Two weeks ago, several members of our financial planning team attended the Financial Planning Association’s NorCal Conference in San Francisco. At the opening keynote presentation, Jennifer Micieli and Jennifer Hicks (aka “the Jens”), Elissa, and Dave listened to Dr. Laura Tyson, Berkeley professor and former chair of the president’s Council of Economic Advisors, give her assessment of the US economy. Dr. Tyson discussed a myriad of economic indicators but ultimately focused on one of the biggest impediments to faster growth in the U.S. and around the world: deleveraging. Deleveraging refers to the process that households have been engaged in since the economic crisis hit in 2008 in which they spend less, save more, and reduce debt. On one level, this is a good thing since households everywhere took on far too much debt during the boom years of the real estate bubble. However virtuous this may be at the level of the individual household, however, it puts a serious drag on economic growth. The rate of growth is directly affected by the pace of consumer spending and consumers can’t increase spending and pay down debt all at the same time. That’s why the recovery from recessions caused by a financial crisis and asset bubble are typically slower than other types.
Although this was not new information, it was, to say the least, a somewhat gloomy opening to our conference.
Elissa and Dave next proceeded to a presentation by deep thinker and good friend Dennis Stearns. In addition to being a chess master and talented financial planner, Dennis is notable in the financial planning profession for his “scenario planning” work. Dennis began his presentation, “Super Trends: Opportunities and Threats,” at the same place that Dr. Tyson ended hers:
1.Financial recessions take longer to recover despite well intentioned government efforts at stimulus.
2. Deleveraging is a powerful headwind that has “thickened the mud” for consumers, closely held businesses and increasingly, the U.S. and ove rseas governments.
3. Geo-political risk is higher than normal given Middle Eastern regimes in a state of flux and potential for intervention in Iran.
Unlike Dr. Tyson, however, Dennis offered an additional perspective:
4. A number of short and intermediate term Super Trend “gamechangers” are increasingly likely to shift the future into a more positive trajectory.
Dennis grouped his super trends under three main headings:
- Globalization Super Trends
- Technology Accelerators
- Global Age Wave
Within these super trends, Dennis identified a number of “trillion dollar themes” that have a relatively high probability of emerging in the next few years. In fact, some of these themes are already well under way, including the arrival of a billion new consumers within emerging economies, especially China, India, and Brazil. While you would naturally assume that this trend is positive for both consumer goods companies and luxury goods makers here and abroad, it turns out that there’s another dimension of equal interest: a number of studies suggest that as populations surpass the $5,000 annual income threshold, terrorism and the threat of war decline.
Another trillion dollar theme was focused on the need to replace aging infrastructure in the developed world. This work will have to be done if developed economies are to remain competitive and recent proposals for public-private infrastructure banks offer a viable method for financing this important task. More than a trillion dollars of private capital has been identified as interested and economists agree that this initiative would boost employment, economic growth, and efficiency. The political situation in the U.S. will likely defer this development into 2013, with the effects being felt in 2014 and beyond.
One of the major themes under the heading of “Technology Accelerators” is something that we’ve written about before: the explosive growth of energy supplies due to new technologies. We know that there is now a very real chance that the U.S. will achieve energy independence, with the rise in stock valuations, business confidence, and consumer confidence that would go along with that. However, as Fareed Zakaria noted in Sunday’s edition of Global Public Square, a new golden age of gas is “a game-changer not just for the energy industry, not just for the U.S. – but for geopolitics.” Zakaria points out that most natural gas in the recent past has been supplied by “nasty and illegitimate” regimes like Iran and Venezuela, which thrive on global instability, not least because this drives up oil and gas prices and helps their bottom line. Now, however, with worldwide production of natural gas expected to grow 50% by the year 2035, and with most of that increase coming from the United States, Canada, Australia, Poland, France, and Israel, the production shift away from “destabilizing” regimes will have a huge positive impact on the world economy and geo-political stability.
Yet another game-changing trend is the rapid emergence of new medical treatments as a result of info-tech, bio-tech, and nano-tech convergence. While many of the new treatments will be available primarily to the affluent, others, especially those involving handheld diagnostic devices, will be a boon to all strata of society. Furthermore, new developments in the area of handheld diagnostic tools may actually help bend the curve on runaway healtcare costs. With respect to the improving outlook on longevity and health, Dennis posed the question: “If you knew you would live to age 100 and be healthy and active, what would change about your life or your plans today?”
Under the theme of “Prepping for The Next Big Thing,” Dennis noted that “innovations tend to cluster in waves and five emerging technologies will create significant improvements in products, most of which require no special technology knowledge for consumers to access.” The five converging technologies are nanotechnology, genomics, artificial intelligence, robotics, and ubiquitous connectivity. The estimated addition to global GDP growth from this convergence is more than $1 trillion (and may be much much more). This is an example of one of our own themes: it doesn’t pay to underestimate human ingenuity, which time and again throughout history has overcome seemingly insurmountable obstacles.
One of the challenges we face in this rapidly evolving world is developing the kind of material and psychological resilience to deal with frequent, disruptive change. At Yeske Buie, we believe that the financial planning process and a grounded approach to portfolio development and management can go a long way toward establishing and sustaining that resiliency.
Fasten your seat belts, Ladies and Gentlemen, it’s going to be a bumpy ride!
The Yeske Buie Team