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Breaking futures 2015
Author: Clem Sunter
By Clem Sunter
Every year, Chantell Ilbury and I look at the trends and sudden game-changing events which could be the subject of breaking news during the next 12 months. As co-authors of The Mind of a Fox, we believe that scanning the environment around you is essential to plotting your future strategy. Here is our list of breaking futures for 2015:
The religious flag: At the end of September last year, I wrote a column saying that the religious flag is shaping the immediate future of the world more than any other political, economic or social flag. The subsequent shootings in Sydney and Paris, though very different in nature, illustrate how difficult it is for the countries concerned to handle this type of threat, given how dispersed it is. How many suspects can you monitor closely at the same time within the resources available to the state? How much are you prepared to compromise the basic principles of freedom and justice on which your society exists to pre-empt further strikes? How do you stop polarisation of your citizens into extreme and opposing movements which undermine the level of social harmony critical for quality of life and economic success? How do you prevent new technologies like drones being used for evil purposes? How do you win the hearts and minds of young people so that they do not kill for a cause or religious belief? All these questions are going to be asked by the media against a backdrop of increasing probability of further events.
The new arms race: The annexation of Crimea by Mr Putin has overnight changed the prospects for Europe for the worse for the remainder of this decade, if not longer. Economic sanctions and the drop in the oil price have combined to put the Russian economy into a free fall situation along with the collapse of the rouble. Meanwhile, Congress in America is now controlled by the Republicans who have always been more hawkish towards the Russians than the Democrats. So you have a recipe for increasing confrontation between the two nuclear-armed nations which could signal the return of the Cold War in earnest and- in the worst case scenario- the possibility of a hot war with all the consequences involved. In the last week, America is already accusing Russia of breaking one of the disarmament treaties by developing a new cruise missile that can fly under the radar of existing anti-missile systems. Russia's submarine capability has also been significantly enhanced in the last few years and its expanded fleet is literally popping up everywhere. Once again the arms race has started.
The two-speed global economy: Unlike an ageing Europe and Japan and a slowing China, there has been a remarkable resurgence in the American economy. An economic growth rate of 5% in the third quarter of 2014 and an unemployment rate down at 6% are very positive flags indicating that the world's largest economy is in a state of full recovery. However, the true test will only come when annual interest rates rise from their current level of virtually zero to something more in line with the historical norm. Then, and only then, will we know that the patient is really hale and hearty and not dependent on a drip labelled 'cheap money'. The breaking future is that we are moving into a two-speed economic world consisting of America and successful non-oil, emerging economies on the one hand and Europe, Japan, Russia and other oil producing nations on the other hand- with China and India somewhere in the middle. We call it our 'ultraviolet' scenario made up of 'U' countries stuck for whatever reason in the ongoing 'U' of hard times and 'V' countries experiencing the 'V' of a resilient comeback from the financial disaster of 2008. Identifying which nation is in which category and betting on those in the favourable one is the key to a sound investment strategy. We just have to accept that, despite globalisation, we live in a world of increasingly divided national prospects.
The changing world of work: The Economist ran a cover story a week back about workers now being on tap. We have been saying for years that the world of work has changed forever and we are never going back to the mass employment conditions of the last century. Technology has driven a shaft through many jobs, companies are cutting back on their permanent work-forces by sub-contracting all their non-core activities to others and we now have the concept of on-demand employment where you are hired for a specific time to do a specific job. Pop-up businesses which have a life measured in months rather than years are all the rage. The static world of Karl Marx in which a proletarian class works for the owners of capital has given way to a more dynamic, mixed model where a person can be an entrepreneur and worker at the same time. You are your own boss and if there is a boss, it is your customer! This has created unprecedented youth unemployment in many countries because schools and universities are still preparing their students for the market that prevailed fifty years ago. They have not woken up to the changing reality of business and the fact that technology has disrupted all of their cherished academic assumptions about of what you should be taught to be a success in life. Expect much more on this issue in the coming days and weeks.
Immigration and the future of the European Union: The rising level of inequality in the world as the gap grows between the super-rich and the rest has caused widespread dissatisfaction with the politicians currently in power. They are perceived as being totally out of touch with your average middle-class or working class person who no longer has the kind of purposeful life and opportunities that his or her parents had. Indeed, the perception is gaining momentum that this is the first generation to have retrogressed in material terms because, for example, the price of property in London has escalated to a point that, even on its outermost fringes, it is unaffordable to normal buyers. Consequently, fringe political parties are having a ball. In Europe and the UK, those parties tend to be highly nationalistic, anti-immigration and highly suspicious of Brussels. The snap Greek election to be held shortly and the British General Election in May will provide an indication as to how strong the anti-establishment flag really is. I hazard a guess that you could see some surprising results. As for the European Union, one or two members may quit the club with unpaid debts. This, and the fear of the contagion spreading to big players like Spain and Italy, has caused the dive of the Euro against the US dollar.
The grey flag: Another trend which is featuring more strongly in the media is that national health services are being overwhelmed by the numbers of elderly people. In the UK, there are now half a million people over 90 years old. Accident and emergency services are in a state of perpetual crisis as the beds are permanently occupied by indigent old people who cannot afford the bus or taxi ride home. They want to stay in a hospital bed until they die. This situation is only going to get worse as the demographic ageing process intensifies over the remainder of this century. The upside is that there are many more entrepreneurs seeking a second life in their seventies and eighties. The whole concept of pensions and retirement will need to be revised. It is worth noting that China faces a demographic cliff of note in the next 15 years as a result of the one-child policy it enacted in 1978. In other words, enjoy China's economic growth before the window closes and it one day becomes like Japan.
Clinton versus Bush: It is looking increasingly probable that the next presidential election in America may pit Hillary Clinton as the Democratic candidate against Jeb Bush as the Republican candidate. What a fight that would be, between a woman and a man from two of the leading political dynasties of our time. One wonders whether they will be honourable in not dragging up dirt on each other and fight a campaign based on ideas instead.
A fracking unbelievable drop in the oil price: Last year we said that the oil price could go below $80. It is now just above $50 and the reasons are simple: America is once again knocking on the door of being the world's largest oil producer on account of fracking which means it no longer has to import any barrels of the stuff; China is not the growth engine it used to be; and Saudi Arabia has pledged to maintain its production, if not increase it, to safeguard its export revenues. The good news is that petrol prices are falling at the pump, thereby reducing inflation. The bad news is that at these prices most of the new fracking projects in America and elsewhere are losing money hand over fist and we could witness the bursting of the fracking bubble. This could reverberate through bond and equity markets. We shall just have to wait and see.
The green light: The year will come to a momentous close with the next climate change summit in Paris in December. In stark contrast to the previous summits, this one may produce a concrete document with measurable outcomes and goals. The reason is the increasing frequency and intensity of extreme weather events in the world at large as well as record temperatures and droughts in certain countries. America has already signed a carbon emission treaty with China and, besides normalising relations with Cuba, President Obama will want to have progress on the climate change front in his legacy as well. Obviously, the question of opposition from Republicans in Congress will have to be figured into the equation but the fact remains that the arguments in favour of a green light on legislation to reduce carbon emissions is growing stronger by the day. There is no Planet B if the world turns into a microwave oven.
The economic crossroads in South Africa: We are at the most important moment in our history since 1994. With a national unemployment rate of 25% and a figure of more than 50% among young people, our economy is failing to provide anything like the proper degree of economic freedom to go with our political democracy. We can undo all the good of the last 20 years if we do not act now to rectify the imbalance. Bearing in mind the fourth piece of breaking news about the changing nature of work, the only way to create 5 million jobs by 2020 and 11 million jobs by 2030 is to open the floodgates of entrepreneurship in this country. We need at least one million new sustainable businesses to get anywhere close to these job figures. It is my fervent wish that the one item of breaking news we hear about in this country in 2015 is that the government has become the champion of small business and is intent on providing a platform to make it happen. I do not mind whether you call it citizen capitalism or creating a new generation of industrialists as long as the principle becomes the centrepiece of implementing the National Development Plan. For if it does not happen, the breaking news at the end of this year will be that we are nearer to being a failed state- in our own eyes and in the eyes of the rest of the world.
By Clem Sunter