Economy/Reset

Frontiers of an Actual New Economy

Something has encouraged individuals to reprioritize how they interact with the economy, to alter their views on adulthood and maturity and to shift their focus from making a better living to having a better life.  That “something” is an emerging new economy, a shift in attributes of what comprise the U.S. economic model.  Due to globalization, digitization and other forces, the so-called American labor force has been flooded with new workers, both here and abroad.  Due to expanded automation, more and more jobs at higher and higher levels of sophistication are threatened with extinction.  Due to a focus on efficiencies above all else, careers and jobs are being deconstructed and converted into projects and tasks that can be handled by part-time or temporary employees.  Those attributes are making traditional economic tactics ineffective; shifting the emphasis from consumers to businesses; encouraging an automated workplace and a contingent workforce to become commonplace; forcing a reassessment of the employer-employee relationship; and ultimately creating an economy in which volatility and uncertainty are economic norms—that is, the early signals of a new economy.  

Social and Consumer

Still Rolling: The Value Hierarchy

Over the past five years, even as the economy has improved and wages have slowly increased, consumers have continually expressed what we have called The Value Hierarchy - Restraint, Simplicity, Connectivity and Experience -  via their purchasing behaviors and the way they spend their time.  The companies that have aligned with these consumer preferences have been very successful while those that have not been correctly positioned for these values have struggled or gone out of business.  This is a structural change and the context continues to impact all consumer facing industries.

Americans Go Outdoors

As we have noted, various social, economic and technological problems are driving Americans to the brink of their sanity.  One way some Americans are “Coping with Today” is by destressing through participation in outdoor activities.  At a time when the lure of digital technology and especially video programming is quite strong, Americans are once more getting outdoors and the sales of equipment and services to take advantage of various outdoor activities are likely to continue to increase. 

Getting Past The Attack Mode

Looking past the headlines and all the reports of aggressiveness in the world, we see signs of a change in attitude about what is effective: less aggressiveness.  The evidence starts with medical science, where developments in immunotherapies, antibiotics and the microbiome suggest ways to avoid the escalating conflicts of medicines and to access the human body to fight its problems.  From there the attitude shift is spreading to many different arenas, including retail, detective work, education, clothing lines and even social practices.  This is very early, but it could emerge as more dominant as the current aggressiveness wave starts to wane in the months and years ahead.

The Rise Of The Next Grand Narrative

Like earlier grand narratives, the new one is emerging from current realities. The global growth of a huge middle class is putting pressure on some natural resources, a consequence of what we have called The Effects of Large Numbers.  More stresses on resources encourage a sharing economy, a clearer sense of what is necessary versus what is excess and a focus on less wasteful processes that are depleting both human and natural resources. Much of the effort being guided by the new grand narrative will be around repairing damage done during the prior grand narrative, and more and more efforts will be focused on enhancing personal, cultural and economic capabilities.  The new perspectives point toward values different from those expressed in the past.  The new values – Sustainability, Sufficiency, Interdependence and Empathy – do not speak of making things larger to make them better or of making more things to create a better society. Rather, these values speak of the long term, of limitations and innovation and of social interactivity, and of a more meaningful life as being better.

Coping With Today: Americans Seeking Sanity

A large swath of American society has been unable to fully participate in the economic recovery in this “New Economy”, and many have found themselves under a heightened pressure to perform.  Those stresses have combined with digital overload and a range of real and perceived conflicts in the world, to create a society that is “driven to the brink”. This society is experiencing higher rates of alcoholism, suicide, insomnia, mental health disorders and premature deaths among multiple age groups, education levels and income levels.  As a result, many are looking for coping mechanisms to restore their sanity.

Different Adulthood

In the years following the Great Recession, many have wondered when the “delayed adulthood” lifestyle would come to an end for the Millennial generation, assuming that a return to a “normal” economy would precipitate a return to “normal adulthood.”  Our observations suggest that the traditional markers of adulthood are changing, suggesting there won’t be a “delayed adulthood” but rather a “different adulthood,” and not just for Millennials.  Structurally, different economic realities have been a major driver of the changes in living arrangements, family make-up, and job preferences, but so is the move to an increasingly digital society which is altering the expectations and the responsibilities of adulthood. 

Identity Issues

What do ISIS confrontations, the EU-Greek conflict, the Confederate flag controversy, rising fraternity membership, Caitlyn Jenner’s persona, immigration arguments here and abroad and violence over Uber cars in Paris all have in common? They are all tensions about identity – personal, institutional and national. What does it mean to have so many areas of discord around identity surfacing at one time?  In historical terms, periods in which challenges to traditional identities were widespread were periods of conflict, and they often brought forward a reassertion of what  might be called “tribalist” identities.  We might be experiencing just such a period, and that could create more discontent.

From A Better Living to a Better Life

For much of the era that followed the Second World War, Americans focused on increasing their standards of living, meaning they worked hard to increase their salary and expand their wealth, often preparing for something called retirement. That seems to be changing, as people leave their current homes and move to medium-sized cities, not for more money or higher levels of responsibility at work, but rather for a better life. For many, the quest for a better life involves looking for something exhilarating, challenging and stretching, anything that engages them, provides them meaning and moves them forward (however, they define those terms). Such a shift from focusing on the quantify of live to the quality of life – as it slowly spreads deeper into society – has already started to affect real estate markets, transportation systems, education and many consumer areas.

International

Challenges and Opportunities in India

India is a land of possibilities…and challenges. The country still suffers from extreme poverty, unbuilt infrastructure, and political and cultural disunion. However, the country, particularly under the nationalist leadership of Narendra Modi, is pursuing significant reforms in areas such as taxation, FDI, infrastructure investment, social welfare payments, and manufacturing that could greatly improve the economy of this young, large, optimistic population. India also has the benefit of being the regional “not-China” - a large country in Asia that other countries can partner with over their fears of China’s growing clout. 

The New Russia Position

While many in the U.S. media have been writing about President Putin and Russia’s potential involvement in hacking and the U.S. election, there are numerous global contexts that are often ignored which suggest that Russia is making many moves to put itself in a positive position economically and on the global stage.  Russia’s involvement in contexts that we have called The Saudi Trifecta, Military Arms for Image and Profit, Emerging Market Origami and China Building Out have put Putin and the country in a position to take advantage of numerous global changes.

Getting Our Heads On Straight: Moving From Distractions To What Will Actually Affect The Global Economy

Recent elections, whether for Brexit, a constitutional referendum in Italy or the U.S. president election, have caught many by surprise and have led to a wellspring of commentary, charges, countercharges and all the other things that online and offline media can sustain.  As a result of such head-turning actions, most Americans’ heads are a little askew, as individuals are “spending far too much of our time,” as one psychologist noted, doing things that are not helpful.  To get heads realigned, Americans and citizens of other countries, who are concerned about their economies yet are turning their off-kilter heads toward louder and louder noise, need to focus their attention on topics that will actually affect the global economy…and them.  As a start to turning their attention away from the topic du jour and onto things that will determine how the future plays out, we suggest a closer look at three topics: New Autocrats, because their emerging alignment could well change international alliances, challenge existing international institutions, geo-alter political alignments and even shift national economies; Artificial Intelligence, because it will continue to replace ever-more sophisticated jobs and make more efficient those enterprises that deploy it; and finally China’s Silk Road Initiative, because it could affect the geo-economic balance in the world and generate growth in developing countries as well as in companies and countries that join the effort. 

The Latest Swing in Political Alignment Sweeps Latin America

The political pendulum has swung back and forth in Latin America for decades, from dictators of the right to dictators on the left, from far right to far left and then to moderate right and moderate left. The steady movement toward the middle political area suggests stability in the not-too-distant future. At present, the swing is to the moderate conservatives, who have a large problem haunting them and their opposition left: corruption. As economies have slowed, the citizens have turned against corruption. As corruption is brought under control and as moderates of both the left and the right enter politics, the continent will start moving toward long-term stability. Even with the seeming mess that is the political and economic reality in much of the continent, is this the time to think about investing there again?

Slow Growth/Novel Solutions and Unprecedented Effects

Slow global growth over time is exerting powerful influences on participants of the global economy. Central Banks of the world are now attempting to create growth and inflation, a role they were not set up for. In a slow growth world, curious and novel effects have developed. Japanese Banks have sold large holdings of JGBs causing the Bank of Japan to print money to buy JGBs. The Korean government decided to allow Hanjin Shipping to enter bankruptcy and declared “too big to fail is unsustainable.” And trade restrictions have risen as a viable political position in several countries. Shifts in institutional investor risk taking and industry consolidation are two recent impacts of this dynamic. These are likely to become more pervasive until stronger growth materializes.

Skip A Step To Consumer Finance and E-Commerce

Previously we’ve discussed the capabilities of “skip-a-step,” what some call “leap-frogging” that are allowing emerging markets to skip over certain stages of development (e.g. landlines to smartphones; power grids to distributed energy; fossil fuels to renewables).  Two arenas of skip-a-step capabilities are rapidly proliferating – a skip over traditional cash and banking services for forms of e-money, banking and consumer credit, as well as a skip over traditional retail into e-commerce.  In particular, Chinese tech companies have expanded such capabilities within China and are bringing them to other emerging markets.

China Building Out

One aspect of China’s long-term strategy is to “go out” and invest in both emerging markets and developed countries and purchase global strategic assets. Beijing continues to consolidate state-owned-enterprises to reduce oversupply while simultaneously pursuing the long-term Silk Road Strategy by deploying their sizable foreign reserves. These strategies will impact raw materials markets, basic industries and the growth of other emerging markets.  At the same time, China is investing domestically in innovation in order to develop new products and services to sell into the global marketplace.

A Peek At The (Very Much Still Growing) Chinese Consumer

The “Chinese Dream” is a strategic national plan which includes having the consumer become a bigger part of the economy.  Despite China’s “New Normal” of slower growth, the Chinese consumer economy continues to expand, especially in areas such as entertainment, travel and tourism, e-commerce, insurance and retirement.

(Update) China: The Low-Cost Innovation Center

China is in the process of moving beyond low-cost manufacturing and is becoming a global center of low-cost innovation due to an emphasis by Beijing on science, research and technology with deep pockets to back that up. Chinese research and technology labs are now creating lower costs for high-tech products and services and, in turn, making those products and services more accessible to global buyers, especially in other developing countries. This shift in emphasis is indicative of a broader transformation under way in the Chinese economy: to create more high-paying jobs that can fuel a growing consumer economy. At the same time, China is becoming a serious competitive threat to traditional centers of innovation and high-tech manufacturing.

Emerging Markets Origami

In the aftermath of several events over the past decade, including the Global Financial Crisis, the near default of the U.S. government and the “Taper Tantrum” of global currencies in response to Federal Reserve actions, many emerging markets have decided to actively seek ways to rely less on the global West.  Such nations are teaming up in arenas like defense, education, trade, and infrastructure.   Led in part by China, emerging markets have worked to assemble a New Financial Architecture, that eschews reliance on the dollar, Euro and yen and sidesteps institutions like the World Bank and IMF.  The ascendence of this alternative system has become more evident as 57 nations, including Germany and Great Britain, joined the Chinese-led Asian Infrastructure Investment Bank, once of several new financial facilities targeting emerging market development.  The rising cooperation of emerging markets is further buttressed by technology that is allowing these countries to “skip a step” or “leapfrog” stages of development, such as skipping over brick and mortar retail and jumping directly into e-commerce. 

(Update) China's Consumer Brand Strategy

Beijing has a clear plan for China’s next stage of economic development: generate a consumer-based economy, and help cultivate a cornucopia of indigenous Chinese brands that consumers will buy from.  As such brands ramp up their brands in China (and increasingly, internationally) Beijing appears to be creating intentional roadblocks for foreign brands operating in China.  Many such internationally renowned brands will have to reconsider whether it is worth doing business in China.

Emerging Markets Skip A Step to Finance and E-Commerce

Emerging markets are good for globalizing e-commerce, and globalizing e-commerce is good for emerging markets.  With emerging economies taking advantage of newer technologies that require lesser amounts of infrastructure – what we have called Skip a Step (e.g., deploying wireless technology rather than deploying wired communications networks) – two-way markets are developing.  New kinds of consumer classes are emerging in developing countries, and they have resources to buy goods and services from elsewhere in the world. Meanwhile, artisans in remote villages can avail themselves of e-commerce networks to market their goods to the world. Even though protectionist measures have recently started to surface in response to troubled economies and stressful geopolitical conditions, e-commerce will likely help keep trade expanding, at least at the consumer level.

Skip A Step

Our observations suggest that there are many ways developing economies might skip, bypass and avoid developmental stages that are historically associated with becoming a modern industrialized economy. Assumptions about what tools, infrastructure, services and capital a country will need to move from “developing” to “developed” should be rethought. 

The Big Shift Plays Out

The Big Shift represents a transfer of wealth and geopolitical power that has been taking place for several decades from consumer/importer countries to manufacturer/exporter countries and the numerous social and economic ramifications of this significant transition.  Many recent events, including Brexit, the election of Donald Trump, the rise of various nationalist leaders globally, and a return to protectionism in international relations, can all be better understood in the context of the Big Shift.

Technology

From Mobile-First To AI-First (Update I)

In our original look at Artificial Intelligence (AI), we explored the scramble by companies such as Google, IBM, Facebook, and Baidu to develop an “AI First” strategy as AI capabilities quickly developed and redefined how people and machines interact.  Those capabilities can be categorized to include voice recognition, language processing, image recognition and pattern recognition.  In this first update to our AI topic, we explore how those capabilities are now being applied in various industries, including healthcare, finance, retail, defense, automotive, and media. 

From Mobile-First to AI-First

Artificial intelligence (AI) took a giant leap in the public’s eye when a machine beat the grand master of the Asian strategy game Go, in four out of five games. The victorious machine, AlphaGo, made use of more than the basic AI associated with Watson, the software and computer from IBM that won Jeopardy. The kind of software needed to defeat the Go grand master can teach and write its own programs based on an ongoing stream of new data, something called deep learning (DL). In addition, AI now includes another kind of capability called machine learning (ML), in which machines with sophisticated software learn and digest new data, bringing new capabilities to the fore. Large digital tech companies, such as Google, Facebook, Baidu, Microsoft and IBM, have shifted their research focus to cognitive computing, which includes all AI approaches. Money is flowing and products are emerging. Some worry about the potential effects of current cutting-edge AI, but the companies large and small have decided to AI is the way forward.

(Update) 3D Printing

The 3-D printing process is increasingly being utilized in both prototyping and industrial manufacturing. Recent technological advances allow new 3-D printers to use materials that were previously unusable and have facilitated the printing of larger pieces in shorter periods of time. While 71 percent of U.S. manufacturers claim they are already using 3-D printing in some way, these new advancements suggest the technology will continue to see significant growth ahead. 

From Efficiency To Addiction: The Effects Of Pervasive Computing

Mobile is increasingly becoming the consumers’ preferred way to transact.  Media consumption, communications, e-commerce and mobile payments are just a few of the areas in which mobile is taking time-share away from both physical interactions and other forms of digital competition.  At the same time, the social impacts of our constant connectivity are becoming more clear and to some, more worrisome.  While these digital effects continue to be widespread, there is a growing number of people who are acknowledging the issue and seeking to find the right mix between the physical and digital worlds

Attack Of The Drones

Ad agencies, filmmakers, university researchers, sports teams, humanitarian organizations, public-safety departments, farmers and some of the world’s largest technology companies all have something in common: they are using or actively exploring ways to use unmanned aerial vehicles (UAVs), also known as drones. But with privacy concerns and safety issues, both highlighted by a hobbyist recently piloting a drone over the White House fence and crashing it on the President’s lawn, drones are also set to become a multifaceted new battlefront in the World of Permeable Borders.

Context Shift: Software, Automation and Robotics

Manufacturers bought more industrial robots in 2013 than ever before, and the capabilities of robotics and automation software are taking leaps forward with research and applications being funded by governments and large public companies such as Google, Facebook, Alibaba and IBM, alongside private entities like IPSoft and Viv Labs. Our observations suggest we are in the beginning of a shift upward on the change wave for both robotics and automation software.

Man and Machine: The Dynamic Develops

Once considered a preserve of science fiction, the seamless integration of human and machine has moved from pure fiction to near-future reality with recent significant developments in the field. As companies and researchers make additional advancements, their successes promise to surprise those who thought only science fiction could realize such possibilities.  The relationship between humans and the machines they create has been evolving and as a result, many different kinds of relationships exist, each with its own level of interdependency.

Virtual and Augmented: Creating Our Own Reality

What do Defense Advanced Research Projects Agency (DARPA), the pornography industry and family-entertainment venue Chuck E. Cheese have in common? All three are experimenting with virtual- or augmented-reality technology. With at least ten companies having already announced virtual- or augmented-reality platforms or headsets and with venture-capital firms having invested almost $800 million in virtual- and augmented-reality projects in 2014, the potential reality-changing technologies are getting a lot of attention. However, despite all the experiments, invested money and hype, there are still relatively few products available on the market.  We will explore some of the ways these technologies are already being applied and what effects they may have in the future.

Industry

In Search Of The Next Grand Narrative: Companies Seek To Do Good

The U.S. has been in search of its next Grand Narrative, a shared story or theme about what our society stands for and how to pursue it.  As individuals continue rethinking their priorities and principals in search of this next Grand Narrative, some of them are taking the results of their reflection and applying them to the companies they run.  Managements at companies are posing questions about how those businesses can “do good” in the world, even when those actions might not maximize profit.  Stakeholders, including customers, employees, community, and vulnerable groups in society, are getting more credence.

E-Commerce Evolves: and a Real Omnichannel Era Begins

Numerous traditional bricks-and-mortar retailers who are increasingly focused on offering e-commerce and omnichannel solutions, such as ordering online and then picking up at a physical location, as a way to provide a key value important to consumers - Simplicity.  As a growing percentage of retail sales continues to move online and to mobile devices, some bricks-and-mortar retailers are recognizing that they can provide customers with these omnichannel offerings - something that online-only retailers often cannot - as a way to differentiate themselves and provide value in the increasingly competitive retail environment.

(Update) The Great Restructuring

The military and other institutions that are participating in what we are calling The Great Restructuring are following a three-stage process for change identified by physicist Thomas S. Kuhn over 50 years ago; normalcy, an era of accepted wisdom; crisis and experimentation, an era in which too many anomalies make accepted wisdom no longer effective and in which new ideas and methods start circulating; and then, a new effective structure emerges.  We see this process starting in education, media, publishing, retail, advertising, brand marketing and management around shareholder value.

Retail Restructuring 2.0

The retail environment faces revolutionary changes, which together threaten to upend many retailers who try in vain to sustain business models created in the twentieth century.  Shifting consumer values in light of the New Economy are decreasing consumers’ purchases of consumable goods and leading to a Peak of Stuff.  Consumers are also eschewing traditional marketing and consulting new channels of information before buying goods.  Some retailers, meanwhile, are fighting back with advanced technologies to more precisely target consumers. Other upstart retailers are popping up with models that align with the new consumer way of buying. Due to these changes there will be more challenging competition in retailing, even as traditional retailers close stores.  Many retailers will have to greatly restructure their business models to align with the new marketplace, or risk failing.  Not all will succeed.

Cyclical & Secular Of The Auto Market

The auto industry is facing two different realities, one cyclical and one secular.  The industry posted record sales numbers last year, but a closer inspection of leasing terms and delinquency rates suggests those sales figures were partially driven by unsustainable lending practices.   American households are facing a consumer squeeze which could limit the further growth of car sales in the near term.  At the same time, car companies have decided that the writing is on the wall and have concluded that changes in driving habits are secular, and they will need to adjust business models and product lines to get consumers into their vehicles.  In an attempt to not be disrupted like many entrenched companies in other industries, the big global auto makers are heavily investing in both transportation services (offering access over assets) and in-car technology, including autonomous and semi-autonomous driving features.

 

Why "Alphabet"? Strategies For Next Generation Companies

Next-generation technology giants (Google, Amazon, Alibaba and Facebook) appear to have constantly evolving strategies as the nature of growth and competition is shifting in many industries. These online giants appear to recognize that the areas that made them successful - search, advertising, online distribution and social media - will not continue to grow at the same pace to allow for them to maintain their dominant positions.  The big companies are recognizing the need to continually invest in the next era, including AI, robotics, entertainment and sports in order to be well positioned for the future, which is very different than the past when companies decided to focus on a narrow objective and execute forcefully. This may be a template for which to view other companies for years to come.

Advertising's Identity Crisis

Pressures facing content providers and distributors in the media industry have spread to the industry that delivers revenues to the media industry: advertising. Agencies are no longer in their Golden Age, when their ad creation and placement expertise was sought and compensated. Rather, they find themselves surrounded by new kinds of competitors in a market that is demanding new kinds of skills. Consumers, who have already been splintered into sometimes tiny and sometimes sizable audiences by more and more online options, are blocking ads altogether, mostly because ads are seen as intrusive, disruptive and slowing valuable bandwidth. Advertisers are finding other ways to reach consumers, and reactions of ad agencies have not always been forward looking, but a few have seen that the game has changed and that new skills (and markets) are needed.

Education's Great Restructuring: Learning Institutions in an Era of Confusion and Changing Expectations

Education is in disarray, mostly because society is in disarray, left without a Grand Narrative and struggling with the realities of a New Economy.  Society’s perspective on education, administrators’ distractions, teachers’ worries and students’ anxieties make for an educational system, from grade school through higher education, having trouble meeting expectations, mostly because it is out of alignment with new realities.  The growing misalignment between the social requirements of an educated person today and the traditional system for educating that person is forcing education into its own version of the Great Restructuring.  Education has entered the Experimentation phase of its Great Restructuring. Whereas learning in traditional environments meant learning more and more knowledge from instructors who had that knowledge, digital technology has shifted learning from acquisition of knowledge to acquisition of skills to access knowledge. With knowledge accessible through a device, other kinds of skills are becoming more important: experimentation, observation, performance, participation, creativity, collaboration, and deep thinking, with new outcomes arising, such as problem solving, conceptualization, multi-cultural facility and creating new knowledge. Educational experiments are underway to embed these kinds of perspectives into educational processes and curricula. 

Video Games Grow Up

As of August, global spending on video games this year was on pace to be approximately $92 billion, larger than the direct consumer spending on movies and recorded music…combined. Beyond passing Hollywood and the music industry in revenues, the video game industry seems to be following aspects of those industries’ historical script. Just as movies and music grew and evolved throughout the twentieth century, the video game industry is now transforming itself into something bigger, something different and increasingly, something artistic.  While many video gaming-related companies have done well over the past few years, they are also in a transformational period with potential growth to come, because, like motion pictures and music before it, the gaming industry is utilizing new technologies, platforms, distribution methods and storytelling techniques, all while growing its cultural impact throughout the world.

(Update) Military Arms For Image and Profit

Gunboat diplomacy has evolved into the Propaganda of Power. The nineteenth-century practice of deploying advanced naval power to coerce lesser-powered countries to yield to the wishes of an imperial power has shape-shifted into a twenty-first century practice of using superior air and sea capabilities to threaten the sovereignty and security of lesser-powered countries for the purpose of triggering fear. Russia and China have become adept at this new iteration of public displays of power. Such practices have enlivened the arms market, as countries deploying the Propaganda of Power seek to increase their image of menace by increasing their weaponry and as the countries that are feeling the brunt of that power propaganda increase military spending to defend themselves. Curiously enough, this focus on current military weaponry, while both necessary and heretofore effective, has the feel of being out of date, as new weapons move up the list of priorities and change the very concept of a battlefield. The turn to cyber and digitized weapons will expand the range of the arms market and bring new players into the industry

(Update) The Battle for Consumer Time

Major components of the video/media industry – screens/devices, distributors and content providers – are converging toward one area of competition: consumer time. That competitive thrust has pushed the various components of that wide-arrayed industry into some version of the Great Restructuring. With more and more manufacturers producing more and more kinds of screens to watch, including computers, televisions, smartphones, game consoles, e-readers and tablets, margins for all are starting to slip. One effect of the expansion of the screen universe is that consumers’ time is getting divided, subdivided and spread over several screens, sometimes at once, giving predominance to none. Meanwhile, those who distribute content to consumers are facing more and more competitors, which means that those who enjoyed near-monopolistic power in the past now face serious disruptions in their markets. And finally, content providers, currently enjoying some pricing power, will soon face a market overloaded with competitors, a proliferation of providers creating an endless stream of programs and entertaining trifles, all grabbing some piece of consumer time.

Cyber Take Down

The Sony data breach made the reality of cyber-insecurity headline news, even though the threat and its reality have been present for years. The rather quick determination that North Korea was behind the attack suggests more about politics and espionage than about cyber-analysis and actual attribution. Nonetheless, the threat of cyber intrusions has become commonplace and the damages more and more extensive. Targets can be retailers, financial institutions, healthcare facilities, entertainment companies, public institutions, critical infrastructure or military installations, and the attackers can be wily individuals, state-backed hackers, freelance troublemakers, non-state political entities or just about anyone who manages to exploit the access that Internet communications enables. Even when a cyber-attack happens, what we have called the Wilderness of Mirrors – the convoluted and broken pathways that data travel on the Internet, all made more extreme by those seeking to hide – makes accurate attribution difficult, if not futile. Now that the depth and scope of the threat has become so public, will business and political leaders do anything differently? Can they?

(Update) Disruption in the Financial Sector Disrupted (Death By 1,000 Cuts)

In a 2014 inFocus we noted that: "Technological change is coming to the financial sector at the same time that regulators are cracking down, and social and demographic changes are highlighting secular shifts in what consumers want and, indeed, expect from their financial institutions."  In the two years since that inFocus, financial institutions have acknowledged their new competitors and noticed the success of products and services coming out of the fintech arena.  This update examines the financial industry's reactions, including buying or forming partnerships with fintech companies or simply imitating them and offering similar services.  

Got Health?

American society seems to be getting more interested in healthy life habits.  With an uncertain economy and an unstable job market, individuals are focusing on personal health as one area they can control.  Our observations suggest a rising focus on fresh foods and balanced diets, government policy changes to restrict access to fattening foods (particularly for the young) and to provide resources to combat obesity and the rising popularity of exercise regimens, some rather extreme.

Energy and Resources

Be Less Wasteful: The Corporate Focus On Resource Management

The emerging grand narrative is giving some companies a different perspective on resource management while giving rise to a different way of looking at a business utilizing something called the triple bottom line.  The three elements of this metric of corporate success are: 1) the profit-and-loss bottom line; 2) the environmental effects bottom line; and 3) the societal effects bottom line.  The second two aspects of the triple bottom line are leading towards a greater focus on sustainability and resource management as businesses increasingly work to eliminate the depletion of natural resources and a focus on being less wasteful.

"Lower For Longer" Can't Derail The Renewables Revolution

One striking anomaly caught our eyes: as world fossil fuel energy prices plunged between June 2014 and January 2016, demand for energy in the U.S. did not increase and installations of renewable energy, especially solar and wind power, did increase.  The restructuring of energy sources continues unabated thanks to several events and strategies.  In the U.S. congress, tax credits for solar and wind installations were extended.  Greater efficiencies in installations and components, plus new efficiency technologies have resulted in larger U.S. installations.  Finally, transmission and energy storage buildout is on the way to completing the shift to greater reliance on renewable energy.  Meanwhile, renewable energy generation is growing globally, from offshore wind in Europe, to the large and energy-hungry countries of China and India and even in oil exporters such as Canada and Saudi Arabia.

A Global Triad: The Interconnections of Water, Food & Energy

The Big Shift has created a burgeoning global middle-class with changing diets putting pressure on food production as well as economic growth in general.  The New Economy in developed countries are encouraging citizens to change their diets toward fresher, healthier foods and that is putting pressure on industrial farms to produce less efficient crops with fewer fertilizers.  The stresses on food, energy and  water are starting to show up at the fringes of global economies.

(Update) Saudi Arabia Trifecta: A Geo-Economic Scrambling of the Global Energy Market

By increasing production suddenly and lowering oil prices substantially last year, the Saudis attempted to hit the trifecta of geo-economic effects: The Saudis are seeking to shore-up their global market share, especially in Asia, and slow the pace of growth in alternative energy sources.  They hoped the lower price would provide a de facto stimulus to much of the global economy, in order to help revive the Saudis’ and OPEC’s global market opportunities; Falling oil prices have caused economic troubles in countries whose actions in the Middle East represent a challenge to Saudi political, economic and religious leadership.  Numerous recent events suggest an evolution of this context.

Agriculture: Problems & Solutions

The future poses a variety of challenges for the global agriculture industry that can only be met by investment and research into innovations.  Populations are not just growing, their diets are becoming richer, increasingly growing agricultural demand.  Meanwhile, water for cropland irrigation is becoming scarce or polluted in many parts of the globe, and extreme weather events are disrupting crop production.  Agriculture businesses are exploring ways to increase crop output and help farmer’s weather – literally – volatile water availability and weather conditions.  They are also exploring ways to offer more “natural” foods to align with tastes in the developed world.

Water: Problems & Solutions

Extreme weather, the agricultural Effects of Large numbers, aging public infrastructure and increased energy production have wreaked havoc with U.S. water supplies.  Problems are now being recognized publicly and major efforts are underway to fund more resilient infrastructure and build smart(er) systems of water use.  In addition, the public controversies over water use and contamination during the process of hydraulic fracturing are creating opportunities for companies that treat fracking water for reuse.  Those entities that can protect, extend and reproduce usable water supplies will be valued for years to come.

Challenges and Opportunities in India

India is a land of possibilities...and challenges.  The country still suffers from extreme poverty, unbuilt infrastructure, and political and cultural disunion.  However, the country, particularly under the nationalist leadership of Narendra Modi, is pursuing significant reforms in areas such as taxation, FDI, infrastructure investment, social welfare payments, and manufacturing that could greatly improve the economy of this young, large, optimistic population.  India also has the benefit of being the regional "not-China" - a large country in Asia that other countries can partner with over their fears of China's growing clout.

Evergreens and One-Offs

Data Arms Race 2.0

The capabilities of "Big Data" are fast moving beyond the most obvious uses in sales, retail marketing and targeted advertising.  Data scientists are increasingly applying their techniques to a variety of new sources of information.  Applying algorithms and insight to such data, applications of the Data Arms Race are increasingly emerging for government management, higher education, healthcare and research, risk and actuarial calculations, fraud detection, agribusiness, human understanding of complex systems, and even insight into human psychology and sociology.

Intelligence, Diagnosis and Effective Decision Making

New digital media communications get shorter and shorter, moving from Web pages and blogs to text messaging and Twitter posts.  Those shorter communications technologies along with all digital technology are reprogramming the human brain.  New-media adopters have found it easy to place three barriers between themselves and those who would like to communicate with them: Receptivity, Selectivity and Connectivity. To overcome these barriers, anyone wishing to communicate with the digitally adept must focus on these users’ minds first and then think about the technology, which may be uncomfortable for advertisers and agencies.

Sensing and Tracking Everything: The Primary Tool of the Data Arms Race

Cheap sensors and other technologies are enabling the capability of tracking seemingly everything.  Machines can be made "aware" of their surroundings, and companies can track everything from worker productivity to customer behavior.  The capabilities are ramping up quickly and will have varied effects, including displacing workers, reducing fraud and increasing operational efficiency.

Identity & Decision Making In The Digital Age

New digital media communications get shorter and shorter, moving from Web pages and blogs to text messaging and Twitter posts.  Those shorter communications along with all digital technology are reprogramming the human brain.  New-media adopters have placed three barriers between themselves and those who would like to communicate with them: Receptivity, Selectivity and Connectivity. To overcome these barriers, anyone wishing to communicate with the digitally adept must focus on these users’ minds first and then think about the technology, which may be uncomfortable for advertisers and agencies.

The Effects of Large Numbers

Pressures on supply and pricing increases for commodities, energy, food, and even water are the product of secular increases in demand, one of the Effects of Large Numbers.  The steady increase in standards of living among once fairly poor countries have created new middle classes worldwide, which are creating these rapid demand increases.  The pressures caused by these types of price increases, especially in the food sector, became too much for a number of Middle East countries, where an unusually large demographic bulge of youth under the age of 26 created another kind of large-number stress.  These issues triggered revolutions and massive protests.  Elsewhere, governments are falling, and new elections promise changes as well.  We have not seen the end to the Effects of Large Numbers.

Unaddressed Consequences: The Risks of Not Following Cause & Effect to the End of Linked Systems

This context raises the issue of elevated risks derived from interlinking complex systems with other complex systems.  The human mind wants to make things easy and simple, and so, those in control of these systems often launch projects with an eye only on short-term benefits, choosing not to focus on the more difficult yet possibly more costly long-term consequences.  “Who could have known that…” or “I was not aware that…” are usually later public comments.  They are, so to speak, living with technological and financial changes without fully embracing the range of consequences.

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Ed Antoian

Partner, Senior Portfolio Manager
Chartwell Investment Partners

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