35 Year Horizon
Prepared Summer 2020
Investing is interesting because it's completely committed to doing something that is inherently impossible - predicting the future. We at Brampton believe that for the most part history is determined by random unpredictable events. There is cyclicality and ups and downs, but patterns are ever-changing. Charting price movements is somewhat strangely based on an idea that what happened during a 3-month period two years ago will influence what happens over a 3-month period in the future. It may still be worth looking at a chart due the self-fulfilling prophecy principle, but reliance is dangerous.
Big-Picture fundamental analysis using long-term established methods makes more sense.
Having said all that, here's our attempt to guess what the world will be like 35 years from now! It's really an exercise in looking closely at trends over the past many decades and being forced to look outside a trend that might be working today. This project started on a whim while chuckling to myself about ever-increasing service tip amounts (you know, it used to be 15% of the check), wondering if the choices presented at pay points eventually will be 50%, 75% and 100%. Scroll down to see what I actually think it will be…
Some of us remember 1985, I know I do. It doesn't seem like that long ago, so I've included some values of what things were worth then. We make some comments about each item as a starting point for discussion.
Plus ca change plus c'est la meme chose.
Very Expensive house in
LA or NY:
Most aspects of life in 2055 will be affected by climate change, and housing is no exception. The "problem" with a house is that it can't easily be replaced with a smaller, more efficient house. No one is tearing down their 5000 square foot house built in 1985 to build a 2000 square foot house any time soon, maybe never. But new houses will be smaller, there's no doubt. This might not affect the average price as much as one might think, though, because houses will get more dense with expensive technology making houses more efficient and livable.
The potential major counter-trend kicked off by COVID might be de-centralization. Technology will allow us to work at home and farther from the workplace. This means a migration away from crowded, expensive cities which would raise values in smaller communities, and pressure them in large cities. The average house nationally will be about $1million, but an expensive house in LA and NY that might otherwise cost a half-billion dollars with past trends in place might "only" be worth 100 million. Multi-family living will be a higher percentage than today. The current COVID pandemic has the potential to bolster the trend away from density, although, if the next pandemic isn't for another 100 years, we suspect most human behavior that isn't affected by regulations won't change that much and will return to normal fairly soon.
People love their cars, and that's probably not going to change. Being able to step into the garage and grab the personal transport vehicle is too easy. People want more and more convenience, not less. That said, it makes much more sense to not own a car. Car sharing is here to stay, but for it to really take off, a person will have to be able to order a car off an app and have it appear at one's doorstep almost immediately or ahead of time. This will be possible with autonomous vehicles that wait in designated areas or in transit, but whether this happens before 2055 is hard to say. The average car that would cost around $100,000 in 2055 can be made for far, far less if people migrate away from ownership and accept an autonomous taxi system. There might be some other system in place by then but it's doubtful. Flying cars have been predicted as long as there have been cars, but there are just so many obstacles literally and figuratively.
Gasoline at the pump
Cars still run on gas today but I refuse to believe they will in 2055. Electric is a tiny but growing part of the market. The problem with electricity is making enough batteries to power cars for the entire world and the infrastructure to charge them; where the rare earth metals will come from to make them, and where the energy to charge them comes from. My guess is cars will run on a combination of yet-to-be invented technologies. If gasoline isn't illegal to the consumer by then, it will be (should be) so heavily taxed that no one will use it. The price of crude, however, won't change much.
Fossil fuels might still be in use by industry because large scale facilities will have the ability to capture and store the CO2 and other pollutants in a way that consumers won't be able to at the endpoint.
Farther in the future mankind may look back with dismay at the centuries between 1825 and maybe 2100 as the age of fossil fuels.
Cell Phones; PCs; other consumer tech products
Free, Free, Free. Or almost free. Much technology will be free. This is the upside to exponential growth in technology and every decreasing manufacturing costs. I'm sticking my neck out here, but I think computing and logic technology will be so ubiquitous by then, many of the consumer items we buy today will be imbedded in packages of services, and the manufacturers will survive on robotics, AI and very large scale projects and subscriptions. A thousand dollars today is a ridiculous price for a cell phone, and once the novelty wears off the price will start coming down because the feature curve is going to start flattening out dramatically. The question could be raised will we even carry cell phones around? I personally wouldn't want the signal connected directly to my brain or eyes, so I think yes. Maybe it will be a holographic image projected from a wrist band. Maybe it will look like the cell phone of today but it will float around in front of us through some trick of magnetism so we don't have to carry the things around.
There will be dozens of consumer electronics products available in 35 years that we can't even envision today but the investment return in them will be ever-decreasing.
James Bond 55
People will still want James Bond in 2055. The cost to make the movie? One Billlllion dollars.
Will people still be going to theaters in 2055? Probably not like we do now sitting in seats in rows, but there could easily be some other kind of experiential environment for which people want to get out of the house. Instead of a 15 dollar movie, it might be a 200 dollar VR experience where you "exist" inside the movie.
World's Richest Person
The wealth gap in the richest Western countries will continue. To some degree, this is a mathematical certainty. Zero can't be inflated, it's always zero, so the poorest decile of people who have no savings will still have no savings as unfortunate as it may be.
The world's richest person by 2055, however, will almost certainly have more than a trillion dollars and it could be 2 trillion. That person may not have been born yet, or may be 10 years old right now, or it might be Jeff Bezos. I would like to think it won't be the product of more social media, but it certainly will have something to do with technology. It might ultimately be taxed away or given away, but that doesn't take away from whether or not it was created.
10 Year Treasury
There has been a 40-year decline in rates that finally ran into the bumpers with the onset of the COVID 19 pandemic. The decline in rates, in tandem with an exploding debt has constituted a massive transference of wealth from the US Treasury into privately owned capital assets. We believe there is a geometric effect at work, meaning rates have had to keep going lower, and the deficit has been rising at an increasing rate just to keep the economy in place, let alone growing. The psychological effect known as 'Loss Aversion" that seems to have thoroughly infected western, wealthy economies through which the pain of losing wealth is worse than the happiness of earning it is in play as well. It's a ratcheting effect that says we can never go backward. The consequence is that there is little to no cushion left in case of a truly major disaster. Rates really can't go lower to any effect, so the burden now is placed solely on increasing the money supply and the Fed's balance sheet to higher and higher levels. This leaves the Fed susceptible to any rise in interest rates brought on by market repricing. Having less fuel pushing assets higher could bring about a great stagnation. A long period of no growth could start and end all within the 35 year window we're considering here, and completely change the economic landscape.
The ten-year might stay between -1.00 and 3.00 for the next 35 years. Any spike above 6% would mean there has been a fundamental shift in the entire global investing and economic landscape and the attitude of the FRB of the US. A rise of over 600 basis points would imply an extremely large growth in money supply and the M2 velocity of money that is nowhere on the horizon.
This broad market index went up 16X over the past 35 years so our estimate of "only" 5X sounds mild but allows for the headwinds mentioned above: Government interest rates already near 0%, exploding government debt, overhang of astronomical costs to be borne by moving away from fossil fuels, negative investment benefit of compounding computing power. The 5X result could also allow for a "lost decade" of no growth at all, after all, it's happened many times in the past and will happen again.
Stock Market Volatility
Yup, still at 15%. The range might be between 8% and 150%, but that's irrelevant. There will always be investment opportunities taking advantage of spikes in volatility.
Ok, Service Tips
35% will be the normal tip in 2055. There will be many, many, fewer jobs in which people earn tips, therefore there will be an "appreciation squeeze". There, I invented a term. Run with it.