Circulating among Europe's top global strategists this summer, visiting their corner offices, camping out in their vacation villas or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years: The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don't you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine. Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton's first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet's population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centering on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbo charging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight.
However, unlike with past winners, these newly minted titans of industry don't lock their wealth up in mega mansions, private jets or the bond market. They buy a Tesla Model S-1, and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3-D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk's Space X is already making rocket engine parts on such machines.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as "big data" are being created. Unheard of new means of social organization are appearing at breakneck speeds, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber taxi service has created $18 billion in market capitalization in only four years, and is poised to replace UPS, FedEx and the US Postal Service with "same hour" intracity deliveries.
Airbnb.com is arranging accommodation for 1 million guests a month, including 120,000 in Brazil for the World Cup. They even had 189 German guests staying with Brazilians. I bet those were interesting living rooms on the final day! (Germany won).
And you are going to spend a lot of Saturday nights at home alone if you haven't heard of Match.com, eHarmony.com or Badoo.com.
Biotechnology, an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure of every major disease, like cancer, Parkinson's, heart disease, AIDS and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA at will.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket you can throw in solar, wind, batteries, biodiesel and even "new" nuclear.
Use of existing carbon based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies.
Welcome to "Saudi America".
The government has ordered Detroit to boost vehicle mileages to an average 55 miles per gallon by 2025. The big firms have all told me they plan to beat that deadline, not litigate it.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today's levels, further boosting corporate profits. Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world.
Seven years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that's why they work for Google.
The rate of change for technology, our economy and for the financial markets will accelerate to more than an exponential rate. It took 32 years to make the leap from steam engine powered pumps to ships, and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today's hyper connected world, and much shorter if you work on antivirus software (or write the viruses themselves!).
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That's when the population starts producing more big spending Gen Xer's and fewer oversaving and underproducing baby boomers. This alone should add at least 1% a year to GDP growth.
China is disappearing as a drag on the economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US. With an "onshoring" trend now in full swing, the jobs ledger has swung into America's favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China's problem, not ours.
The consequences for the financial markets will be nothing less than mind boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon. Multiples blast off through the top end of historic ranges. The US returns to a steady 4% a year GDP growth.
Don't think I have been smoking the local agricultural products in arriving at these numbers. That is exactly the gain that I saw during 1982 to 2000, when the stock average also appreciated 17 fold, from 600 to 10,000.
They're playing the same movie all over again. Except this time, it's on triple fast forward.
I tell my kids to save their money, not to fritter it away day trading, because anything they buy in 2020 will increase in value tenfold by 2030. They'll all look like geniuses.
After that, I will be 78, and it will be up to them to figure out what is going to happen next.
What are my strategist friends doing about this forecast? They are throwing money into US stocks with both hands, especially in technology, biotech and energy. That's why the market won't pull back and hasn't produced a 10% correction since President Obama won his second term nearly three years ago.
This could go on for decades.
Just thought you'd like to know.
It's Amazing what you Pick Up on These Things!