First (as of yesterday), the S&P 500 index is down ytd 5.96%. But what is down and what is up?
First, energy is down 26.73%. This is the old world that is going away. Global climate change and the coming worldwide effort to drive down emissions is going to re-shape the world economy. There’s nothing Exxon Mobile and the Koch brothers can do to stop this.
Second, finance and banking is down 13.75%. I thought this would be at least equal to the decline in energy since the banks are massively badly managed and full of mega-loss producing risks waiting to be realized. The decline is probably being moderated by the belief in the government bailouts to come. These bailouts will be bigger than 2008-09.
Now for the opportunities. These are Vanguard etfs we should be looking at later (second half of 2020 and early 2021) to purchase or rebalance into.
Info tech -1.53%. This is going to be a core economic backbone of building the Next Economy.
RE US -.58%. The US is going to build new and more environmentally adapted real estate.
Utilities – +3.62%. People are going to keep using electricity and drinking water, etc. The power generation business is going to much more rapidly adapt to low emissions or zero-carbon power production than previously thought. The utilities will bid up the price of capital by paying higher dividends.
Healthcare -3.92%. This critical social good is going to be made near universal in the US and greatly expanded worldwide in the 2020s. Lots of new technological innovation also.
Conclusion: we want to search for investments that are going to be part of the Next Economy that the world will start putting together in this decade.
My wife and I were in Denmark last summer and were impressed. We came back and bought some Vestas Wind Energy stock and a Danish solar utility. They’re doing quite well, thank you, as are three renewable energy ETFs were purchased. More about this area in another post.
But Vanguard Info Tech etf, Utilities, and Healthcare are good investments to keep in mind as future opportunities as we work through this decline.
Now for the post:
Maybe current markets are giving us a peek at the Crystal Ball.The very low long-term interest rate suggests the world’s economies will have a hard time in the future generating the growth necessary to employ the world’s workforce. Not good. (Migratory pressure? You ain’t seen nothing yet!)
This may be a big market downturn and a big recession. The purpose of a big recession is to separate the future from the recent economic past. More people and more activities are going to get left behind. A good question to ask: are you positioned to be left behind or take a place in the new, whatever it is.
Only governments that move forward with an economic development agenda aimed at moving towards New Economy paradigms will succeed. The others will stay mired in the stagnation of popular angst.
The coming Great Need will be worldwide fiscal policies using serious government money to put people to work on environmental augmentation of infrastructure and put people to work in new economic activities in an enterprise economy shaped by high carbon taxes, electric vehicles and autonomous vehicles, and economies built around much higher provisioning of social goods and less private consumption. An entire Old Economy has to be left behind and a New Economy built.
Signals. Google’s autonomous car division had a financing round valuing the business at $30 billion. Similar valuations are occurring for other technology breakthrough enterprises that will be the heart of the next New Economy. Serious money is piling into new opportunities. US government basic research funding is seriously far behind the opportunity horizon. Our government’s lack of vision, not China, is limiting our future.
What’s the driver for this decade? Rapidly deteriorating environmental conditions are going to result in the public demanding steep measures towards containing emissions and responding to disruptive impacts of climate change because these disruptions are going to be right in people’s communities where they live. Not across the ocean.
The future? Look for smart, new, efficient.
The world economy of the mid-21st century is going to leave behind the consumer-based Me Me Narcissism economy of 1960-2020.
Paul A Myers