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John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in Japanese... More
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  • The Second American Industrial Revolution

    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.

    What am I bid for the Dow Average (INDU), (NYSEARCA:SPY), (NASDAQ:QQQ) in 2030? Did I hear 300,000, a 17-fold pop from today's level? Or more?

    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.

    There will also be commodities (NYSEARCA:DBA) and real estate booms. Even gold (NYSEARCA:GLD) gets bid up by emerging central banks bent on increasing their holdings to western levels.

    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

    Aug 08 1:01 PM | Link | Comment!
  • An Update On The Tesla Fire

    An Update on the Tesla Fire

    Once again, Tesla (NASDAQ:TSLA) visionary, Elon Musk, surprised to the upside with his latest reports on earnings and production for his revolutionary vehicle.

    Musk, who also founded groundbreaking Space X and Solar City (NASDAQ:SCTY), expanded on his plans to manufacture in China and expand sales in Europe, where 220 volts is already standard.

    The first ever left hand drive Model S-1 was just delivered in London to E.L. James, author of Fifty Shades of Grey, a fictional tome that is racy in its own right (worst book I ever read).

    You can' keep a good stock down, which is now spitting distance from an all time high. That was the obvious message on Tesla (TLSA) shares in the wake of last year's fire that consumed one of its $80,000 Model S-1's on a Washington state road after it ran over the rear bumper of the truck it was following.

    The video was quickly plastered all over YouTube (click here to view). Tesla quickly delivered a new car to the grateful owner within a week.

    This was the first S-1 to catch fire since the production run started two years ago. There have been two others since. Compare that to the roughly 400 gasoline powered vehicles that catch fire on US roads nearly every day.

    If you really want to see how volatile gasoline is, try lighting a campfire with it some day. Even tossing in matches in from a great distance, as I once did, you'll be lucky to have your eyebrows left. I didn't.

    To make amends, Tesla is installing titanium armor plating on the bottom of every S-1 for free. They did mine this week, and gave me new a new Tesla as a loaner!

    Tesla followed up quickly with an analysis and a letter with a complete explanation sent to all other S-1 drivers signed by none other than CEO Elon Musk. I have included the entire text below in italics. He doesn't leave much to the imagination.

    If only all car manufacturers behaved like this!

    "Earlier this week, a Model S traveling at highway speed struck a large metal object, causing significant damage to the vehicle. A curved section that fell off a semi-trailer was recovered from the roadway near where the accident occurred and, according to the road crew that was on the scene, appears to be the culprit. The geometry of the object caused a powerful lever action as it went under the car, punching upward and impaling the Model S with a peak force on the order of 25 tons. Only a force of this magnitude would be strong enough to punch a 3 inch diameter hole through the quarter inch armor plate protecting the base of the vehicle.

    The Model S owner was nonetheless able to exit the highway as instructed by the onboard alert system, bring the car to a stop and depart the vehicle without injury. A fire caused by the impact began in the front battery module - the battery pack has a total of 16 modules - but was contained to the front section of the car by internal firewalls within the pack. Vents built into the battery pack directed the flames down towards the road and away from the vehicle.

    When the fire department arrived, they observed standard procedure, which was to gain access to the source of the fire by puncturing holes in the top of the battery's protective metal plate and applying water. For the Model S lithium-ion battery, it was correct to apply water (vs. dry chemical extinguisher), but not to puncture the metal firewall, as the newly created holes allowed the flames to then vent upwards into the front trunk section of the Model S. Nonetheless, a combination of water followed by dry chemical extinguisher quickly brought the fire to an end.

    It is important to note that the fire in the battery was contained to a small section near the front by the internal firewalls built into the pack structure. At no point did fire enter the passenger compartment.

    Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan.

    The nationwide driving statistics make this very clear: there are 150,000 car fires per year according to the National Fire Protection Association, and Americans drive about 3 trillion miles per year according to the Department of Transportation. That equates to 1 vehicle fire for every 20 million miles driven, compared to 1 fire in over 100 million miles for Tesla. This means you are 5 times more likely to experience a fire in a conventional gasoline car than a Tesla!

    For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid."

    Elon Musk
    CEO,
    Tesla Motors

    Tesla Traffic Jam

    Aug 08 11:53 AM | Link | Comment!
  • An Afternoon Surprise In Switzerland

    Exhausted, and running on fumes, I returned to Zermatt from my assault on Monte Rose, at 15,203 feet, the highest mountain in Switzerland.

    You know, the one where I hung by a rope on a cliff face with one hand, while sending out a Trade Alert on my iPhone 5s to short the S&P 500 with the other?

    The desk clerk looked particularly grim. He said the city government had been looking for me, and that I better get down to their offices right away.

    I thought, what could they possibly want?

    It has been 25 years since I had been a director of the Swiss Bank Corporation, and certainly the statute of limitations had long since run out on anything that transpired there. Yes, they later got taken over by the Union Bank of Switzerland, which then fell on hard times (poor Marcel!).

    As for all those Nazi gold bars, I had nothing to do with it! That was another department; although I did think the Third Reich's stamped gold eagles did look kind of cool. Besides, that too, was resolved in a court settlement a decade ago.

    There was that relationship with the teenaged girl at the Youth Hostel. But that was in 1968, and she was older than me.

    So what could the authorities in Zermatt possibly want?

    Then my mind set to racing. If I caught the 8:00 AM cable car at the Kleine Matterhorn, I could be over the Italian border by 10:00 AM. I would thus be treading the path of refugees for time immemorial, although going in the opposite direction.

    Ten minutes later, I was at their offices on Bahnhoffstrasse, still wearing my backpack, mud splattered, and my hair standing straight up. "My goodness, where have you been? We've been looking all over for you!" cried the official.

    I answered that I had been climbing the Monte Rose, and then asked "Why?"

    "The mayor wants to give you the keys to the city. It seems you have been visiting Zermatt longer than almost anyone. But you have to get over to the Zermatterhoff Hotel. The ceremony starts in five minutes!

    Five minutes! I stumbled, out of breath, into the elegant reception room at Zermatt's premier five star hotel. Not only was the mayor there dressed in all of his finery, so were the entire city council and a number of guests.

    Gold leaf rimmed the cornices and angels adorned the ceiling. I was handed a glass of Switzerland's finest white wine (where do they hide this stuff?).

    Then began the festivities...in the local Swiss German dialect. I agreed with everything and laughed at all the jokes. Then came the moment of truth.

    The mayor had heard that I was visiting Zermatt for my 46th year. Since the tourist records for the city did not go back that far, he was going to give me a test to see if I had really been coming there for that long.

    I said, "Fire away."

    Question number one: "Where is the Matterhorn from?" That was easy. During my fracking days in West Texas I had undergone a crash course in Geology.

    I had long been a student of the local Swiss rocks, taking several beautiful specimens home every year (mica embedded shiest, black basalt, and low grade jade!), and correctly answered that the Matterhorn came from Africa. (The European Continental Plate is subducting under the African plate, forcing the Matterhorn to grow an inch a year).

    "Right!" he responded.

    Question number two: "Who was the first man to climb the Matterhorn?" "The Englishman, Sir Edward Whymper, in 1865," I replied. (It's also the name of a downtown bar). Correct again, cheered the mayor.

    Question number three: "Who was the most famous American to climb the Matterhorn?" Piece of cake: President Theodore Roosevelt, in 1888.

    With that, the entire room burst into applause and bravos.

    Then, a young woman wearing traditional folk dress approached with a red satin pillow bearing a gold pin. The mayor pinned it on my sweaty shirt. On it was inscribed the words "40 Danks", which translates into "40 Thanks." He went on to say that if I came back in four years, they would give me my 50-year pin.

    I asked if they had a 60-year pin. He replied that no one had been awarded one yet, but if I came back in 14 years, they would have one specially made for me.

    This is an invitation I am willing to accept. With that came a refill of that fabulous wine.

    No one mentioned my ramshackle appearance. Climbers are afforded a special status here. Maybe, they think we are all insane, and give a wide breadth, for safety's sake. Everyone else there was wearing a suit and tie.

    After that, I went back to my hotel and collapsed. It's all again proof that if you live long enough, you get to see everything.

    Matterhorn Summit

    Aug 07 8:56 AM | Link | Comment!
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