This is the most important research piece you will ever read, bar none. But you have to finish it to understand why. So, I will get on with the show.

I have been hammering away at my followers at investment conferences, webinars, and strategy luncheons this year about one recurring theme. Things are good, and about to get better, a whole lot better.

The driver will be the exploding rate of technological innovation in electronics, biotechnology, and energy. The 2020s are shaping up to be another roaring twenties, and asset prices are going to go through the roof.

To flesh out some hard numbers about growth rates that are realistically possible and which industries will be the leaders, I hooked up with my old friend, Ray Kurzweil, one of the most brilliant minds in computer science.

Ray is currently a director of Engineering at Google (GOOG) heading up a team that is developing stronger artificial intelligence. He is an MIT grad with a double major in computer science and creative writing. He was the principal inventor of the CCD flatbed scanner, first text-to-speech synthesizer, and the commercially marketed large-vocabulary speech recognition.

When he was still a teenager, Ray was personally awarded a science prize by President Lyndon Johnson. He has received 20 honorary doctorates and has authored 7 books. It was upon Ray’s shoulders that many of today’s technological miracles were built.

His most recent book, The Singularity is Near: When Humans Transcend Biology, was a New York Times bestseller. In it, he makes hundreds of predictions about the next 100 years that will make you fall out of your chair.

I met Ray at one of my favorite San Francisco restaurants, Morton’s on Sutter Street. I ordered a dozen oysters, a filet mignon wrapped in bacon, and drowned it all down with a fine bottle of Duckhorn merlot. Ray had a wedge salad with no dressing, a giant handful of nutritional supplements, and a bottle of water. That’s Ray, one cheap date.

The Future of Man

A singularity is defined as a single event that has monumental consequences. Astrophysicists refer to the big bang and black holes in this way. Ray’s singularity has humans and machines merging to become single entities, partially by 2040 and completely by 2100.

All of our thought processes will include built-in links to the cloud making humans super smart. Skin that absorbs energy from the sun will eliminate the need to eat. Nanobots will replace blood cells, which are far more efficient at moving oxygen. A revolution in biotechnology will enable us to eliminate all medical causes of death.

Most organs can now be partially or completely replaced. Eventually, they all will become renewable by taking one of your existing cells and cloning it into a completely new organ. We will become much more like machines, and machines will become more like us.

The first industrial revolution extended the reach of our bodies, and the second is extending the reach of our minds.

And, oh yes, prostitution will be legalized and move completely online. Sounds like a turn-off? How about virtually doing it with your favorite movie star? Your favorite investment advisor? Yikes!

Ironically, one of the great accelerants towards this singularity has been the war in Iraq. More than 50,000 young men and women came home missing arms and legs (in Vietnam these were all fatalities, thanks to the absence of modern carbon fiber body armor).

Generous government research budgets have delivered huge advances in titanium artificial limbs and the ability to control them only with thoughts. Quadriplegics can now hit computer keystrokes merely by thinking about them.

Kurzweil argues that exponentially growing information technology is encompassing more and more things that we care about, like healthcare and medicine. Reprogramming of biology will be the next big thing and is a crucial part of his “singularity.”

Our bodies are governed by obsolete genetic programs that evolved in a bygone era. For example, over millions of years, our bodies developed genes to store fat cells to protect against a poor hunting season in the following year. That gave us a great evolutionary advantage 10,000 years ago. But it is not so great now with obesity becoming the country’s number one health problem.

We would love to turn off these genes through reprogramming, confident that the hunting at the supermarket next year will be good. We can do this in mice now which, in experiments, can eat like crazy but never gain weight.

The happy rodents enjoy the full benefits of caloric restriction with no hint of diabetes or heart disease. A product like this would be revolutionary, not just for us, health care providers, and the government, but, ironically, for fast food restaurants as well.

Within the last five years, we have learned how to reprogram stem cells to rebuild the hearts of heart attack victims. The stem cells are harvested from skin cells, not human embryos, ducking the political and religious issue of the past.

And if we can turn off genes, why not the ones in cancer cells that enable them to pursue unlimited reproduction until they kill its host? That development would cure all cancers, and is probably only a decade off.

The Future of Computing

If this all sounds like science fiction, you’d be right. But Ray points out that humans have chronically underestimated the rate of technological innovation.

This is because humans evolved to become linear thinking animals. If a million years ago we saw a gazelle running from left to right, our brains calculated that one second later it would progress ten feet further to the right. That’s where we threw the spear. This gave us a huge advantage over other animals and is why we became the dominant species.

However, much of science, technology, and innovation grows at an exponential rate and is where we make our most egregious forecasting errors. Count to seven, and you get to seven. However, double something seven times and you get to a billion.

The history of the progress of communications is a good example of an exponential effect. The spoken language took hundreds of thousands of year to develop. Written language emerged thousands of years, books in 100 years, the telegraph in a century, and telephones 50 years later.

Some ten years after Steve Jobs brought out his Apple II personal computer, the growth of the Internet went hyperbolic. Within three years of the iPhone launch, social media exploded out of nowhere.

At the beginning of the 20^th century, $1,000 bought 10 X -5^th power worth of calculations per second in our primitive adding machines. A hundred years later a grand got you 10 X 8^th power calculations, a 10 trillion-fold improvement. The present century will see gains many times this.

The iPhone itself is several thousand times smaller, a million times cheaper, and billions of times more powerful than computers of 40 years ago. That increases the price per performance by the trillions. More dramatic improvements will accelerate from here.

Moore’s law is another example of how fast this process works. Intel (INTC) founder Gordon Moore published a paper in 1965 predicting a doubling of the number of transistors on a printed circuit board every two years. Since electrons had shorter distances to travel, speeds would double as well.

Moore thought that theoretical limits imposed by the laws of physics would bring this doubling trend to end by 2018 when the gates become too small for the electrons to pass through. For decades, I have read research reports predicting that this immutable deadline would bring an end to innovation and technological growth, and bring an economic Armageddon.

Ray argues that nothing could be further from the truth. A paradigm shift will simply allow us to leapfrog conventional silicon-based semiconductor technologies and move on to bigger and better things. We did this when we jumped from vacuum tubes to transistors in 1949, and again in 1959 when Texas Instruments (TXN) invented the first integrated circuit.

Paradigm shifts occurred every ten years in the past century, every five years in the last decade, and will occur every couple of years in the 2020s. So fasten your seatbelts!

Nanotechnology has already allowed manufacturers to extend the 2018 Moore’s Law limit to 2022. On the drawing board are much more advanced computing technologies including calcium-based systems using the alternating direction of spinning electrons, and nanotubes.

Perhaps the most promising is DNA-based computing, a high research priority at IBM and several other major firms. I earned my own 15 minutes of fame in the scientific world 40 years ago as a member of the first team ever to sequence a piece of DNA which is why Ray knows who I am.

DeoxyriboNucleic Acid makes up the genes that contain the programming that makes us who we are. It is a fantastically efficient means of storing and transmitting information. And it is found in every single cell in our bodies, all 10 trillion of them.

The great thing about DNA is that it replicates itself. Just throw it some sugar. That eliminates the cost of building the giant $2 billion silicon-based chip fabrication plants of today.

The entire human genome is a sequential binary code containing only 800 MB information which after you eliminate redundancies, has a mere 30-100 MB of useful information, about the size of an off-the-shelf software program like Word for Windows. Unwind a single DNA molecule and it is only six feet long.

What this means is that, just when many believe that our computer power is peaking, it is in fact just launching on an era of exponential growth. Supercomputers surpassed human brain computational ability in 2012, about 10 to the 16^th power (ten quadrillion) calculations per second.

That power will be available on a low-end laptop by 2020. By 2050, this prospective single laptop will have the same computing power of the entire human race, about 9 billion individuals. It will also be small enough to implant in our brains.

The Future of the Economy

Ray is not really that interested in financial markets or, for that matter, making money. Where technology will be in a half-century and how to get us there are what get his juices flowing. However, I did manage to tease a few mind-boggling thoughts from him.

At the current rate of change, the 21^st century will see 200 times the technological progress that we saw in the 20^th century. Shouldn’t corporate profits, and therefore share prices, rise by as much?

Technology is rapidly increasing its share of the economy and increasing its influence on other sectors. That’s why tech has been everyone’s favorite sector for the past 30 years and will remain so for the foreseeable future. For two centuries, technology has been eliminating jobs at the bottom of the economy and creating new ones at the top.

Stock analysts and investors make a fatal flaw in estimating future earnings based on the linear trends of the past, instead of the exceptional growth that will occur in the future.

In the last century, the Dow appreciated from 100 to 10,000, an increase of 100 times. If we grow at that rate in this century, the Dow should increase by 10,000% to 1 million by 2100. But so far, we are up only 6%, even though we are already 18 years into the new century.

The index is seriously lagging but will play catch up in a major way during the 2020s when economic growth jumps from 2% to 4% or more, thanks to the effects of massively accelerating technological change.

Some 100 years ago, one-third of jobs were in farming, one third were in manufacturing, and one third in services. If you predicted then that in a century farming and manufacturing would each be 3% of total employment and that something else unknown would come along for the rest of us, people would have been horrified. But that’s exactly what happened.

Solar energy use is also on an exponential path. It is now 1% of the world’s supply but is only seven doublings away from becoming 100%. Then we will consume only one 10,000^th of the sunlight hitting the earth. Geothermal energy offers the same opportunities.

We are only running out of energy if you limit yourself to 19th-century methods. Energy costs will plummet. Eventually, energy will be essentially free when compared to today’s costs, further boosting corporate profits.

Hyper-growth in technology means that we will be battling with deflation for the rest of the century, as the cost of production and price of everything fall off a cliff. That makes our 10-year Treasury bonds a steal at a generous 2.60% yield, a full 460 basis points over the real long-term inflation rate of negative 2% a year.

US Treasuries could eventually trade down to the 0.40% yields seen in Japan only a couple of years ago. This means that the bull market in bonds is still in its early stages, and could continue for decades.

The upshot for all of this these technologies will rapidly eliminate poverty, not just in the US but around the world. Each industry will need to continuously reinvent its business model, or disappear.

The takeaway for investors that stocks, as well as other asset prices, are now wildly undervalued given their spectacular future earnings potential. It also makes the Dow target of 1 million by 2100 absurdly low, and off by a factor of 10 or even 100. Will we be donning our “Dow 100 Million” then?

Other Random Thoughts

As we ordered dessert, Ray launched into another stream of random thoughts. I asked for Morton’s exquisite double chocolate mousse. Ray had another handful of supplements. Yep, Mr. Cheap Date.

The number of college students has grown from 50,000 to 12 million since the 1870s. A kid in Africa with a cell phone has more access to accurate information than the president of the United States did 15 years ago.

The great superpower, the Soviet Union, was wiped out by a few fax machines distributing information in 1991.

Company offices will become entirely virtual by 2025.

Cows are very inefficient at producing meat. In the near future, cloned muscle tissue will be produced in factories, disease free, and at a fraction of the present cost without the participation of the animal. PETA will be thrilled.

Use of nanomaterials to build ultra light but ultra strong cars cuts fuel consumption dramatically. Battery efficiencies will improve by 10 to 100 times. Imagine powering Tesla Model S1 with a 10-pound battery! Advances in nanotube construction mean the weight of the vehicle will drop from the present 3 tons to just 100 pounds but will be far safer.

Ray is also on a scientific advisory panel for the US Army. Uncertain about my own security clearance, he was reluctant to go into detail. Suffice it to say that the weight of an M1 Abrams main battle tank will shrink from 70 tons to 1 ton, but will be 100 times stronger.

A zero tolerance policy towards biotechnology by the environmental movement exposes their intellectual and moral bankruptcy. Opposing a technology with so many positive benefits for humankind and the environment will inevitably alienate them from the media and the public who will see the insanity of their position.

Artificial intelligence is already far more prevalent than you understand. The advent of strong artificial intelligence will be the most significant development of this century. You can’t buy a book from Amazon, withdraw money from your bank, or book a flight without relying on AI.

Ray finished up by saying that by 2100 humans will have the choice of living in a biological, or in a totally virtual, online form. In the end, we will all just be files.

Personally, I prefer the former, as the best things in life are biological, and free!

I walked over to the valet parking, stunned and disoriented by the mother load of insight I had just obtained, and it wasn’t just the merlot talking, either! Imagine what they talk about at Google all day.

To buy The Singularity is Near at discount Amazon pricing, please click here. It is worth purchasing the book just to read Ray’s single chapter on the future of the economy.

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