Tuesday, January 31, 2012

Investing: Food For Optimists

Pessimism rules! "Battered by the 14 percent decline in the S&P 500 since 2000, the worst financial crisis since the Great Depression and the so-called flash crash 21 months ago, investors are staying away from stocks", writes Bloomberg (bloomberg). I reckon that the media & markets are focusing way too much on current economic problems and are ignoring the long term perspectives which might be much more positive than the pessimistic majority believes.

The Wall Street Journal has an encouraging piece called "The Coming Tech-led Boom" ( online.wsj.com could be behind a pay wall now). The authors claim that " we sit on the cusp of three grand technological transformations with the potential to rival that of the past century". They compare the current situation with "the emerging technologies circa 1912—electrification, telephony, the dawn of the automobile age, the invention of stainless steel and the radio amplifier—which fostered a growth period at the begin of the last century".

Transformation 1: "Information technology has entered a big-data era. Processing power and data storage are virtually free. A hand-held device, the iPhone, has computing power that shames the 1970s-era IBM mainframe. The Internet is evolving into the "cloud"—a network of thousands of data centers any one of which makes a 1990 supercomputer look antediluvian." This leads to "astronomical feats of data crunching which enable heretofore unimaginable services and businesses, we are on the cusp of unimaginable new markets".

Transformation 2: "Smart manufacturing….. we are just entering an era where the very fabrication of physical things is revolutionized by emerging materials science. Engineers will soon design and build from the molecular level, optimizing features and even creating new materials, radically improving quality and reducing waste".
Engineers will use "devices and products (which) are already appearing based on computationally engineered materials that literally did not exist a few years ago: novel metal alloys, graphene instead of silicon transistors (graphene and carbon enable a radically new class of electronic and structural materials)".

The authors continue: "This era of new materials will be economically explosive when combined with 3-D printing, also known as direct-digital manufacturing—literally "printing" parts and devices using computational power, lasers and basic powdered metals and plastics. Already emerging are printed parts for high-value applications like patient-specific implants for hip joints or teeth, or lighter and stronger aircraft parts".

Transformation 3: An "unfolding communications revolution where soon most humans on the planet will be connected wirelessly"
"Coupled with the cloud, the wireless world provides cheap connectivity, information and processing power to nearly everyone, everywhere."

Indeed, all these "transformations" could add to a strong wave of opportunities. I believe that these micro-revolutions will create a lot of wealth in the ongoing decade and could rekindle the sluggish growth of the global economy.  Many companies should benefit from the described technological revolutions and their rising profits should create more tax income for the governments and alleviate their debt problems. 
I believe therefore that investors should think long term, especially for their retirement planning, and they should be braced for a decade of new growth & prosperity.

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