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|Subject: Looking Ahead||Date: 12/21/2002 6:07 AM|
|Author: kishpj01||Number: 5922 of 10543|
Beyond the dotcom bomb and economic slowdown, what significant developments, key issues and potential suprises should investors be watching for?
Consolidation of key insights (just guesses, not predictions) based on some research* and reading:
Fundamentally new technologies over promise in the short term, but over deliver in the long run.
Millions of PCs' in business nationwide are getting too old to handle increasingly complex processing tasks demanded of them. In the late 90's companies invested heavily in new computers to prepare for Y2K, now those computers are getting old and need to be upgraded. Tech research firm IDC recently issued an optimistic PC sales forecast for the next five years (indicating that in 03 we should see about 50 million units shipped and Lehman Bros, Dan Niles recently upgraded estimates on some computer-chip stocks. Nearly 1/3 of the 500 million PC's in use are now more than 4 years old. As broadband and bigger more complex programs become available more computing power will be needed.
We are only ½ way through a global economic boom that has happened with cyclical regularity.
Europeans will lead the way in “global integration” having learned valuable lessons in the complicated and collaborative transition to the EU.
The dotcom bubble trained a whole generation of young entrepreneurs. They rode it up, they rode it down --- they came out. They are still 32-34 years old, with their whole careers in front of them. I think we just forged what will be the greatest entrepreneurial generation in the last 50 years. 20003 to 2008 could be another dramatic phase of economic growth and productivity around the world, but we need to get the terrorist issue resolved.
As for the crash of the Internet startups and turmoil in the new economy – economic transformations of this kind are never easy. Creating expansive destruction brings with it upswings and downswings and a lot of the ideas that are created are not good ideas. Evolution is like that. I am not the least bit concerned. Clearly the dotcom boom got out of hand …it was crazy, a boom of excess … issues like accessibility of broadband are important. The fact that there was a bust is not important. There is abundant capital. There were lots of new startups; the froth on the surface simply went away. Pet.com was never a good idea. But Amazon, Ebay and LendingTree are still around and moving forward. The dotcom bubble was the first ripple in a mounting wave of change.
The meltdown was a myth --- except on Wall Street. Why? If you look at the trend line regarding the impact that the Internet-related technology is generally having on life among 2 Billion people who live in the industrialized world, the answer is that nothing has changed. Individual use of the web continues to climb
The next 10 years will be largely about finding the business applications of the innovations in the last 4 years. There is a Rubik's Cube of different technological advances and ways the world can work out there, we just need to keep turning the cube and figure out which combinations work. Innovation cannot exist for innovation sake. Its got to exist hand-in-hand with an application … that's what the next ten years will be about.
There will be a revolution in Nanotech, Fuel Cells and Biotech. Wireless broadband will grow.
You've got a billion people in China and a billion people in India, 1/3 of the worlds population growing at a rate of 6-7% a year, which is incredible, versus 3-4% for the USA. When productivity growth rates in retail, banking and financial services catch up with manufacturing (5%) the US economy will blow through 6% GDP growth. Presently we are underestimating real GDP growth rates and overstating inflation.
More than 15% of our GDP product gets spent on health care. What happens if that becomes 40%? That could be a huge source of intensive economic growth, which would, to a considerable degree be delinked to the global economy.
Fuel cells will probably go forth and multiply first in stationary resource applications for individual homes. In fact, by 2010 we will have several thousand stationary fuel cell systems around the globe. By 2020 there should be several tens of millions. Why not make your electricity in your home and sell what you don't need back to the grid?
The Internet and the web have hardly touched our lives. The web arrived on the one piece of real estate we've been trying to get away from for the last 20 years --- our desktops. That is what makes wireless and broadband so important. Wireless delivers the Internet in general, and the web in particular to where we actually live and work and play. Communications is about to go through a big spurt, but its not going to come from people talking to other people or people accessing information – it going to come from machines talking to other machines on people's behalf. The vast amount of communication in 2010 to 2015 and beyond will be machine to machine.
We need more bandwidth but 3G is too expensive for people. Instead 802.11 a wireless standard (wireless Ethernet) that is “routed” not switched and not as regulated as 3G will be the space where entrepreneurs with bid ideas, shoestring budgets and not a lot of adult supervision can jump in an make stuff happen. It is going to be a scruffy, hippie-like thing that telecom execs will look down their noses at. It is starting to happen already. The first mesh-rout tests are underway. Within 10 years wireless Ethernet could really make substantial inroads.
There is a perfect storm coming at the 100-nanometer level. Information technology, biotech and nanotech are all converging on that scale.
The cutting edge in technology is moving to biotech. We are in the midst of a shift from digital to biological. The indicator that we were going out of infotech and into biotech was the Human Genome Project. Basically computers turned out to be the essential personal intellectual bulldozers of biotech logistics …the Genome got cheap because we had robotic sequencing systems using computers. So the computer industry helped launch biotech. By 2010 we will be deep in the early stages of a biotech revolution.
Nanotech, which is molecular manufacturing or more simply, building things one atom or molecule at a time from the bottom up. Nano is Greek word for small or dwarf and it is used to indicate one-billionth of a meter or 10 –9. A nanometer is one billionth of a meter or 3-4 atoms wide. Nanotech will make existing products more efficient by controlling matter at the smallest scale. Nanotechnology will usher in a bottom up approach to manufacturing. The current state of Nanotech could easily be compared to the state of the computer industry of the early 1960's. Some key trends to watch; Significant government funding is occurring, the nanotech sector has not yet been clearly defined, the need exists to translate science into products, rapid development of academic programs is ongoing, venture funding is growing at 30% plus a year, impressive corporate R&D budgets exist and there are currently 1000+ nanotech startups now. Nanotech is rapidly becoming the “Industrial Revolution of the 21st Century'. Industry-wide revenues generated by nanotechology initiatives are expected to be over $225 billion by 2005 and 700 billion by 2008. The National Science Foundation predicts that the total market for nanotech products and services will reach $1 trillion by 2015. The major sectors for nanotech will be: coatings/films, nanopowders/particles, textiles, carbon nanotubes, IT/electronics, data storage, NEMS (nanoelectromechanical systems) life sciences, drug delivery, particle tagging, quantum dots, and others. In the first quarter of 2001 there was over $101 million invested in four companies by 23 venture firms – the biggest being the creation of the industry incubator, Ardesta. Intel has recently announced plans to delve into nanotech and GE is considered the largest company to dive into the field. There are currently 150 or so nanotech companies in the US with 30% in the materials/manufacturing sector, 22% in life science, 18% in IT/electronics, 7% in the consumer market and 25% are generating healthy revenue. 60% have revenues under $15 million. Of all the sectors, none has more promise than the field of life science. Venture capitals view the life science area of nanotech to be the best bet in terms of bringing about a significant ROI. The biological aspect of nanotech will bring about major improvements in understanding the cell. Breakthroughs in this area will lead to early disease detection products and the ability to build drugs from the bottom up. With current projections predicting nanotech to be $1 trillion piece of the economy in little over a decade, it is safe to say that between one-tenth and one-fourth of all US jobs in a decade will be directly related to nanotech.
Consumer credit consequences will start to manifest itself. At the beginning of 2000 approximately 78 million households had at least one bank credit card. Together they had amassed a seasonally adjusted total of about $603 billion in revolving consumer debt. After the calculation is modified by compensating for delayed consumer payments and the US Federal Reserve accounting adjustments, the average credit card debt for these households was about $6,600. But, the goals of the credit card companies remain the same: Penetrate and expand into new markets, “revolve” people into debt and thereby maximize profits. Now, people heavy into debt are taking out home equity loans to pay off credit cards without the self-discipline to change spending habits or make painful lifestyle changes to live below their means. This further exasperates the problem until forced into bankruptcy, divorce or some other negative result. We will see an increasing rate of personal bankruptcies over the next 10 years until middle class consumers change their life style habits and pay cash for only what they can afford. High consumer debt also eats into retirement savings and postpones retirement or eliminates it altogether.
Around 2016, 75 million people in the US will start pulling money out of their 401Ks as they hit the 701/2 mandatory retirement age by law, which by the way, is a basic flaw in US Government Law in the US. If the US savings rate does not dramatically increase, millions will be left destitute in old age. Among stockowners 50-70 years old who have lost money in the stock market and have not yet retired, about 20% have already postponed retirement as a result of losses. In early 2000, the median value of retirement savings accounts was $18,000, according to a congressional study and in 2002, 15% of workers said they had not saved anything for retirement, according to a survey by the Employee Benefit Research Institute. And nearly 27% of workers aged 40 to 59 said they have less than $10,000 saved for retirement. By 2025 we will have millions of Baby-boomers who will be entering their eighties, out of money, out of time and in need of the most medical care of their lives. Without government programs such as Social Security and Medicare, which will probably be financially bankrupt, and aged and poor population will be a financial challenge for generations following the Baby-boomers. Tax rates on the following generation will have to increase to support these people. Medical care will get more expensive. In the year 2000, while the stock market and mutual fund values were crashing down, the cost of medical care was surging by 17%. When you add to the fact that many medical professionals are leaving the industry due to malpractice insurance cost and risk of being sued when more and more Baby-boomers will need their services.
China: The largest internal class migration in human history. China will become the world's largest economy. It is estimated that sometime around the year 2020, China is expected to pass the US as an economic powerhouse. China has 21% of the worlds' population and an unlimited supply of human capital. Whatever can be made in America will be made in China. That great “sucking sound” Ross Perot alluded to during his run for President is not Mexico, but China over the next 10 to 15 years.
The world population will continue to age. In the Industrial Age, there were more workers than retirees. As we enter the Information Age, retirees are living longer and the rules of how we as a society care for our elders will need to be addressed.
Wall Street will become obsolete. With the rest of the world waking up to the idea of buying and selling securities on line, millions of online traders with portable computers and real time quotes will be the stock market. The platform of the computer will become the new NYSE floor.
Big corporate pension plans in America owe some $1.2 trillion to their current and future retirees, and for the first time in years companies don't have enough money stashed away to pay for those benefits. The size of the shortfall? $240 billion. And the debt is not just an accounting mirage – companies will have to start pumping cash – some $29 billion next year alone … into pension funds. That's real money. Money that won't go to dividends or research or new plants. In other words the Pension Monster is going to suck blood out those companies and the consequence is that companies that are ailing now will be pushed into bankruptcy. Of the S&P 500, 360 of those companies or 70% offer defined benefit plans and are obligated to pay retirees. All this is due to the unrelenting bear market and falling interest rates. Underfunded pension plans and the negative effect on earnings from restating pension assumptions could keep the market in bear territory for quite a while unless the US economy can turnaround in a big way, quick.
Investment philosophy that works in changing economic climates? Learn a selective contrarian investment strategy, recognize that Wall Street & Mutual Fund managers are stuck playing the short-range game…it's the nature of the markets, the bad-news phenomenon goes on constantly --- people sell on bad news creating opportunities for others who understand valuation, companies that have durable competitive advantage … have the economic power to pull themselves out of most bad-news situations, and the best kind of businesses to own are ones with high profit margins and/or high inventory turnover.
Sources: What's Next?, Fortune, Prophecy, Industry Week, Buffettology, Credit Crunch
Happy new year ….
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