What is Futurology?
As defined by Wikipedia
“Future studies (also called futurology) is the study of postulating possible, probable and preferable futures and the drivers of their potential causalities.”
So in simple terms, what’s likely to happen next and why.
The blog has written recently about “Moore’s Law”, the exponential increase in computing power and the effect this is having on the speed of scientific discovery (as an example the mapping of the Human Genome).
It is therefore entirely predictable that the future will be enlightened by revelatory new knowledge and this will result in better healthcare, fuel efficiency and overall asset management and utilisation.
The new world and profits
As mentioned in the last blog a worry for investors should be the statistically elevated level of current corporate profits.
James Montier of GMO has written recently (he is always worth reading) about the conundrum of profit levels and that if measured in historical terms how they are significantly elevated to their long term averages.
The causes of this are not (as usual) entirely clear.
It is in part a factor of greater efficiencies, less capital expenditure, tighter production and distribution practices and the strong getting stronger post 2008 / 2009 and the great financial shakeout.
It is also a factor of new markets being available in Emerging Countries. The populations of these rapidly expanding economies aspire to Western goods and services (they seem to want to be like us; which is possibly a little akin to a healthy individual wanting to live like Keith Richards) but economically the growth of the worlds consumption will be driven by them as Europe and the US continue to battle with their unrepayable debt levels and the consequential constipating of growth.
So apart from the “future” of growth being East facing what other “Future Ology’s” can be predicted?
Running out of stuff
Humans are voracious consumers of stuff and up until very recently little if any thought was given to the long term implications of the reckless and wasteful consumption of irreplaceable commodities.
Oil is the obvious prime example of this profligacy but increasingly it has come to include agricultural land, fertilizers, forestry, precious metals, water and livestock.
The growth of the East whilst providing the West with wonderful new markets will as a yin to that yang also increasingly consume greater amounts of natural resources, this will cause them to become scarcer and increase their prices, which we will not like as it will make manufactured goods more expensive (in 2002 raw material costs as a percentage of manufactured goods was about 9%, it is more than double this figure now and will continue to increase).
The first lesson in the first class of economics teaches the central point of it all.
Namely “Supply and Demand”.
Lower demand equals lower prices (assuming a fixed supply)
Higher demand equals higher prices (assuming a fixed supply)
The rest as they say is “the other stuff”. (A great example of this phenomenon at present is Apple, their profit margins are stellar by industry standards because demand exceeds supply and their products are aspirational, this will not be forever though so some caution should be observed by Apple shareholders of which I am one).
What to invest in
The futurologist looking at the world today and then in 20 years’ time will inevitably conclude that the demand for raw materials must increase and probably very significantly from today’s levels.
In the case of farm land and forestry it is difficult to imagine how supply increases (as no new land is being manufactured) so demand expansion must therefore lead to higher prices (as supply is relatively inelastic).
We will therefore be reviewing how best to invest in the areas where the economics of supply and demand constraints are supportive of higher investment yields in the future.
We will have recommendations following research ready for the next annual rebalances to form a small but important part of the 2013 portfolios.
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.