Circulating among Europe’s top global strategists this spring, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years: The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don’t you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine.? Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton’s first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet’s population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centering on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbo charging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight.? Thirty-year-old billionaires are becoming commonplace.
However, unlike with past winners, these newly minted titans of industry don?t lock their wealth up in mega mansions, private jets, or the Treasury bond market.
They buy a Tesla Model S-1 (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Many do it.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3-D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk’s Space X is already making rocket engine parts on such machines.
Drones came out of nowhere, and are now popping up everywhere.
And don?t get me started on virtual reality. Ever wanted to date Cybil Shepherd or Nicole Kidman? How about both, at the same time? The possibilities boggle the mind.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as ?big data? are being created.
Unheard of new means of social organization are appearing at breakneck speed, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber taxi service has created $65 billion in market capitalization in only five years, and is poised to replace UPS, FedEx, and the US Postal Service with ?same hour? intracity deliveries.?Now they are offering ?Uber Eats? in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!?
Airbnb is arranging accommodation for 1 million guests a month, including 120,000 in Brazil for last year?s World Cup. They even had 189 German guests staying with Brazilians. I bet those were interesting living rooms on the final day! (Germany won).
As for me, I am planning my own all Airbnb trip to Europe next summer. It should be interesting.
And you are going to spend a lot of Saturday nights at home alone if you haven?t heard of Match.com, eHarmony.com, or Badoo.com.
Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure of every major disease, like cancer, Parkinson?s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA at will.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket you can throw in solar, wind, batteries, biodiesel, and even ?new? nuclear.? The new Tesla home battery will be a game changer. Visionary, Elon Musk, is ramping up to to make tens of millions of these things.
The message to big oil is that Elon sold 400,000 of his new Tesla 3?s in just two weeks, and that is for a car that won?t be delivered for two more years.
Use of existing carbon based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies at costs that are falling at an incredible rate.
Welcome to ?Saudi America.?
The government has ordered Detroit to boost vehicle mileages to an average 55 miles per gallon by 2025. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today?s levels, further boosting corporate profits.
If you thought the Internet was big, free energy will have a far greater impact on the global economy.
Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world when all of the costs are factored in.
Seven years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech, where I have a background).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that?s why they work for Google (GOOGL).
The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential.
It took 32 years to make the leap from steam engine powered pumps to ships, and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today?s hyper connected world, and much shorter if you work on antivirus software (or write the viruses themselves!).
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That?s when the population starts producing more big spending Gen Xer?s and fewer oversaving and underproducing baby boomers. This alone should add at least 1-2% a year to GDP growth.
China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.
With an ?onshoring? trend now in full swing, the jobs ledger has swung into America?s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China?s problem, not ours.
The consequences for the financial markets will be nothing less than mind boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon.? Multiples blast off through the top end of historic ranges. The US returns to a steady 4% a year GDP growth in the 2020’s.
What am I bid for the Dow Average (INDU), (SPY), (QQQ) in 2030? Did I hear 300,000, a 17-fold pop from today?s level? Or more?
Don?t think I have been smoking the local agricultural products in arriving at these numbers. That is exactly the gain that I saw during 1982 to 2000, when the stock average also appreciated 17 fold, from 600 to 10,000.
ey?re playing the same movie all over again. Except this time, it?s on triple fast forward.
There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent on increasing their holdings to western levels.
I tell my kids to save their money, not to fritter it away day trading now, because anything they buy in 2020 will increase in value tenfold by 2030. They?ll all look like geniuses, like I did during the eighties.
After that, I will be 78, and it will be up to them to figure out what is going to happen next.
What are my strategists friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and energy (XLE).
That?s why the market bounced back so hard from the 10% correct in Q1.
This could go on for decades.
Just thought you?d like to know.