Posts Tagged ‘World economy’

It often seems that views on the economy fall into two camps. There are those who say we are doomed; that the Earth’s finite resources are just about all used up. You could say this is the Malthusian view of the world. Furthermore, they say, the growth we have enjoyed over the last 200 years or so was based on unsustainable credit – we borrowed from Mother Earth and from future generations by doing something called ‘burning fossil fuels’, and in the process built-up debt that can never be paid back.

Then there are the optimists – those who believe in technology. It is a shame the debate is often so polarised, because the truth is that both sides have legitimate points. In today’s piece, the focus is on technology, and something rather miraculous that is appearing in our midst, and which – by the way – is largely being ignored by economists, and those who like to debate economics.

The truth is that progress – if you want to call it progress – is accelerating. And it has been accelerating for several billion years at that. For the majority of time that life has existed on this planet it was simple, very simple, and indeed for much of the history of the world, life consisted of single celled organisms. Then half a billion years or so ago, the Cambrian revolution occurred and a blink in the eye – evolutionally speaking that is – things changed incredibly quickly.

From the evolution of dinosaurs, mammals, primates, bipedal primates and early humans, the pace of change just got quicker. And once Homo Sapiens discovered agriculture we saw another acceleration in change, and an acceleration again upon the invention of writing, and then again with the printing press and the industrial revolution.

In the 20th century too, we have witnessed it. It used to take decades for new technology to gain mass market acceptance, but now it can take a mere hand full of years.

With the Internet this process has accelerated again and now – thanks to digital technology – it is no longer true to say that technological progress is merely accelerating. Rather, it is accelerating at an accelerating rate.

Now McKinsey has highlighted what it sees as 12 disruptive technologies that it estimates will collectively have an economic impact in the year 2025 of between $15 and $25 trillion. Note that the report is talking about that one year: 2025. Presumably the impact of disruptive technologies will grow from there. Just bear in mind, by the way, that global GDP in 2012 was around $72 trillion. US GDP is around $15 trillion, so by 2025 these new technologies, based on McKinsey’s analysis, will have an impact on the world either equal to or greater than the entire GDP of the United States.

The technologies and their estimated economic impact in 2025 are:

Mobile Internet. Impact: between £3.7 and $10.8 trillion. McKinsey says it estimates: “10 to 20 per cent cost saving on the treatment of chronic diseases via the ability to remotely monitor health.”

Automation of knowledge work. Impact: 5.2 to $6.7 trillion. The report says: “Advances in additional labour productivity would be equal to the output of 110 to 140 million workers.”

Internet of things. This means billions of devices, such as sensors, some very small, and which are connected. Impact: $2.7 to $6.2 trillion.

Cloud computing. Impact: $1.7 to $6.2 trillion.

Advanced robotics. Impact: $1.7 to $4.5 trillion.

Autonomous or near autonomous vehicles. Impact: $0.2 to $1.9 trillion.

Next generation genomics. Impact: $0.7 to $1.6 trillion.

Energy storage. Impact: $0.1 to $0.6 trillion.

3D printing. Impact: $0.2 to $0.6 trillion.

Advanced materials (such as Graphene, carbon nanotubes and nanoparticles). Impact: $0.2 to $0.5 trillion.

Advanced oil and gas exploitation. Impact: $0.1 to $0.5 trillion.

Renewable electricity from wind and solar. Impact: $0.2 to $0.3 trillion.

Okay, McKinsey does not really know. Is it estimating or guessing? Its guesstimate for 3D printing seems on the low side, and why aren’t vertical farms in the top 12? But it’s an interesting list and one worth keeping a record of.

But what are the implications for the economy, for unemployment, distribution of income, education, and indeed for business and investors?

These disruptive technologies could have the effect of greatly increasing GDP, so why is there a preoccupation with austerity? Debt does not really matter if your percentage growth in income is greater than the interest on your debt. We should either be preparing for, or at least discussing these great changes?

The real point, however, is that the disruptive technologies in the pipeline are stunning and, for better or worse, they will change our way of life and drastically alter the economy very soon. This is exciting and also frightening. How often do you hear this topic discussed? We are simply ill prepared.

For the McKinsey report, see: Disruptive technologies: Advances that will transform life, business, and the global economy 

© Investment & Business News 2013

With the FTSE 100 now into the mid-6700s, it is in territory not seen since the last century. Indeed it is only 200 points off passing its all-time record set in December 1999.

But can it last?

There is clearly a disconnection between the FTSE 100 and the UK economy, but then again many of the companies listed on the UK’s headline stock exchange index barely trade in the UK at all. Many are global in their reach, and thus the correlation may be between the FTSE 100 and the global economy.

Look at valuations, the FTSE 100 does not look especially high. The FTSE 100 peaked at 6930 in December 1999. Its current cyclically adjusted pe is around 12, while the average since 1975 is just under 14.

In the US it is a different story. With the cyclically adjusted PE being around 24 compared to a historical average of 15 since 1900.

Of course, if things got nasty in the Eurozone again – and they might – then markets across the world will look dangerously exposed.

The big question mark relates to QE, however.

No one really knows the extent to which QE explains stock market rises.

If QE were to be reversed, if inflation was to pick-up – for example thanks to rises in wages in China – then things may look very different. A fuller analysis will be published later this week.

© Investment & Business News 2013

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When you read this, the story may be even more positive. But at the time of writing the FTSE 100 is just half of one per cent shy of a millennium high. In other words, it is just one day’s worth of modest rises from passing the level it last reached back in 2007, before the economy went into a nose dive. The index is also just 3.5 per cent short of passing the all-time high set on December 30 1999.

If – and it’s a big if – stock markets are a good gauge of the wider economy, and if their value is reflective of the underlying strength of the economy, then that may provide reason to celebrate.

Here is another indicator for you: house prices. Okay, view this next statement with a large pinch of sodium chloride, but one key indicator may be pointing not only to recovery in the UK housing market, but in the economy too.

And finally, there is hard data. That is not half bad either – actually, it is a little bit bad, but it is a good deal better than it was.

Here are a series of articles which leave just one question: Is the UK finally on the mend?

FTSE 100 moves to within an inch of passing millennium high 

Are the stock markets set to crash? 

Japan’s miracle cure has been tried before in Britain – and it worked 

Economic recovery says Bank of England inflation report.

UK wages fall in the year to March 

© Investment & Business News 2013

The recent falls in the price of gold have been a puzzle; contradictory forces are at work.

The main trigger for recent falls has been talk that Cyprus is set to sell gold holdings. Yet the rationale behind Cyprus’s move is that it is virtually bust, and usually when countries go nearly bust, gold rises in price. A number of media reports has suggested that even money in our banks accounts is no longer safe, and that governments across the world are effectively insolvent. These are usually seen as reasons to buy gold.

Maybe the truth is that markets don’t believe all those predictions of doom. QE is usually associated with gold rising in price, but if markets think Japan’s QE will lift its economy, then that may be a reason to sell gold.

This article is really worth a read: 12 Rules of Goldbuggery  It’s a touch ironic. The bottom line, if you want the précis, is that gold bugs, as they call out-and-out fans of buying gold, are not totally rational . If gold falls in price they say it is because of market manipulation. Indeed they say if the markets were left to themselves gold would only ever rise. And they add that it is inevitable that the world will return to the gold standard.

Here is a thought about all this so-called goldbuggery. If the world did return to the gold standard, the global economy would soon afterwards descend into depression from which it would not exit until the gold standard was ditched. It is not true that inflation does not occur when the gold standard is in place. And it makes no sense to limit the money supply to the stock of gold, which is totally unrelated to innovation and economic potential. A return to the gold standard would kill innovation, crush change, and protect the status quo, making it easier for the rich to stay rich and harder for the poor to gain wealth.

Finally, Warren Buffet had something good to say about gold. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” or so said the wise man of investing last year. He added: “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while.”

He also once said: “If you put your money into gold or other non-income- producing assets that are dependent on what someone else values that in the future, you’re in speculation…You’re not into investing.”

©2013 Investment and Business News.

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