By Simon Bond

Amplified risks, the new world order, and where to now?  

Looking back at the notes and letters we write, one theme has been consistent. 

The changing of the guard, the great transition, the new world order, expect the unexpected, where will growth come from?, look at the big maps, the list goes on and on. Our focus has been on connectivity, platforms, the network effect and the shift from the tangible to the intangible and the impact on markets and economies. 

The central thesis of our communications and consistent view is that the world is undergoing “the great restructure” post the great recession, and change will not slow down but accelerate.  

The changes being ushered in to global share markets and individual stocks are significant and underestimated.

As we noted recently, the markets and stock winners and losers will look far more different in five year’s time than they did five years ago.

So what are the ramifications? Where will growth come from in the new world order?  

In studying markets, it’s best to look at sectors; as we harp“study the big maps”, and then drill down into them in order to see which companies fit the new world order.

So, the process is sector/stock driven. For many of the new business success stories, whether interest rates go up, down or sideways is largely irrelevant, as management and founders are driven and passionate beyond belief about their product or service.  

Change is upon us and it’s in so many areas; finance, energy, tourism and leisure, food, agriculture, media, technology, including online and social media. Consumer spending in the US represents 69% of GDP, and spending habits are changing. Minimalism is in and excess is out and the ramifications of this trend are upending and unending. 

So, you need to consider your outlook, for the companies you are invested in, and for markets both locally and globally. No industry is immune to technological disruption, and industries that resist this process merely experience a sharper disruption at a later date. Technological disruptions tend to be interconnected with each other, and a rapid disruption in one area exerts a strengthening force on other nascent disruptions. 

  • Technological change, despite occasional deviations from the trendline, is exponential and accelerating.
  • Half of all world economic growth that has ever occurred has happened after 1997. 
  • Technological disruptions generally displace one set of industries and workers, while creating more wealth elsewhere. 
  • More wealth is created than destroyed, but often in different places. 
  • Technology invariably finds a way to displace a commodity, organisation, or industry that is resistant to technology or otherwise obstructs the progress of technology, whether directly or very indirectly.
  • Artificial Intelligence (AI) will eliminate many jobs, but will also create a vast category of new business models and careers. Media coverage of AI focuses only on the former effect, ignoring the latter.
  • Technology is inherently deflationary. 

Technologically-deflating products now comprise 2% of annual world GDP. This deflation now has significant (and still rising) macroeconomic effects. AI, in particular, will be exceptionally deflationary.

The central banks of the world have been generating new money in a pattern that is rising exponentially, contrary to what they expected. Big fiscal responses are forthcoming and post the US election, no matter what the outcome, you can expect the US to embark on significant infrastructure spending. The U.S. certainly needs major refurbishing and expansion of roads, bridges, public transportation and other infrastructure. 

The most recent Global Competitiveness Ranking from the World Economic Forum rates the U.S. third overall in competitiveness but 13th for infrastructure quality as a whole, 14th for roads, 15th for railroads and 16th for their electricity supply system. It's estimated that aging roads and bridges are costing an extra $377 annually per driver. 

Infrastructure spending would not only create jobs and economic activitym but also enhance lagging productivity. According to the Department of Transportation, only 2% of rural interstate highways and 6% of urban interstates are in poor condition, but 35% of other urban roads are bad, up from 24% in 1994. Those urban roads handle 85% of the nation's traffic, even though they constitute just a quarter of lane miles. 

Congress late last year approved $305 billion in spending for highways and mass transit for five years, the longest in two decades, in an unusual show of bipartisanship.

Hillary Clinton is proposing infrastructure investment of $500 billion over five years with direct public investment, subsidies to cut borrowing costs on taxable infrastructure bonds and a national infrastructure bank that would leverage $25 billion in public seed money to support an additional $225 billion in loans and project guarantees. 

There is no that doubt that a Republican Government would not be trumped on fiscal strategy.

Defense spending under Donald Trump would also take off like a rocket.