Alchanati Campbell & Associates
The Market. President Trump could be impeached. Even though Beijing withdrew its extradition bill, the bill that caused chaos in Hong Kong, protests are still occurring. The next step would be to declare a national emergency and send troops… which investors speculate could trigger a global stock market selloff. Value stocks are starting to underperform, lagging in return compared to fundamentally weaker stocks, is value dead? Where are the rich putting their money? (See the picture below) Index funds make the market more efficient. Quarter 4 estimates (corporate earnings and economic data) are not looking positive. The Consumer Confidence Index decreased in September (Current: 125.1, Last: 134.2). The global economy works best when goods, services, people and ideas flow freely across administrative boundaries. A bubble is viewed as the asset or market that is expensive relative to its potential growth and income and the marginal buyer in the asset class or market appears to have little interest in valuation. News and increasing uncertainty about trade tariffs decrease investment and activity. Advances in AI and robotics will continue to disrupt the labor market and the amount of skilled and unskilled jobs available. Four output and living standards to rise over time, either people need to work more hours or people need to be more productive while working.
The future of work. Automation technologies promise to deliver major productivity benefits that are too substantial to ignore. Automation is expected to displace: office support, food service, transportation and logistics, and customer service roles. But the economy will create jobs in: healthcare, science, technology, engineering, math (STEM), and jobs that require personal connection and interaction. Those with a high school degree or less are four times more likely to hold automatable roles than those with bachelor’s degrees. High-growth hubs and megacities are where you’ll see the most employment. In the US, 60% of job growth by 2030 could be concentrated in 25 cities. Young workers, workers over 50, and Hispanics and African Americans are the workforces that are most likely to be displaced. 40% of Americans are in occupational categories that could shrink by 2030. With the jobs displaced and phased out, new jobs will be created, more than making up for those lost.
Energy Outlook 2019. Key takeaways from this study (the study’s estimates are for 2018-2050): The Organization for Economic Cooperation and Development (OECD) is an economic organization that has 34 members (all developed countries), founded to boost world trade and economic progress. GDP estimates for 2018-2050 for the OECD countries is 1.5% compared to 3.8% for non-OECD countries. The [estimated] fastest-growing countries (non-OECD) for the period of 2018-2050 will be: India, Africa, China, and the Middle East). Japan and Russia are the slowest-growing economies (both have declining populations and aging workforces). China is estimated to not grow as fast (grew 10% annually from 2000-2010). Energy consumption will grow by nearly 70% for non-OECD countries. The industrial sector (refining, mining, manufacturing, agriculture, and construction) will account for the largest share of energy consumption. Liquid fuels will continue to be the predominant transportation fuel and an important industrial feedstock. Renewable energy will become the leading source of primary energy consumption by 2050 (although renewable energy is the world’s fastest-growing form of energy, fossil fuels will continue to help meet energy demand). Global natural gas consumption will increase by more than 40%.
Where will the next crisis come from? Crises tend to have a large element of unpredictability. Periods with a higher number of crises/shocks coincide with higher levels of debt and with it higher deficits. Leaving the precious metal-pegged currency systems has encouraged budget deficits, rising debts, huge credit creation, loose monetary policy, and financial deregulation (In a gold standard world, mining new gold was the only stable way of increasing the money supply). Extremely high global asset valuation and low economic growth relative to the past could cause an asset price correction. The central banks have made yields very low causing other asset prices to rise.
Investing in the future. What is the future going to look like? What will be popular and profitable? What will consumers be buying and using? What will be essential and what will be disrupted? Where are the trends leading to? What are the future trends, consumer preferences, and behavior? Here are our thoughts: companies that contribute to a more sustainable economy like electric vehicles (the world is going green and not by choice, by necessity), biotechnology companies working in the agriculture space (agriculture will be disrupted by irregular weather patterns. What can solve that?), solar companies and other renewable power companies (the new sources powering the world), waste management and water purification companies, ESG ETFs, data storage and data center companies, telecommunication companies, US opportunity zones (for tax purposes), investing in developing and emerging markets like India, Nigeria, Vietnam, Mexico, Russia, Brazil, etc., cybersecurity companies, AI companies, liquified natural gas, and cannabis. These investment types are based on intuition and experience/knowledge of the world we live in and how the world will be in the future.
Introduction to Bakkt, Bitcoins' new futures market. Bakkt is bitcoins first US compliant futures market, offering an investment vehicle for institutions and US investors to safely purchase and hold bitcoin. This exchange is run by ICE (Intercontinental Exchange), who also operates the NYSE. This exchange opened to the public earlier this week, Monday, September 23rd, with first days volume being disappointing, around 200k USD. Although volume was substantially higher later in the week, reaching around 700k USD, this still fails in comparison to even a lesser traded futures market, such as the lean hogs commodity, with volume around 2m$. This market does bolster a few different attributes to the current capital markets, being that it is open 7 days a week, and is only closed for 2 hours every day to finalize closings. In my opinion, a 24/7 market has quite a lot of drawdowns’ and isn’t nearly as good of an idea as it sounds. Operating constantly leads to a lack of active trading hours, and increased potential for manipulation. Shortly after opening, bitcoin's price fell sharply by around 19%, from 10500$ to 8500$. It seems that the hype that has been circulating for the past year, regarding Bakkt’s launch and constant delays, is all but over.
Global population changes and predictions. By the year 2030, the world’s population will grow by 1.2 billion people, with 97% of that growth occurring in developing countries. Over the same time, cities will expand to hold a record 60% of the world’s population. This data has large implications for the economies of the world as population growth or decline directly impacts many aspects of the economy including per capita output, per capita income, and the standard of living. For example, Russia is currently facing an annualized population decline rate of 6% and is expected to lose over 9 million people by 2030. This decline is one of the contributing factors to Russia’s ongoing finical crisis. On the other hand developed countries with steady population growth like The United States are expected to see correlated economic growth. The bulk of population growth will occur in China and India which are expected to grow by 67.7 million and 224.3 million people, respectively. This growth will continue to fuel the recent economic growth as long as the countries can successfully allocate resources quickly enough to provide for food, housing, and jobs to account for this unprecedented population growth.
By 2030 the median age will increase to 33.2 years which is generally good news because the ideal median population should be around 35 years, so the bulk of the working population is working in productive, high paying jobs that contribute to growth and provide for the retirement of the previous generation. Japan has one of the worst future outlooks with an expected 5% population decrease and a median age of 51.6 years. After decades of improving life expectancy and falling birth rates, Japan now had a rapidly aging and shrinking population. In 2016, 86% of employers struggled to fill open jobs while most filled positions are worked by people who are over 50 years old. Without young people entering the workforce, the government and companies are struggling to continue to provide pensions and retirement care to retirees. This has contributed to Japan’s shrinking economy as fewer people means fewer goods and services are produced and in turn, fewer goods and services are purchased. One of the paths Japan is taking to combat this issue is a focus on the robotics industry, which the current Prime Minister hopes to quadruple. Japan is working to use robots to help with everything from increasing productivity, to taking care of the elderly, to robot wolves that chase away wolves as they approach city limits. So, if you make it to Japan in the next few years don’t be shocked to see a country with people and robots working hand in hand to usher in a new era of Japanese economic growth.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.