"A collapse or sudden retreat of US power would most likely result in an extended period of global anarchy." - Global Trends 2030
Every four years since 1997 the
National Intelligence Council, the center for mid-term and long-term strategic
thinking within the United States intelligence community, prepares a global
trends report for the president. It is the intelligence community’s best assessment
of critical drivers and global scenarios for the next 15 years. The latest
report, Global Trends 2030: Alternative Worlds, should be required
reading for any money manager who even minimally considers that a long-term
view is important for allocation decisions. The very process of thinking about
alternative futures offers anyone an opportunity to shape these alternative
worlds and adapt to what is likely to be an uncertain environment.
For all of the bemoaning of
short-term focus on company earnings and investment performance, very little
work is available on global trends. At best, Wall Street firms will present
long-tern perspective for the year and produce occasional thought pieces, but
the focus is usually on the current market.
Who can blame the markets for their short-term focus given the poor
skills of most forecasting to predict anything close to reality? Nevertheless, one of the best
ways that excess returns can be delivered is through making asset allocations
decision based on a longer-term view; nevertheless, at a time-frame of fifteen
years Global Trends is outside the norm of most investor horizons.
Successful investing is about seeing trends. Determining the future environment is necessary but there is a tension
between the short-run and long-run. On the one hand, portfolio managers want to
pick the best portfolio over the next quarter yet major gains will only be
achieved through positioning for the long-run.
Foremost, Global Trends is
meant to be read. The color print, charts, and pullouts as well as the easy to
read summary and overview make this work readily accessible. The language used
is not your usual dry government document. The overview is broken into
mega-trends, game-changers, and potential alternative worlds. This is not the
vocabulary of the academic, but of the pop consultant business writer.[1]
The Global Trends is full of key information on where the world is potentially heading. Many of these themes have already been captured by market analysts. The emerging markets are going to become more important to the global economy. There will be shortages of key commodities. The rise of the middle class will change the demand for global products. Geopolitics will lead to stress in the Middle East and Far East.
Of course, the investment professional has to convert this information into a portfolio. One of the key take-aways for today is that the risk premium for many markets are extremely low. Investors may not be compensated enough for the what may be significant upheavals around the globe. The period after WWII may have been special with risks generally on the decline. This may not be the case for the next fifteen years. The protection of a superpower may not be in place as the decline of the importance of the US continues. Factions across the globe is not in the interest of global investors.
[1]
The work seems to be heavily influenced by the writing and presentation style
of the McKinsey Global Institute.
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