect between Wall St (stock market prices) and Main St (economic activity, employment). Anticipate the main buzzword to be stagflation through 2015. Commodity markets are spiking up, interest rates are starting to rise and yet, in spite of that, stock markets continue to climb a wall of worries and this gives rise to our predictions.
Our scenario suggests that quality performing stocks, commodities and real estate will continue to climb even as incomes decline and other assets peel away. Translating that into index levels implies, for example seeing the DJIA advancing to new highs from late 2014 onwards, in excess of 20,000 whilst the S&P500 reaches towards 2000-2200. Given the QE printing stimulus to asset prices over the last few years, such a move could be characterized by a final exponential rise followed by a collapse of these two indexes any time from late 2015 onwards. Such a top would mark the completion of the entire Industrial Revolution upward phase of the cycle and indicate we are entering into a prolonged period of economic, social and political stagnation and upheaval. Whilst these highs are being made the discrepancy between Wall Street and Main Street will be acutely emphasized with further deterioration of the economic, social and political fabric of the industrialized nations. At the same time, this may well be accompanied by dramatic movements in interest rates, commodities, currencies, gold and silver. The upward spike in these markets is the result of the massive QE programs flowing through to asset prices. You can also anticipate the emerging market economies to suffer as more cash gets sucked into the leading economies – the US, UK, Germany and Japan. Japan will be forced to make another QE intervention later in 2014.
In economic history this present phase may well be a replication of the 1921-29 phase also known as the “Roaring Twenties”. This culminated of course in the Crash of 1929 and we are suggesting that the circumstances are building for a repeat performance. The scale and scope however of the coming crash still years away will dwarf the events of 1929-33. Using the stock market as a barometer or benchmark of prosperity is a recent development by the US Federal Reserve and illustrates how far we have traveled from orthodox economics in justifying the level of intervention by government and the Fed. The severity, speed and relentlessness of the events following will shock. For this scenario to unfold there needs to be a further consolidation of stock and commodity markets during 2014 before the final advance begins. We believe however that the time scale to complete the End Game is small, measured in, at most, a few years, before the next major sell off phase.
To summarize, let us be very clear about what is happening or about to happen in the final phase of the End Game:
·Expect stock markets to correct over most of 2014 before beginning an upward surge leading to an exponential rise in stock, commodity, gold and silver prices. For example anticipate the DJIA correcting to 13784 – 15341 and not below 12876.
·Anticipate central banks to respond to this correction by escalating their QE programs.
·Anticipate inflation to break out in an unprecedented way especially in the US, UK and Japan and central banks will be unable to contain it. At the same time higher than normal unemployment and stagnant economic activity will prevail. This is called stagflation.
·Expect credit markets will seek to re-price themselves in light of emergent inflation creating a liquidity trap for central banks.
·Anticipate the US, Japan, UK and German stock markets to benefit at the expense of emerging markets as cash gets sucked from the periphery to the centre.
·Expect a collapse in stock and commodity prices followed by economic contraction where both inflation and high unemployment are experienced at the same time after this spike in stock and commodity markets prices.
·Anticipate ongoing social and political dislocation in many countries.
Near the peak or shortly after it will also be possible to predict more accurately how long the ensuing economic contraction will last. Suffice to say, that from now ‘til anytime out to 2030 we are in for some tough times punctuated with attempts at recovery. By then the writing will be clear for everyone to see. And of course the generation of correction will not merely be confined to asset prices and the vagaries of fiat money and bad economics, but also to societies and politics both domestic and geo-political, where a generation of people will learn about long forgotten natural law and how it applies to human behavior. Social mood will have become dark and this will also be expressed right through music, the arts, fashion, crime, political and social mood and drama. The last phase will set the stage for a new beginning for people from which a new and sustained economic recovery will slowly begin. By the time that moment has arrived however, the nature of our societies and the way we relate with people and between nations will have changed. The wrangling about why it had to happen will be well underway.
Proprietary Rights Notice: By reading a copy of this essay, you acknowledge and agree as follows:
This essay is provided to you only for your personal, non-commercial use. This essay does not constitute advice. Except as expressly authorized by Pointmen Pte Ltd (PPL), you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of PPL. You also agree not to use the information provided in this report for any unlawful purpose. This essay and its contents are the property of PPL and are protected by applicable copyright, trade secret or other intellectual property laws.
We have updated the main theme of the Emerging Events website. Click on the title to read how larger trends and cycles are moving to complete within the next few years and the implications this brings to to people and nations ……… Find it here: http://www.emergingevents.com/?p=2761Continue reading →
Today, more than 10,000 Baby Boomers will retire. This is going to happen day after day, month after month, year after year until 2030. It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it. We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep. Even if we didn’t have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself. During the first half of this century, the number of senior citizens in the United States is being projected to more than double. As a nation, we are already drowning in debt . So where in the world are we going to get the money to take care of all of these elderly people?The Baby Boomer generation is so massive that it has fundamentally changed America with each stage that it has gone through. When the Baby Boomers were young, sales of diapers and toys absolutely skyrocketed. When they became young adults, they pioneered social changes that permanently altered our society. Much of the time, these changes were for the worse.
According to the New York Post , overall household spending peaks when we reach the age of 46. And guess what year the peak of the Baby Boom generation reached that age?...
People tend, for instance, to buy houses at about the same age — age 31 or so. Around age 53 is when people tend to buy their luxury cars — after the kids have finished college, before old age sets in. Demographics can even tell us when your household spending on potato chips is likely to peak — when the head of it is about 42.
Ultimately the size of the US economy is simply the total of what we’re all spending. Overall household spending hits a high when we’re about 46. So the peak of the Baby Boom (1961) plus 46 suggests that a high point in the US economy should be about 2007, with a long, slow decline to follow for years to come.
And according to that same article, the Congressional Budget Office is also projecting that an aging population will lead to diminished economic growth in the years ahead...
Lost in the discussion of this week’s Congressional Budget Office report (which said 2.5 million fewer Americans would be working because of Obamacare) was its prediction that aging will be a major drag on growth: “Beyond 2017,” said the report, “CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades [due in large part to] slower growth in the labor force because of the aging of the population.”
So we have a problem. Our population is rapidly aging, and an immense amount of economic resources is going to be required to care for them all.
The following are some of the hard numbers about the demographic tsunami which is now beginning to overtake us...
1. Right now, there are somewhere around 40 million senior citizens in the United States. By 2050 that number is projected to skyrocket to 89 million .
2. According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
3. One poll discovered that 26 percent of all Americans in the 46 to 64-year-old age bracket have no personal savings whatsoever.
5.67 percent of all American workers believe that they “are a little or a lot behind schedule on saving for retirement”.
6. A study conducted by Boston College’s Center for Retirement Research found that American workers are $6.6 trillion short of what they need to retire comfortably.
7. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has declined to 23 percent .
8. According to one recent survey, 70 percent of all American workers expect to continue working once they are “retired”.
9. A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.
10. A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States. Back in 2001, they only accounted for 12 percent of all bankruptcies.
11. Today, only 10 percent of private companies in the U.S. provide guaranteed lifelong pensions for their employees.
12. According to Northwestern University Professor John Rauh, the total amount of unfunded pension and healthcare obligations for retirees that state and local governments across the United States have accumulated is 4.4 trillion dollars .
13. Right now, the American people spend approximately 2.8 trillion dollars on health care, and it is being projected that due to our aging population health care spending will rise to an astounding 4.5 trillion dollars in 2019.
14. Incredibly, the United States spends more on health care than China, Japan, Germany, France, the U.K., Italy, Canada, Brazil, Spain and Australia combined.
16. When Medicare was first established, we were told that it would cost about $12 billion a year by the time 1990 rolled around. Instead, the federal government ended up spending $110 billion on the program in 1990, and the federal government spent approximately $600 billion on the program in 2013.
17. It is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.
18. At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years. That comes to approximately $328,404 for every single household in the United States.
19. In 1945, there were 42 workers for every retiree receiving Social Security benefits. Today, that number has fallen to 2.5 workers , and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.
20. Right now, there are approximately 63 million Americans collecting Social Security benefits. By 2035, that number is projected to soar to an astounding 91 million .
22. The U.S. government is facing a total of 222 trillion dollars in unfunded liabilities during the years ahead. Social Security and Medicare make up the bulk of that.
So where are we going to get the money?
That is a very good question.
The generations following the Baby Boomers are going to have to try to figure out a way to navigate this crisis. The bright future that they were supposed to have has been destroyed by our foolishness and our reckless accumulation of debt.
But do they actually deserve a “bright future”? Perhaps they deserve to spend their years slaving away to support previous generations during their golden years. Young people today tend to be extremely greedy, self-centered and lacking in compassion. They start blogs with titles such as “Selfies With Homeless People “. Here is one example from that blog...
Of course not all young people are like that. Some are shining examples of what young Americans should be.
Unfortunately, those that are on the right path are a relatively small minority.
In the end, it is our choices that define us, and ultimately America may get exactly what it deserves.
But what about “reserve currencies”, like the U.S. dollar? JP Morgan noted last year that “reserve currencies” have a limited shelf-life:
As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns. It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.
Why China Doesn’t Want the Yuan to Become the Reserve Currency
But a switch to a totally-different system – say, a gold-backed yuan – would cause enormous disruption and chaos. China – which has been a long-term planner for thousands of years – doesn’t want such a sudden change.
Moreover, housing the world’s reserve currency is a huge burden, as well as a privilege. Venture Magazine notes :
The inherent burden of housing the world’s reserve currency is that the U.S. must continue to run a balance of payment deficit to meet the growing demand. However, it was this outstanding external debt that caused investors to lose confidence in the value of the reserve assets.
Michael Pettis – the well-known American economist teaching at Peking University in Beijing – explains :
A world without the dollar would mean faster growth and less debt for the United States, though at the expense of slower growth for parts of the rest of the world, especially Asia.
When foreigners actively buy dollar assets they force down the value of their currency against the dollar. U.S. manufacturers are thus penalized by the overvalued dollar and so must reduce production and fire American workers. The only way to prevent unemployment from rising then is for the United States to increase domestic demand — and with it domestic employment — by running up public or private debt. But, of course, an increase in debt is the same as a reduction in savings. If a rise in foreign savings is passed on to the United States by foreign accumulation of dollar assets, in other words, U.S. savings must decline. There is no other possibility.
By definition, any increase in net foreign purchases of U.S. dollar assets must be accompanied by an equivalent increase in the U.S. current account deficit. This is a well-known accounting identity found in every macroeconomics textbook.So if foreign central banks increase their currency intervention by buying more dollars, their trade surpluses necessarily rise along with the U.S. trade deficit. But if foreign purchases of dollar assets really result in lower U.S. interest rates, then it should hold that the higher a country’s current account deficit, the lower its interest rate should be.
Why? Because of the balancing effect: The net amount of foreign purchases of U.S. government bonds and other U.S. dollar assets is exactly equal to the current account deficit. More net foreign purchases is exactly the same as a wider trade deficit (or, more technically, a wider current account deficit).
So do bigger trade deficits really mean lower interest rates? Clearly not. The opposite is in fact far more likely to be true. Countries with balanced trade or trade surpluses tend to enjoy lower interest rates on average than countries with large current account deficits — which are handicapped by slower growth and higher debt.
The United States, it turns out, does not need foreign purchases of government bonds to keep interest rates low any more than it needs a large trade deficit to keep interest rates low. Unless the United States were starved for capital, savings and investment would balance just as easily without a trade deficit as with one.
Only the U.S. economy and financial system are large enough, open enough, and flexible enough to accommodate large trade deficits. But that badge of honor comes at a real cost to the long-term growth of the domestic economy and its ability to manage debt levels.
For the reasons outlined by Pettis, China – which has the world’s 2nd biggest economy (or 1st … depending on the measure used) – doesn’t want the burden of housing the world’s reserve currency.
As such, China is pushing for a basket of currencies to replace the dollar as reserve currency.
Jim Rickards – one of the leading authorities on currency, having briefed the CIA, Pentagon and Congress on currency issues – says :
China is not buying gold to create a new gold standard; rather it is aiming to make the Yuan more attractive, with the end result of being included in a basket of currencies, referred to as the Special Drawing Rate (SDR). He added that there is a move to make the SDR the new global reserve currency.
“Everybody knows that the U.S. dollar’s days are numbered but there is no really currency to take its place except for the SDR,” he said.
“What the world is trying to do is move to the SDR and China is fine with that.”
Rickards added that China’s goal of being in an SDR basket is the best of both worlds; the country can still have total control over its monetary policy and capital accounts but still influence global economics by being part of a basket of currencies.
“What the Chinese want is to have the Yuan in the SDR basket but not open up their capital account,” he said. “That is a backdoor way for the Yuan to be a de facto reserve currency without having to give up control.”
It is silly to exclude the Yuan from the basket of currencies.
Indeed, given that there are privileges and burdens of having the reserve currency, I would argue that – if we are going to move away from the dollar as sole reserve currency – all of the currencies of the world could be in the basket … in proportion to the size of their economies. It is simple to look up the GDP of the world’s nations .
That way, each country would all share in the benefits and costs, in proportion to its size and strength.
(Obviously, some countries have such small or unstable economies that no one would want to settle in their currency. To be realistic, they’d probably be dropped out of the basket. But the ideal of including everyone is worth maintaining.)
Keynes and Other Economists Say We Should Use a Basket of Commodities
While having a basket of different things acting as the world’s reserve currency may sound like a new idea, John Maynard Keynes – creator of our modern “liberal” economics in the 1930s – promoted a basket of 30 commodities called the “Bancor” to replace the dollar as the world’s reserve currency.
The arguments for currency fixed on a basket of commodities – as opposed to currencies – was that it would stabilize the average prices of commodities, and with them the international medium of exchange and a store of value.
As China’s head central banker said in 2009, the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”. Likewise, China suggested pegging SDRs to commodities .
Economics Professor Leanne Ussher of Queens College in New York concludes that a reserve currency made up of a basket of 30 or so commodities would:
Reduce the disorderly swings in individual commodity prices … reduce supply constraints, stabilize costs of production, promote global effective demand from the periphery and balance growth between periphery and core countries.
Monetary expert Bernard Liataer – formerly with Belgium’s Central Bank – writes:
The idea of a commodity-based currency may seem to some a step backwards to a more primitive form of exchange. But in fact, from a practical point of view, commodity-secured money (for example, gold- and silver-based money) is the only type of money that can be said to have passed the test of history in market economics. The kind of unsecured currency (bank notes and treasury notes) presently used by practically all countries has been acceptable only for about half a century, and the judgment of history regarding its soundness still remains to be written.
With a commodity-based currency, a central bank could issue a New Currency backed by a basket of from three to a dozen different commodities for which there are existing international commodity markets. For instance, 100 New Currency could be worth 0.05 ounces of gold, plus 3 ounces of silver, plus 15 pounds of copper, plus 1 barrel of oil, plus 5 pounds of wool.
This New Currency would be convertible because each of its component commodities is immediately convertible. It also offers several kinds of flexibility. The central bank would agree to deliver commodities from this basket whose value in foreign currency equals the value of that particular basket. The bank would be free to substitute certain commodities of the basket for others as long as they were also part of the basket. The bank could keep and trade its commodity inventories wherever the international market was most convenient for its own purposes–Zurich for gold, London for copper, New York for silver, and so on. Because of arbitrage between all these places, it doesn’t really matter where the trades would be executed, as the final hard currency proceeds would be practically equivalent. Finally, since the commodities also have futures markets, it would be perfectly possible for the bank to settle any forward amounts in New Currency, while offsetting the risks in the futures market if it so desired.
This flexibility results in a currency with very desirable characteristics. First of all, the reserves that the country could rely on–actual reserves plus production capacity–are much larger than its current stock of hard currencies and gold. The New Currency would be automatically convertible without the need for new international agreements. Since the necessary international commodity exchanges already exist, the system could be started unilaterally, without any negotiations. Because of the diversification offered by the basket of several commodities, the currency would be much more stable than any of its components–more stable, really, than any other convertible currency in today’s market.
3 Choices for a More Stable Money System
The 2 choices for reserve currency discussed above are using a (1) basket of currencies or (2) basket of commodities.
A third choice – which may be the best – is to use a mixture.
For example, we could have 50% currencies and 50% commodities.
That would give us some of the desirable characteristics (like stability) of a commodity basket, but not immediately move away from the fiat money systems which are now status quo for the current system.
Any of these 3 choices would give us far more stability and prosperity than we have today … without the chaos and misery – especially for Americans and perhaps Chinese – that switching to a Yuan-only reserve currency would bring.
Notes: You might assume that public banking advocates would be for a currency-only basket. But Bernard Lietaer was one of leading public banking advocate Ellen Brown’s main teachers, and he is pushing for a basket made up solely of commodities. (But public banking advocates might argue for adding currencies to the basket currencies to allow for some elasticity in the money supply.)
Gold standard advocates would obviously prefer commodities to currencies. A basket of commodities might not have the simplicity of a gold standard, but it would accomplish a lot of the same goals.
As an American who wants stability and prosperity for my country, I think a basket would be the best option for a healthy future for the U.S. And as someone who wants good things for the rest of the world, I believe that a basket would help to share political influence more widely.
Reported by Zerohedge for Asia Confidential:Thematic investing, or investing based on emerging themes, is fraught with some danger. Many people invest in the latest hot theme and get burned soon enough. Others mindlessly put their money into a company based on a theme without regard to valuation or quality of management – another sure-fire way to end up in the red.And let’s face it: the future is inherently uncertain. If picking future investment themes was easy, everyone would be sipping pina coladas in Bora Bora. The best investors know this and place their bets according to probabilities. That is, they invest when the odds are in their favour and invest large amounts when those odds offer significant upside with minimal risk.The question then becomes this: which investment themes might give you the best odds of success over the next decade? It’s a tough question. If there’s one thing for which I have a high degree of conviction, it’s that the world is currently drowning in debt and that debt will need to be cut, one way or another. If that’s right, you’ll want to avoid sectors which have benefited most from the three decade long expansion in credit. The finance sector is an obvious one and the bear market here is likely to last decades. The tech sector is another – think of all the tech start-ups and others which will evaporate when the silly venture capitalists funding them don’t have access to cheap and abundant money. There are many other sectors which will suffer too.In other words, you’ll probably want investment exposure to themes which may still thrive in a world of shrinking credit. There won’t be many of them but Asia Confidential has a few ideas. Asian outbound tourism has been, and should continue to be, a strong theme which transforms the global tourism sector. Privatisation of state-owned assets appears a sure thing – in the developed world as well as China – given bloated government balance sheets. Acquirers with deep pockets should benefit. Low to mid-end consumption should do well as developed world consumers tighten their belts while Asian ones start to spend more with increased wages. Finally, gold is likely to thrive as the credit boom turns to bust and faith in government policies and currencies is shaken.
Asia outbound tourism
I remember doing a research report as a sell-side analyst in Indonesia in early 2006 looking at the potential boom in visitors to the beautiful beaches of Bali due to a growing influx of Chinese tourists. It was considered then a far-flung theory as Bali was still suffering from a series of terrorist bombings and Chinese tourists only accounted for about 6% of total visitors to the island. Since then though, Balinese tourism has surged and the Chinese have played a significant part in that. China now tops Japan as the country with the second-largest number of visitors to Bali behind Australia. And Chinese tourists account for nearly 12% of total visitors to the island, double that of 2006.
Back then, there were no airlines offering direct flights from China to Bali. Now there are several. That’s not counting the many charter flights which the Chinese take to the island. In Bali today, there are also slews of foot massage shops, jewellers, status artwork and other items catering to Chinese consumers, Chinese restaurants and Chinese speaking guides.
These trends are not only happening in Bali, but in every tourist destination across the world. Chinese tourists are driving growth and their needs are being increasingly catered too. And those needs are very different to tourists from the U.S., Europe or Japan. For instance, Chinese tourists spend much more money on shopping vis-a-vis hotels. Various studies suggest two-thirds of Chinese overseas tourists spend more than 20% of their budgets on shopping with 25% spending greater than 50% of their budgets on shopping.
The trend of increasing Chinese outbound tourism looks set to continue. In 2012, the Chinese outbound tourism market became the world’s largest, moving ahead of the U.S. and Germany. The number of annual Chinese outbound tourists now totals 83 million, up almost 8x since 2000.
The great thing about this trend is that it appears to be in its infancy. Think about how the Japanese, having fully recovered from the ravages of World War Two, took to the skies from the 1970s and transformed tourism destinations such as Hawaii and Australia’s Gold Coast. They also transformed the airlines, hotels, amusement parks, travel agents, restaurant chains, spa and beach resorts as well as duty free stores which catered to them.
The same thing is likely to happen as China and other Asian countries catch the travel bug. The companies which best fulfil their needs will be big winners.
I like the Macau casino operators in the long-term even though valuations are somewhat stretched at present. Macau accounts for almost 30% of Chinese outbound tourism and that number should increase as transport infrastructure to the territory improves. Among the casino companies, U.S.-headquartered Las Vegas Sands (NYSE:LVS) is probably the pick of the bunch.
I also like Hong Kong retailers as a play on Chinese tourism. Hong Kong is still the dominant destination for Chinese tourists and is likely to remain so. Though be wary of some of the high-end retailers who’ve benefited from the lavish spending habits of corrupt Communist Party officials. That may not last.
Finally, hotel operators with significant Asian exposure should do well. Thailand conglomerate, Minor International (SET:MINT), is my preferred stock in this space.
Privatisation of state-owned assets
In 2011, the world’s biggest private equity firms were busy raising money to take advantage of over-indebted European countries needing to shed state-owned assets to stay afloat. Wholesale asset sales never really happened though as these countries papered over cracks, with the help of a few trillion dollars from the European Central Bank.
Europe’s problems haven’t gone away though. And the problems aren’t limited to Europe, as governments in the U.S., U.K, Japan and China have similar issues. Put simply, all of them have too much government debt. And one way or another, that debt will need to be cut back. Whether through write-downs, austerity, inflation or a combination of all of them, the debt will be reduced.
One way to cut debt is through the privatisation of state-owned assets. I think that this will be one of the enduring investment themes of the next decade. Ironically, it seems probable that the paragon of communism, China, will be the first to accelerate the sale of government-owned assets in an effort to reduce the influence of state-owned enterprises (SOEs) and encourage competition.
Which companies will benefit from the broad-based sale of state-owned assets? Well, most would point to private equity firms such as Blackstone and TPG. But I’d suggest otherwise as these firms rely on outside funds and in a credit-deprived world, these funds will dry up.
Instead, I’d look to conglomerates with deep pockets and minimal debt to take advantage of asset sales. Some of the large North American companies such as Berkshire Hathaway (NYSE:BRK-A) and Brookfield Asset Management (NYSE:BAM) should be in poll position.
In Asia, it’s a bit trickier as the private companies bidding on state-owned assets will need high-level government connections to be successful. Particularly in Japan and China.
Low to mid-end consumption
In the West, excess debt and declining real wages have resulted in consumers cutting back on spending since 2008. That’s been bad for high-end retailers but good for businesses such as dollar stores. It’s a trend which is likely to continue for many years to come.
In Asia, the situation is very different. Consumer balance sheets are in great shape, barring South Korea. Savings are abundant while debt is minimal. Better yet, wages are growing rapidly, even in slowing economies such as China, India and Indonesia. Excess savings and rising wages augur well for future spending.
Moreover, you have countries such as China which are encouraging people to spend more. It’s part of China’s strategy to re-balance its economy away from being over-reliant on investment for economic growth.
As a consequence, low to mid-end consumer companies across the globe are likely to do well going forward. In the developed world, consumers will continue to trade down. In the developing world, you should have people spending more, albeit still at the lower end given most of the region, including China and India, remains poor.
I’m not an expert on consumer companies in the developed world but discount operators should outperform from here. Dollar store companies in the U.S., U.K. and Australia have recently underperformed on hopes of economic recovery, which may provide some interesting potential entry points.
In my neighbourhood of Asia, Hong Kong headquartered, Giordano (HKSE:709), is one of the best low-end clothing retailers in the region and is inexpensive at current levels. Other exceptional consumer brands worth looking at include Chinese beer giant, Tsingtao Brewery (HKSE:168), and Thailand television operator, BEC World (BSE: BEC).
Long-time readers will know my preference for having gold in an investment portfolio. Gold has two things going for it. First, if you think that debt contraction is probable in future as I do, that brings risks to the world’s financial system. After all, the still thinly-capitalised banks own much of the debt which will need to be restructured/written down. Therefore, it’s be wise to own assets which sit outside the financial system. That’s where gold comes into play.
Secondly, the current policies of the world’s central banks may be preventing the contraction in debt which needs to occur to cleanse the financial system. In my view, central bank moves to reflate the credit bubble are likely to lead to a larger credit bust down the track. In many ways, gold is the anti-central bank. The less faith that you have in central banks, the more gold that you should own.
As for the best ways to play gold, exchange-traded funds (ETFs) and stocks both have counterparty risks, though I do find the latter attractive given they’re arguably the most hated assets on the planet. Physical gold is my preferred way to play this theme though as it’s the least risky of these options.
If a prudent investment strategy involves holding physical assets outside of the financial system, then agriculture should also be considered. Unlike many of the hard commodities, agriculture has a serious supply-demand imbalance which should result in prices remaining elevated for years to come.
Agriculture inventories are at multi-decade lows. That means inventories are being drawn down as consumption exceeds production. Global agricultural production has only increased by 2.1% per annum over the past decade and the OECD forecasts that growth rate will decline to 1.5% over the next ten years.
The principle reasons behind the lack of supply are limited expansion of agricultural land, increasing environmental pressures, rising production costs and growing resource constraints.
Meanwhile, demand continues to grow solidly primarily due to growing populations, higher incomes and changing diets (higher calorific intakes) in developing markets. On the latter, for example, it’s well known that meat consumption increases as a country becomes wealthier. The OECD predicts that the developing world will account for 80% of the growth in meat consumption over the next decade.
While droughts in recent years and subsequent surges in agricultural prices have grabbed television headlines, it’s worth remembering that these events merely exacerbated the already tight supply in soft commodities. And it seems that tight supply will only worsen unless there are major technological breakthroughs to improve agricultural productivity.
As for where best to get investment exposure to agriculture, I’d suggest you look at commodities where supply-demand imbalances may further deteriorate, such as sugar, coffee and potash.
In the U.S., good arguments have been made for an urgent upgrade of creaking infrastructure. Increased spend on infrastructure could create jobs, improve security at ports and electricity grids as well as keep the U.S. competitive with China – all of which could be financed at exceedingly low interest rates thanks to Mr Bernanke’s quackery. But political gridlock means it probably won’t happen.
In the developing world, the problem is not of repairing infrastructure, but building it. Some countries such as Singapore and China are host to some of the world’s best highways, airports and ports. Others such as India and Indonesia remain in the dark ages.
For instance, Indonesia spends just 1.7% of GDP on infrastructure, compared to China’s 8%. More than 40% of Indonesia’s roads remain unpaved. The country has only 11 miles of railway line per person, less than half that of Thailand, India or China.
Anyone who’s been in a traffic jam in Jakarta can attest to the underspend. Are traffic jams in Jakarta the worst of any capital city in the world, I wonder?
The likes of Indonesia don’t have any choice but to improve infrastructure, and fast. Otherwise, supply bottlenecks will choke economic growth. The cement sector in Indonesia is an oligopoly and a great way to play to the increased infrastructure spend to come. Indocement (JSE: INTP) is the pick of the bunch.
China continues to hoard gold en masse. In June, China imported 104.6 tonnes from Hong Kong. That would bring China’s gold imports from Hong Kong to 1,160 tonnes since the beginning of this year. Officially, China reports its total gold holdings at around 1,000 tonnes. Yet speculation is widespread that it could be holding somewhere between 7,000 to 10,000 tonnes, surpassing the United States’ 8,113 tonnes. China is apparently preparing to adopt an impending gold standard.
Yao Yudong, a member of the People’s Bank of China’s Monetary Policy Committee, recently penned an article in the China Securities Journal, in which he called for a new Bretton Woods system. This would help stabilize the global exchange rates. By implication, he is calling for a return to the gold standard.Under the old Bretton Woods system, the US dollar was the global reserve currency, fixed to gold at US$35 per ounce. This is known as the gold standard system, based on which paper currencies were issued. But President Richard Nixon ended this gold standard in 1971 by floating the US dollar outright.By doing so, the world moved into the fiat currency system – or paper money system. Ever since, the dollar has been printed out of thin air. But the US has also been able to guard the dollar as the world reserve currency. This fiat currency system has given rise to huge debts, an expansion of the banking system and financial markets, and has become the mother of all volatility.Now China is attempting to challenge this fiat currency system. It is no secret that China would like to float the yuan to become an international reserve currency. But China will not bank on the fiat currency system to do so. It is now pegging its yuan to the US dollar tightly. When the timing is right, China will de-link the yuan from the US dollar and fix it to gold instead. This will have far-reaching implications for the global financial system, creating further dislocations and crisis on a global scale.
Also, China has been entering currency swap contracts with other countries to bypass the US dollar. It has currency swap agreements with Brazil, Russia, Iran, Australia and the UK, to name a few. This scheme is developing fast to supplant the dollar with the yuan.
So it is not a surprise that China is building up its gold reserves in preparation for a big bang revolution of the global financial system.
Even with the strong demand for gold from China, Russia and India, gold prices have continued to be hammered down. Gold prices peaked at almost $1,900 per ounce in September 2011. Now, gold prices are struggling to keep to the $1,300 level. Many commentators, from Mexican billionaire Hugo Salinas Price to former US assistant secretary for the Treasury, Paul Craig Roberts, believe that the gold price squeeze is the work of central planners, who would like to protect the value of the dollar.
We are now seeing a battle in the gold market, which reflects a broader currency war. The central planners are holding down the gold prices, while China, Russia, India and other central banks and funds are accumulating physical gold in preparation for a big change. This seesaw battle will continue until the great unravelling.
Interest rates are on a rise. If the US Federal Reserve fails to get control over the bond market, we are going to witness a crisis. Then gold will shine again as China and other countries move to adopt a gold standard to replace the fiat currency system. By that time, history will have been rewritten.