Preface:
For the last three to four years the worlds economies have been mired with troubles; a financial crisis that sparked the most severe recession since the great depression, wars/revolutions filled with atrocities, highly volatile commodity/energy prices and more recently US/EU debt concerns. It is daunting to dwell in negativity so as an investor its important to step back and think about the other side of the coin. Capitalism is ever changing, technology continues to evolve and even with all the apparently terrible things happening there are strong undercurrents of progress that will reshape the human experience.
Sovereign Debt:
The worlds eyes are beginning to open. As society evolves fiscal transparency is becoming more and more prevalent on the world stage. The days of powerful politicians pulling the wool over the masses eyes are numbered. Transparency is what caused Greek politicians to do the right thing and fess up to their fiscal misdeeds, and its causing Americans to take a hard look at government spending at a very tough time. In the short run this can cause major growing pains in the evolution of society; people and governments are forced to face the mirror and take a good hard look at themselves. However in the long run this is a great thing.
Consider the following analogy; John Doe is 35 and overweight, weighing in at 400lbs his health is deteriorating. He has two choices he can continue to live in denial of his health, eat terribly and gain more weight (think, kick the can down the road). Or he can take a hard look at himself and decide to make changes (think, reform). Which scenario do you think is more sustainable?
Saying John makes the sustainable choice and decides to lose the weight (think, worldwide fiscal sustainability). There will be many tough changes; ie no more trips to McDonalds (think, over-leverage in the financial system); and he must eat right and workout (think, balanced budgets and checks/balances to confirm we are on the right track). Now these changes will take time and effort but once he is down to a healthy weight his body’s system will be back in balance. At his new low weight, John is in a much better position to face the challenges of life and has a shot at living a long healthy life.
Its the same thing for governments except the consequences of bad health are things like recessions/depressions and in more extreme scenarios wars and humanitarian catastrophes. Worldwide transparency is forcing societies to eat healthy and workout. There may be some short term pain but in the long run everyone will be thankful we stopped living in denial.
Capitalism and Technology:
If a strong, fair and open society (where rationality and the rule of law dominate) is the foundation of our system then technology is the steel that allows the structure to reach for the sky. The exponential growth of technology has continued unimpeded through the troubles of the past, present and will most likely punch right through future crises. Technology is often thought of as computing today; but really the word means progress that manifests in any given field.
Farming illustrates the point very well. In 1900 41% of the US labor force was employed in agriculture, today its right around 2%. The population in 1900 was 76.2 million in 2010 it stood at 308 million. As the machines took over farming and allowed for huge productivity gains many people lost their jobs. Today is no different, manufacturing jobs in the US have taken huge hits from both machines and from foreign competition. This is the natural progression of technological advancement that will allow us to put more minds to work solving the problems of tomorrow. People will be displaced from the jobs of the past and they must find a new way to contribute to society via the jobs of the future.
Shifts in the workforce are not something to be feared, instead each individual and the society as a whole must manage this process. In the recent past the US economy shifted to a service oriented economy and will continue to shift towards an information based economy. Change will not just continue, it will continue to accelerate. People will be forced to constantly upgrade and update their skills but this will allow us to reach new heights of prosperity. Improved education processes and computing power will allow the worker of the future to be more productive, more malleable, and allow society to continue to deliver the benefits of this change to the masses.
Aggregating/Consolidating:
When thinking about how all this affects you as an investor, as always, take into consideration your time horizon and your general strategy. If your a stock picker focus on the great companies riding the waves of technology into the future such as AAPL, AMZN, GE, and IBM. If your an ETF player focus on the industries that will be leading the pack in the future such as Bio-Tech (IBB), Solar (TAN) and broad tech indexes like the Nasdaq 100 (QQQ) and S&P500 (SPY). Remember that all this short term shifting and pain can give you the long term opportunities to buy great assets at discounted prices. As always; discipline in how you buy is of paramount importance and I recommend buying in tranches. Look at the long term charts of the assets you intend to buy, realize that when short term crises hit the chart falls like a knife. Pay attention to valuation as well as price and always remember the majority of the work goes into the buy. Realize that pain today can set society and industry up for a bright future and steer clear of long run ultra-dystopian views as they are rooted in fear.
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