Long Term Significant Economic Disruption Ahead
In a recent column here titled “The Next 20 Years: 2017-2037” I wrote:
“There will be more change in the next 20 years than any 20-50 year period in history. In fact, future historians may well look back on this time as a historical transit as significant as the beginning of the Industrial Revolution or the Renaissance.
It is hard to imagine any area of life that will not be changed. This means that it will be disconcerting, disorienting, disruptive and that “reality” as we know it today will end. This of course means that a significant percentage of humanity will have great psychological upset as we all like, or at least accept, our version of reality.”
Whenever there is a lot of disruption, or to use a more traditional phrase, creative destruction, there will be a lot of economic uncertainty and pain. The old order crumbles and the new order emerges. Holding on to the past becomes costly and even dangerous. In this column, I want to suggest that along with all this change, and with baggage from the Great Recession, there is significant economic disruptions ahead.
First, a few caveats. I am not an economist. I do not deal with economic theory when looking at the future as it is just that, theory. Second, I am not a financial advisor, as I do not give people advice on their investments. Third, I am not an expert on market timing. So, please do not ask me for investment advice. I am a futurist and so I look at what was, what is, to best forecast what will be.
Here are some things I see that have great likelihood of happening in the next few years;
-I think the stock market is in for a significant correction. It will be triggered by several things, some of which are below. I was dumbfounded that the Snap Chat IPO was so strong out of the gate. It’s day of reckoning has started with its “earnings” report. I think this IPO and the emerging difficulties of the “unicorns” such as Uber, will severely dampen the blind fever around tech stocks. The current market is fueled on speculation, the lack of alternative investments and is very sensitive to external events, more so than earnings.
-I think that the Euro Zone is shaky at best and beginning its demise at worst. I have been consistent on this since 2011. The Great Recession may well be looked back upon as the beginning of the end of the Euro Zone. A massive amount of debt was run up, there is no real growth, interest rates have been negative at times and unemployment and certainly youth unemployment are in double digits in many European countries. 20th century thinking that has not evolved in this century
-China may well be headed for some unpleasant economic times. There seems to be a looming debt crisis, the government is ham handed in some of its efforts, there is an opacity that hides any true weakness and growth has slowed dramatically. One must remember that there are 1.4 billion people in China and that 1 billion of them live in relative poverty and have yet to participate in the economic miracle which created 300+ billion new additions to the global middle class. That may soon cause social unrest. Lastly the wealthy are moving vast amounts of money out of the country creating huge currency outflows.
-Russia is only now emerging from two years of significant GDP contraction as they are selling oil for less than cost. In addition, it is the largest country in the world geographically with a shrinking population. The dictatorship has not created a dynamic market economy so there is no real growth. Many more people walking through the exit door than the entrance door.
-the above two points on China and Russia is exactly why they are both being bellicose and nationalistic on the global stage. When there is nothing to praise internally with the economy, national leaders, and specifically autocrats do some external saber rattling. This will continue. This only increases tension and makes markets jittery.
-the federal government in Washington D.C. has been in gridlock for almost two decades. This means that necessary efforts, bills and goals so essential at this time in our country’s history are not being intelligently dealt with. Now layer over that the emerging crisis Trump is creating with the country and his own party and you don’t have any kind of certainty that markets and investors like. Ultimately the partisanship that exists will create ever more problems for this country for the next few years. There are 20,000+ bridges approaching collapse and what is Washington D.C. focusing on?
-In the same column quoted above, I spoke about the coming transformation of the auto industry to electric cars and autonomous automobiles. This will cause old players to fade away and new ones to emerge. The gearheads of Detroit are ceding ground to the techies of Silicon Valley. So, what are the existing car companies doing? They are committing fraud and have a record number of recalls. How can you trust a company such as Volkswagen who overtly committed fraud in multiple countries, apparently colluding with suppliers. In addition, multiple car companies knowing sold new cars with deadly faulty airbags. When your industry faces its largest existential crisis it is plain stupid to commit fraud. No wonder why Tesla is valued more than many much larger companies. Invest is what is being born, rather than what is dying or committing suicide.
-The biggest economic transition in the next 10 years will be the global movement away from fossil fuels to alternative and renewable energy sources. Fossil fuels are now a no growth industry. I have forecast for years that the collapse of the price of oil will cause economic upheaval which leads to the collapse of nation state economies. Take a look at Venezuela and Nigeria for the first examples of this phenomenon.
-Lastly, there will be hundreds of billions – if not trillions- of lost property values due to Sea Level Rise and Climate Change globally between now and 2030-35. Florida has some 5,000 miles of shoreline and much of it will be worth much less in the future that today. Real estate will be “under water” before it is under water.
Oh, one more thing, the national debt of the United States may be $20 trillion, but the debt and all the unsecured liabilities of the country now add up to almost $100 trillion if you include Unfunded Social Security, Unfunded Medicare, Pension and retiree benefits and publicly held debt. I used to be on the board of the Institute of Truth in Accounting and they have some of the best information or how debt-riddled the federal government and states are. A visit to this web site will make you wonder what politicians in Washington and every statehouse are doing. Ostriches all. $100 trillion is more than the global aggregate GDP. Any good ideas on how to retire it?
This list could go on. The single thing to keep in mind is that the reality you have assumed would continue will not. So don’t invest thinking it will.
[Note: a good part of this column was originally published in the Sarasota Herald-Tribune ]
