I recently saw a study that showed that every decade there has been one asset class that has outperformed everything else by a large margin. In the 60s and part of the 70s it was the “Nifty Fifty” (Coca-ColaKO, Disney, GE, IBMIBM etc.) stock basket; in the 70s gold was the shiny performer; in the 80s Japanese stocks took the baton; in the 1990s the NasdaqNDAQ stocks reached the stratosphere; in the 2000s oil and energy stocks left everything else in the dust; and in the most recent decade the FAANGMs have been the place to be.
So I wrote to my team and also to my close friends and relatives to speculate on what the next decade will bring, and in particular thematically where we should think of investing our money for extraordinary returns.
I received a great set of ideas. The common theme? Let us just borrow from a familiar political slogan and call it MAMA: Make America Make Again. Thanks especially to my wife, my brother and my whole team for their thoughts over the last few days.
The recent economic and medical disaster has made it obvious that dependence on foreign manufacturing facilities for essential items has been taken too far. For now, globalization has been shown to have its blemishes and shortcomings that the free-trade and open border theories did not anticipate. When the United States cannot find enough masks to support its own population’s needs, it seems clear that too much manufacturing has moved away from the country. The obvious reaction to this will be to bring essential manufacturing back to the US, which can only mean that current investment in manufacturing at home will pay big dividends in a few years. Hopefully, instead of concocting synthetic credit instruments, toxic financial products and vehicles for leveraged speculation, America will go back to making the high-quality stuff that actually matters.
MAMA will certainly apply to drugs, vaccines and other pharmaceuticals. While conspiracy theorists will debate the origin of the COVID-19 virus for years to come, all we need to know is that despite all the scientific advances and information overload we are subjected to, we don’t quite understand how to protect our bodies from mutating viruses, and possibly other chemical agents. Biotechnology and pharmaceutical R&D will benefit from the necessity to have solutions so that we are never again hobbled in such a sudden manner. MAMA also says to make stuff that makes us more resilient overall, as individuals and as society. EVTOL (”electric vertical takeoff and landing”) aircraft and drones will begin to deliver all these essentials safely to our homes. This technology has been waiting for its opportunity, and as more kerosene burning airplanes become grounded, we will just adapt to intelligent aircraft doing all the flying and delivering for us.
The renewed focus on hygiene and health will also, in the long run, make people healthier. This, of course means that we will probably live longer on average than we previously estimated. Which, to me, suggests that industries that support the aging, retired and elderly will have a better chance of succeeding. Populations will increase, and industries that can make synthetic, but nutritious food will be able to feed the increasing, more health conscious population. With increasing demand, “synthetic meat” from vegetable products might become a serious competitor to meat from animals.
And of course we cannot fail to see that for the most part the sudden shock that resulted in a WFH (“Working From Home”) culture has marked a semi-permanent change in how we will work going forward. The reports I am getting is that other than the natural human isolation, the technology that people are using to work from home is pretty seamless and might actually be more efficient than millions schlepping twice a day to and from work. Making “super-highways” for data will play the same role that the freeway system played almost a hundred years ago during the last set of major “depressionary” crises. And unlike the “bridges to nowhere” that were built in other places looking to get their unemployed to work, better data super-highways will squeeze out even more productivity and time from an already productive work-force. Some of the old modes of learning, for instance going to colleges and universities, might not return in the same form, as students find out that much is available in real-time over real fast networks at home. My bet would be on elite American universities who have a platform for research and development, which requires collaboration and original thinking. Anything that comes out of a book might as well be streamed.
MAMA also has the potential to balance geopolitical power. The emerging balance of power between the US and the rest of the world suggests to me that we are already in the early to middle stages of a new cold war. Nature abhors a vacuum, and this time the US adversary who has stepped up to fill the vacuum from the disappearance of the Soviet Union is China. The deficit, and the enormous amount of debt owed to China is one consequence of a dependence on US consumer goods made in China. I don’t think it’s a stretch to imagine that the sheer volume of goods will be slowly replaced by higher quality, albeit higher-priced goods made at home here in the US. But if the higher price comes with higher quality and durability, I suspect that the consuming public will just get used to it.
I anticipate more US-China friction, and the threat of a fire sale of Treasuries by the Chinese. The latter worries me less now than it did a few months ago. Now that the printing presses are working at maximum pace and no one seems to be complaining, the US Fed can just print a couple extra trillion to buy back the Treasuries. And those debased dollars will end up getting re-circulated into US assets anyways. Yes, this also means that digital currencies will do better as stores of wealth. Fortunately, while the technology for mining can be made anywhere, the limit to how much of the currency can be mined makes it less likely that stored wealth can be confiscated by fiat by public policy makers.
Making all this useful stuff needs natural resources and land. Both, especially energy, are in ample supply today at generationally inexpensive pricing. And they are both there for risk-takers.
So there you have it. As always, every crisis portends major change and major opportunities. This Mother’s Day, I, for one will say thank you and bet on MAMA.