And what have you done
Another year over
And a new one just begun
(John Lennon)
At the turn of the year, looking back and evaluating the past months and your own actions might as much be in your focus as making plans for the next 52 weeks, setting goals and targets. Hopefully, you are pleased with your achievements in 2011 or at least in good spirits regarding your plans for 2012.
What I would like to do today - before starting to set my goals for 2012 - is taking a step back to grab the big picture, the macro trends. Those might not define the outcome of 2012, but will influence our life in the mid and long term. And as such, they should be taken into account when preparing for the near future.
1) Population Growth: We are currently at 7.0 bn human beings on this planet - and counting. This number has almost tripled since 1950. Though latest reports show a faster decline in expected birth rates of non-western nations than previously assumed, conservative figures see a peak in 2060 at 9.0 bn whereas the United Nations still expect a rise above 10 bn.
2) Resource Scarcity: Driven by population growth and the higher living standards of non-western countries, we will need more food, energy and raw materials. This goes hand in hand with less available farm land (either spoiled by natural disasters, pollution or converted to developed areas) and peak everything (= declining extraction of oil and other raw materials in absolute volume). The biggest impact in the next few years is most likely to be expected in the shortage of (cheap to extract) fossil fuels.
3) Backslide of Western Influence: With higher population growth, economic growth, partially with high raw material resources (South America, Africa), strong improvement in education systems, sound financial situation of the underlying states the western influence on the world will decline. This will be seen in many fields: economy, international organizations, military power. And it will impact our personal lives - changing the faces of people walking around on Marienplatz in Munich towards a higher share of Asian; but also changing e. g. the composition and location of top management of western corporations (see latest examples from P&G and BASF).
4) Failing Regulatory Policy (Ordo-Liberalism) and Move towards Populists / Left: I want to express my fear that neither the western (nor any other) political system is currently able to ensure a set of rules and regulations that allows a free market system to operate. On the one hand, we see a lack of regulation (eg. allowing banks to leverage too much, missing separation between commercial banks and investment banks, allowing oligopoly and monopoly in many fields), regulation that are set in place but not executed and - on the other hand - state intervention in so many sectors. Today we see the markets being blamed for a financial crisis caused by the errors of politicians - and the blaming is done by politicians. The topics are too complex to be understood by the public and in most cases the media do not even try to educate people. The coming move to the left is already visible, latest examples being the programmatic goals of the the German SPD or the suggestion of a 20 % death duty in Switzerland. We run a high risk of a dramatic shift to the left or populist movements (Tea Party, Occupy X-Street) leading to a kind of regulated economy with a diminishing standard of living - especially for the current workhorse of western nations, the middle class.
5) Inflationary Super-Cycle: The world was running on cheap, fresh and new money for the past decades. By 1971 - when I was born - the USA ended the link of the USD to gold. Since then the price increased from 35 USD an ounce to - even with the latest setbacks - 1,500 USD an ounce; a forty- fold increase in close to forty years. With the current sovereign debt crisis we might be in a deflationary period, but I do not believe the political forces will be skilled enough to fight this deflation, win the fight and then shift to a somewhat stable price development. This reminds me of catching an over-steering car: it's not that hard catch your loose end in the first place, but watch-out for the snap-back.
Central banks will fight deflation with all the guns they have at hand - and invent new ones if needed (catch the over-steering car). But once the liquidity provided is no longer soaked up by the banks and decelerating money velocity, it will be hard to remove it from the system as quickly as needed. And price stability is not even to the best of the highly indebted western countries - so why should it happen?
6) Increasing Instability and Diversity: This will come in many fields and goes along with less predictability. In a playing field with less dominant players and a rise and fall in ranks not seen for a long time, surprising moves and developments are to be expected. China and Japan cooperating on the field of foreign exchange to harm the status of the USD is one example. More to come: an increasing number of small armed conflicts as minor powers will test how overextended the USA and NATO really are; currency wars and trade conflicts as somewhat populist reaction of nations not successful in certain fields of economy; rapid shifts of power within countries with new parties emerging and more direct votes; a change in management structures with the rise of women, but also of 'minorities' (seen from a western standpoint); rising diversity from top to bottom level (and backwards).
Per se this is neither good nor bad, as long as you are not in a position where you can only lose or in a mood where you do not want to compete. For all the others it provides opportunities and levels the field. It's especially positive for the have-nots, the 100s of millions whose chances are improving massively. The problems start when the drive to be better, smarter, faster, more innovative shifts to a fight against each other. This might come in the form of protective measurements thus hindering free markets to ensure prosperity or by more destructive, violent clashes destroying the assets accumulated in the past. Both outcomes seem to be possible.
7) A new Age of Innovation?: With all the above presenting a somewhat bleak picture for the current 'Haves', the outcome of future innovation seems to be of utmost importance. Looking back a 100 years, we can distinguish two periods. From 1960 until today we have certainly made a lot of progress, but the world does not look totally different. We still drive cars fueled by oil, planes have been around all the time, our fridge might be more shiny but the concept is not new and even the first computers did run in 1960. Another 50 years back the shift is much more dramatic: no cars, no planes, hardly any electricity, a totally different set of living conditions. I want to stress that mankind will be able to develop more solutions if and when the need arises than we might be able to imagine at the moment. And the fields where need arises are many: non-fossil energy; production based on plenty-full materials; improved food production; recycling; fighting the effects of climate-change; connectivity; improved forms of co-operation including better-informed, rational public decision-making; ...
What I would like to do today - before starting to set my goals for 2012 - is taking a step back to grab the big picture, the macro trends. Those might not define the outcome of 2012, but will influence our life in the mid and long term. And as such, they should be taken into account when preparing for the near future.
1) Population Growth: We are currently at 7.0 bn human beings on this planet - and counting. This number has almost tripled since 1950. Though latest reports show a faster decline in expected birth rates of non-western nations than previously assumed, conservative figures see a peak in 2060 at 9.0 bn whereas the United Nations still expect a rise above 10 bn.
2) Resource Scarcity: Driven by population growth and the higher living standards of non-western countries, we will need more food, energy and raw materials. This goes hand in hand with less available farm land (either spoiled by natural disasters, pollution or converted to developed areas) and peak everything (= declining extraction of oil and other raw materials in absolute volume). The biggest impact in the next few years is most likely to be expected in the shortage of (cheap to extract) fossil fuels.
3) Backslide of Western Influence: With higher population growth, economic growth, partially with high raw material resources (South America, Africa), strong improvement in education systems, sound financial situation of the underlying states the western influence on the world will decline. This will be seen in many fields: economy, international organizations, military power. And it will impact our personal lives - changing the faces of people walking around on Marienplatz in Munich towards a higher share of Asian; but also changing e. g. the composition and location of top management of western corporations (see latest examples from P&G and BASF).
4) Failing Regulatory Policy (Ordo-Liberalism) and Move towards Populists / Left: I want to express my fear that neither the western (nor any other) political system is currently able to ensure a set of rules and regulations that allows a free market system to operate. On the one hand, we see a lack of regulation (eg. allowing banks to leverage too much, missing separation between commercial banks and investment banks, allowing oligopoly and monopoly in many fields), regulation that are set in place but not executed and - on the other hand - state intervention in so many sectors. Today we see the markets being blamed for a financial crisis caused by the errors of politicians - and the blaming is done by politicians. The topics are too complex to be understood by the public and in most cases the media do not even try to educate people. The coming move to the left is already visible, latest examples being the programmatic goals of the the German SPD or the suggestion of a 20 % death duty in Switzerland. We run a high risk of a dramatic shift to the left or populist movements (Tea Party, Occupy X-Street) leading to a kind of regulated economy with a diminishing standard of living - especially for the current workhorse of western nations, the middle class.
5) Inflationary Super-Cycle: The world was running on cheap, fresh and new money for the past decades. By 1971 - when I was born - the USA ended the link of the USD to gold. Since then the price increased from 35 USD an ounce to - even with the latest setbacks - 1,500 USD an ounce; a forty- fold increase in close to forty years. With the current sovereign debt crisis we might be in a deflationary period, but I do not believe the political forces will be skilled enough to fight this deflation, win the fight and then shift to a somewhat stable price development. This reminds me of catching an over-steering car: it's not that hard catch your loose end in the first place, but watch-out for the snap-back.
Central banks will fight deflation with all the guns they have at hand - and invent new ones if needed (catch the over-steering car). But once the liquidity provided is no longer soaked up by the banks and decelerating money velocity, it will be hard to remove it from the system as quickly as needed. And price stability is not even to the best of the highly indebted western countries - so why should it happen?
6) Increasing Instability and Diversity: This will come in many fields and goes along with less predictability. In a playing field with less dominant players and a rise and fall in ranks not seen for a long time, surprising moves and developments are to be expected. China and Japan cooperating on the field of foreign exchange to harm the status of the USD is one example. More to come: an increasing number of small armed conflicts as minor powers will test how overextended the USA and NATO really are; currency wars and trade conflicts as somewhat populist reaction of nations not successful in certain fields of economy; rapid shifts of power within countries with new parties emerging and more direct votes; a change in management structures with the rise of women, but also of 'minorities' (seen from a western standpoint); rising diversity from top to bottom level (and backwards).
Per se this is neither good nor bad, as long as you are not in a position where you can only lose or in a mood where you do not want to compete. For all the others it provides opportunities and levels the field. It's especially positive for the have-nots, the 100s of millions whose chances are improving massively. The problems start when the drive to be better, smarter, faster, more innovative shifts to a fight against each other. This might come in the form of protective measurements thus hindering free markets to ensure prosperity or by more destructive, violent clashes destroying the assets accumulated in the past. Both outcomes seem to be possible.
7) A new Age of Innovation?: With all the above presenting a somewhat bleak picture for the current 'Haves', the outcome of future innovation seems to be of utmost importance. Looking back a 100 years, we can distinguish two periods. From 1960 until today we have certainly made a lot of progress, but the world does not look totally different. We still drive cars fueled by oil, planes have been around all the time, our fridge might be more shiny but the concept is not new and even the first computers did run in 1960. Another 50 years back the shift is much more dramatic: no cars, no planes, hardly any electricity, a totally different set of living conditions. I want to stress that mankind will be able to develop more solutions if and when the need arises than we might be able to imagine at the moment. And the fields where need arises are many: non-fossil energy; production based on plenty-full materials; improved food production; recycling; fighting the effects of climate-change; connectivity; improved forms of co-operation including better-informed, rational public decision-making; ...
What can be derived from all the above for our personal decisions:
- stay alert and flexible, as the the outlook is not clear and the winds may change from tail to head quickly
- develop a game plan for the trends you do see (inflation), even if they are not immanent at the moment
- identify key signals for starting trends and watch them regularly
- be patient and remain self-confident- diversify in order to minimize risk when caught flat-footed
- avoid dependency on others (eg. investments dependent on tax-credits or subsidies)
- take opportunities fast, as they might fade away (eg. inheritance tax)
- stay alert and flexible, as the the outlook is not clear and the winds may change from tail to head quickly
- develop a game plan for the trends you do see (inflation), even if they are not immanent at the moment
- identify key signals for starting trends and watch them regularly
- be patient and remain self-confident- diversify in order to minimize risk when caught flat-footed
- avoid dependency on others (eg. investments dependent on tax-credits or subsidies)
- take opportunities fast, as they might fade away (eg. inheritance tax)
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