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Thursday, November 27, 2008


Earlier this week, I presented at a private dinner my list of non-obvious ideas for what the world would look like five years hence. The precondition of “non-obvious” was the hard hurdle. It requires variant perception on unpopular non-consensus views. But it has the added benefit that “prices” of those ideas, should you put your money where your mouth is, are likely to be low.

While Buffett noted you pay a high price for a cheery consensus, I note you pay a low price for a variant view because underappreciated means underpriced. I share with you my non-obvious ideas. Speaking of non-obvious ideas, Goldman Sachs, which was wrong on decoupling, wrong on $200 oil, wrong on $120-$140 oil, now believes that oil stays below $65 and has formally announced it has ceased making further guidance. Nobody knows nothing! So take my own self-assured prognostications with a nano grain of salt. In honor of Jared Diamond’s Guns Germs & Steel I dub it “Icarus, Africa, Power & Germs”.

I thought about abundance versus scarcity and distribution versus concentration. What will there more of or less of; and will it be in more of fewer hands. Further, what’s the probability and the size of impact. (Frequency vs. Magnitude). Here are 14 non-obvious predictions of the next five years.

1. There will be fewer capital exchanges. A combination of delistings and lower trading volume forces further consolidation of financial exchanges. A global coordinated 24-hour equity market emerges. (Medium probability, Medium impact)

2. There will be fewer charities; philanthropies merge. Buffett joined Gates by choice, others will do so by necessity. Redundant charities popped up when money sloshed around the system it gratified the ego of the elite to plant their own flag, but has resulted in inefficiency and zero-sum competition over donor dollars. (High probability, Medium impact).

3. There will be less aid to Africa which will actually create less corruption in Africa. I owe this one to my Lux Research colleague Ted Sullivan. I further predict Africa emerges as the new China with the lowest cost of labor and with southeastern and southwestern port cities (say Namibia & Mozambique) seeing development with the help of China with the former port cities serving the Americas and the latter Asia. (Medium probability, Medium impact)

4. Africa will become the main beneficiary of what will be deemed world’s greatest unintended philanthropy: the current capitalist pursuit of solar energy. Unsustainable valuations and too many companies in classic Schumpeterian creative destruction leaves most investors in solar startups taking a “flight of Icarus,” burned. Unlike information business where two people can have the same software at the same time, only one solar cell can be on one roof at a time. Marketing might trumps technological merit and solar cells metaphorically (and perhaps literally) are littered on side of Silicon Valley highways. A clever entrepreneur picks them up and creates AfricaEdison power. This yields the Rise of distributed and decentralized power for a distributed population with poor or no grid infrastructure. Solar makes perfect sense to heat some water and power lights so kids can read and learn at night but absolutely no sense for baseload power. (Medium probability, High impact).

5. What does make sense for base-load power is Nuclear. I predict a nuclear renaissance takes hold and the important waste and proliferation issue is solved through nanotech and safe chemistry. You may hear some exciting news shortly on this front. (High probability, High impact)

6. I predict the energy efficiency myth is busted. Here’s why: the more efficient we make something, the more energy we use, NOT LESS. Conventional wisdom is wrong. If we make our devices more efficient, any SINGLE device gets more efficient but in aggregate we get more of them and the total amount of energy goes up—always. Computers are 1 million times more efficient but we have 100 million more of them. The same with today’s refrigerators which are much more efficient, but now instead of just one fridge, everyone has one in their office, their dorm room, even their car. If you really want to change the world and decrease energy use, make things more INNEFICIENT. Instead of electrons think of bits—think of internet bandwidth. If I give you a fiber optic cable, you’ll suck down data through that fat pipe like a fat kid sucking down an egg-cream in 1950s Brooklyn. You’ll be pulling Bit Torrents while watching YouTube and Hulu and video-conferencing with friends over Skype. The more efficient the transmission of bits, the more you’ll suck down. If I really want to reduce your consumption of bits, I need to make the pipe more inefficient. I guarantee if I put you on a 2400 baud or 56k modem you’d maybe send an email a day. Efficiency is a misguided myth. (Low probability, High Impact)

7. All the talk of distributed power makes me predict something else that will be distributed: Germs. Watch out for pandemic flu or other viruses that we’ve become seemingly “attention-immune” from. How easily we get distracted. (Low probability, High impact)

8. I predict more distributed healthcare. With the digitization of medical records and networked diagnostics (watch Google and Microsoft make acquisitions and jockey for position and think: USB cartridges read by your laptop transmitted to doctors in India and diagnosis given to you instantly). Decentralizing healthcare to the “edge”, away from hospitals, cuts costs and the looming trillions required for Medicare. In five years, we will be five years into the retirement of the Baby Boomers. Consider this: Alzheimers for baby-boomers will cost the government $1.2 Trillion. If you could postpone the onset for five years you can halve the cost. What will we deem it worth to spend to save $600 Billion? (High probability, High impact)

9. I predict the rise of Distributed R& D. The further rise of Innocentive, Yet2 and Boliven. This means answers come not from US universities or corporate R&D labs but from the world over from Reykjavik to Russia.

10. Speaking of Russia: I predict more power for Russia and specifically that Iceland becomes the “Cuba of north”—not in communist ideology but in geopolitical jockeying. I predict Russia jockeys for arctic energy resources with $563B in currency reserves, loaning $5B to Iceland is smartest geopolitical investment nobody is talking about.

11. I predict inflation runs rampant. The emissions that really matter are not carbon kind that Greens have you believe but of the U.S. Dollar variety (also Green) being emitted from the Fed and all other central banks. In five years, I predict interest rates in the teens making a cheap TIPS inflation hedge the most undervalued investment thesis today when the cheery consensus sees nothing but deflation ahead.

12. Speaking of Teens, I predict within five years we will see a video game company gets big acquires large media company (this decades’ version of AOL Time Warner). My Lux partner Adam Kalish predicts wisely that Vegas invents new game (out of necessity) because it needs a new poker, his bet is Baccarat.

13. And finally: there is the classic five-year investment cycle whereby everyone wants to be investing today where they should’ve been invested five years ago. You should have been investing in banks in 1990 (not 1995). You should’ve been investing in the Internet in 94-95 (not in 99-00). You should’ve been in housing in 99-00 not in 2005 and Energy in 05 not now. I predict Venture Capital and early stage venture capital is the best performing asset class five years from now.

by Josh Wolfe




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