Thursday, January 24, 2013

Macro Themes for 2013 (part I)

  1. Man vs. Machine
    • Productivity gains will outstrip pace of consumption – technology such as automation, robotics and 3D printing will destroy jobs faster than it create jobs
    • Up to 50 million current jobs could be automated in the future (and thus destroyed)
      • How many jobs will be created through this automation? The answer is however many AI programmers you need (probably far less than 50 million)
      • Firm's labor demand will be for a few skilled workers rather than many unskilled workers
    • Hiring - firms are spending on capex instead of hiring; 75% of US manufacturing firms already employ <20 workers
  2. US Manufacturing Renaissance
    • Localization, or Anti-Globalization
      • Production is being re-shored to be closer to the huge US consumer market and take advantage of local logistics
    • EM (emerging market) are becoming less competitive
      • EM currencies are appreciating such as CNY (Chinese Yuan)
      • China could enter the "middle income trap"
    • Overseas transportation are too high due to energy prices, incentivizing firms to repatriate
    • Underinvestment and low capex spending in US means pent-up demand
    • Theme 1 - automation and robotics override low labor costs
  3. US Energy Boom
    • EIA forecasts
      • US will become energy independent by 2020
      • Largest natural gas producer by 2015, surpassing Russia
      • Oil output poised to surpass Saudi Arabia’s by 2019
      • Consumption - 87% will be from domestic sources of energy by 2020, up from 79% today 
      • Imports - 13% of consumption by 2020, will be primarily supplied by Canada & Mexico, increasing from 36% of imports today to 62% by 2020.
    • Competitiveness
      • EU suffers from expensive gas contracts with Russia
      • Latam has moved plants to US due to low natural gas and electricity prices
      • Electricity - prices are 50% cheaper in the US than in Europe
      • Roughly 30% of US electricity is generated by burning cheap domestic natural gas
  4. DM (Developed Markets) Aging Demographics
    • Population - baby boomers outnumber millenials due to decreasing fertility rates
    • Labor - baby boomers are retiring later due to recession, crowding out young from workforce
    • Gov't debt - millenials inherit high gov't debt caused by spending on entitlements towards baby boomers
    • Other - high student debt, tight credit, skills mismatch, high job turnover
    • "Peter Pan" generation - millenials reliant on parents, delay adulthood, live at home
  5. DM Big Gov't Socialism
    • Political sentiment will lean towards fairness and equality
    • Theme 1 - high unemployment and inequality will be balanced by redistribution through increased taxes and spending
    • Theme 4 - baby boomers dominate gov't and are biased towards increasing gov't healthcare, pensions, social security, etc.
  6. DM Central Bank Printing
    • Currencies - race to the bottom means depreciation
    • Inflation - will stay low due to tight lending and low velocity
    • Financial repression - captive investors ensure low rates
  7. "Peak Car"
    • Urbanization, high fuel prices, increasing youth insurance premiums
    • Car-sharing schemes - 1 rental equals 15 owned cars; e.g. 700k Zipcar members share only 9k cars
    • Theme 4 - tight credit depresses auto-ownership

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