The new revolution currently underway is based on innovation. Its center is in the United States, in California and Massachusetts, but it has origins in other parts of the US and the world. New companies are founded every day, and investors frequently underestimate the significance of these changes. This hinges not only on the Internet, but also on biotechnology. In the coming years we will see the powerful affirmation of products utilized in the fight against cancer and cardiac disease. Alzheimer’s and Parkinson’s are more difficult diseases to defeat at the moment. In Information Technology, the companies with the greatest advantage will be Google, Facebook, Salesforce, Microsoft, Amazon, Linkedin, and few others; not twitter who will have a secondary role. Methods of production will change, as well as transport, warehouse management, and communication. If biotechnology extends lifespans or reduces invasive surgeries, what is its relative market value? This is why investors’ attention should be concentrated on these aspects. New companies can reach growth in earnings greater than the typical 5-10% per year. The US GDP will grow at 2% per year. In order to reach 3% the US would need a real estate boom, that I deem impossible at the moment. Robots and automation will increase productivity, profits will remain high, but unemployment will not decrease. New jobs will only be created with sustained and constant growth, which is difficult to achieve in a mature economy. The banking sector has lost many jobs and the downsizing has not ended yet. We will need to get used to living with unemployment, even with the social and economic costs. Technology demands competence and stimulates competition among job seekers. For this reason education is essential. Those working in preferred sectors—for which they have studied—could find lower salaries that grow more slowly.
We cannot delude ourselves: inequality will grow. It belongs to history, and if business is based on know-how, it will be difficult to propose remedies. The markets will not suffer shocks in the medium-term, even if innovative businesses will be successful. It could be possible for certain sectors to reap profits, as was the case for real estate and energy services, but it will not be a matter of huge changes. Interest rates may grow, but only marginally. The mass of circulating capital only needs to find a safe place to settle. Germany is a curse. Europe needs capital for growth. The recession caused by austerity programs is over, but growth was only 1%. Europe needs quantitative easing, but Draghi, under the influence of Merkel, did not put it in play despite small adjustments. In any case, deflation is more frightening than inflation. There is only one way to have a more expansive monetary policy: reduction of Germany’s growth. If this happens—probably in the next year—then Angela Merkel could ask Mario Draghi to reconsider her position. For the other European member-states, I foresee a strong uncertainty in France, but even if it’s moving to the right, I don’t believe that France—a fundamentally socialist country—will elect a candidate from the extreme right. I hope Renzi will have success. Spain is recovering from the burt of the housing bubble. The industrial economy is growing, foreign capital is returning, and so are the tourists. Reservations have grown 45% in Greece, while Portugal is being pulled along by Spain’s recovery. Out of all of them, France and Italy remain the biggest question marks going forward. The United Kingdom is proceeding surprisingly well, albeit primarily because of the real estate boom fueled by Russia and East Asia.
However, Europe has little political weight. It fears Russia, and would like to impose heavier sanctions but fears their economic repercussions. Putin’s annexations alert it not to proceed further. Putin could work in silence, and concede Ukraine the credits it needs ($30 million) that Europe was unwilling to guarantee. Money is more effecting than arms for reaching objectives in the current geo-political world. People are sick of fighting for others’ causes. The US is an example. Ten years of conflict in the Middle East did not bring Democracy there. Washington was naïve in thinking that tribal nature would convert to democracy. Iraq will probably be divided into three parts to be governed by Sunnis, Shiites, and Kurds. Only a fierce leader like Saddam Hussein—and therefore not Malaki—could keep the country united. In Egypt, el-Sisi has practically eliminated the Muslim Brotherhood, and Afghanistan is lost at this point. Al-Qaeda is gaining strength and I don’t think the US will be able to stop them. I do not believe that Palestine and Israel will soon reach a peace agreement; hawks dominate both sides of the debate. Israel is growing in technological innovation generated by Russian immigrants, beneficiaries of the best education system in the world. Instead, I am optimistic about the possibility of reaching an accord with Iran to desist its nuclear program. Young Iranians want to open up to the world and defeat the isolation imposed by religious leaders. All citizens would like their countries to not be stricken by sanctions; a huge flux of capital would result. On the contrary, I do not have hope for Syria, whose northern region could secede and merge with Iraq. Eventually, oil production in the Middle East will reach pre-war levels. But, the demand from emerging countries—especially India and China—will be robust and prices will rise. Gold is now an asset, even if not so diffuse in Europe or the US. It will be hoarded in India and in many other Asian countries; I think, therefore, that a certain amount of gold should be present in every investor’s portfolio. Modi’s election will put India on a very positive path. He is a true reformer, which India needs, but he still needs to confirm his promises with facts.
The markets may have already absorbed part of the expectations. In China, the government’s true challenges are the country’s diversity and dimensions. Local governments are very powerful, but it’s not clear whether they indulge Beijing’s directives. China is effectively the second largest economy in the world, but for the size of the population, not per-capita income. In any case, the economy is controlled, and I don’t expect any significant crises. In Japan, the people need to be convinced that Shinzo Abe’s policies are working. The rest of the world doesn’t encourage me. Indonesia is based on raw materials rather than having an industrial platform. In Latin America, I’m not hopeful about Argentina. Brazil could rally, but it’s still too early to invest there. Everyone is worried by the lack of volatility in the markets, but this results from excess. The US stock market is well positioned, the economy is picking up, and government bonds stand at low yields. Despite what many people fear, things are probably moving up. Europe is not receiving sufficient investments. The hope of saving the EU and the Euro has halted investments in the last two years. As soon as the recovery gains strength, there will be structural changes in Europe, like the unification of banking and fiscal convergence. Some final thoughts are that only creativity will be valued in the future, and with high prices. California and Massachusetts are ideal places for creativity. The rest of the world is comprised of medium-value locations; the art market reflects social inequality, and is the least regulated in the world. Prices can increase greatly due to taxes on wealth; after 2012 and 2013, it will be progressively more difficult to earn on equity investing: there is a boom underway in Myanmar, even if the military is still in control. Finally, Hillary Clinton will win the election in 2016.