Perspectives Nov 20th, 2012

November 20, 2012

Credit Suisse produces a widely read and respected annual survey of global household wealth.  This year’s edition, “Global Wealth 2012: The Year in Review,” by Michael O’Sullivan and Richard Kersley, should be noted by anyone concerned about the future.

All the financial press coverage of the report focused—needless say—on a short-term decline in household wealth, most notably in India. But if one read just a bit further, one came to the big conclusion: the authors’ estimate that global household wealth will increase 50% just in the next five years to $330 trillion.

China is expected to add $18 trillion of household wealth and to surpass Japan as the second wealthiest country in the world by 2017—though the U.S., at an estimated $89 trillion, will likely still lead the league. The authors estimate further that the Eurozone, even though it will have 16 million more adults than the U.S., will by 2017 have no more household wealth than America has today.

There were fewer than 300 million middle class people in the world in 1980; today there are two billion, and in a dozen more years there may be as many as 3.6 billion middle class. In other words, the world will produce billions of new consumers (and investors) in the next decade. GM sold ten cars in the U.S. in 2004 for every one it sold in China; today it’s at parity.  Today, eighty percent of Americans own a car; 20% of Brazilians do. Nearly 90% of Americans own a cell phone; perhaps 30% of Indians do. The second billion smartphone users will change the world.

From a huge consumer of imported oil, America suddenly finds itself sitting on a hundred years’ worth of cheap, clean natural gas—more than enough to make them energy independent, and more than enough to make them huge net energy exporters—thus potentially slashing if not eliminating their balance of payments deficit.  Not to mention, the international Energy Agency predicted the US will become the largest oil producing nation on earth– yes – more prolific than Saudi Arabia and driving away most foreign imports

Technology marches on. All the great technology companies of the last four decades have been American: Microsoft, Cisco, Intel, Apple, Amazon, Google—and yes, even Facebook.

Moore’s Law dictates that the cost of computing will fall 97% in the next ten years. Robotics costs are already falling at a 30% compound rate while Chinese labor costs are inflating at 20%. Thus, between technological advances and cheap natural gas, don’t be surprised if the dominant manufacturing country in the world in 2020 is America.

In ten years, driverless cars will just about be here. Today, we’re 3D printing medical devices; in ten years, we’ll be starting to print organs.

This is the future we will experience as investors.

(information from an article by Nick Murray)

For Credit Suisse report

Book Review – Thinking, Fast and Slow

Just finished this book by nobel prize winning author Daniel Kahnneman.  The author is a psychologist and summarized the latest findings on how we think and make decisions.  The bad news is – our thinking processes can get us in trouble – especially when we think too fast about something we should be thinking slow.  (Like why our investments haven’t performed as expected)  The good news is, our slow thinking, when we access it, can be pretty good at making decisions.

For a great summary and some revealing facts about how our slow thinking can get us in trouble – go here.

What do you want from your Money?

Most of us, given the choice, would rather have money or not.  However, without asking why we prefer to accumulate some wealth and be clear about what it’s for, our “pursuit of” and the “having of” wealth could leave us feeling a little empty.

Our self-fulfillment comes through family, friends, work, education, religion and/or experiences; not from having money.  However, the link between having money and having the time and energy to pursue these things is clear.  Having money just puts us in a better position to create and enjoy times with family and friends.

The American Association of Retired Persons asked members what their top reasons were for having money;

–        Being able to provide for family

–        Getting good medical attention when sick

–        Staying healthy

–        Being able to help family and friends

–        Being able to contribute to worthy causes

–        Having more things to enjoy

–        Being able to travel

Financial security gives us options and those options include the kinds of things mentioned above.  Most of us don’t consider accumulating wealth to be the key measure of success in life.  Most of us would say our success in life is measured on the quality of our personal relationships and experiences than the quality or quantity of our possessions.

When economic times have been difficult, it’s sometimes hard to take stock of (and possibly accept!) how well we have done despite the hardships.  We can forget to think about what is really important to us and how to pursue our self-fulfillment in new and interesting ways.  This is the purpose behind developing a personal Financial Life Plan.

A Financial Life Plan first clarifies the most important people and experiences we want out of life – it then confirms the finances needed to realize them.  For more information on Financial Life Planning – please give me a call.

Richard WR Yasinski

When it’s all said and done, will you have said more than you’ve done?

Warren Buffet is not worried about the US Fiscal Cliff

The media has been trying to make the US fiscal cliff the latest “crisis du jour”.  Not that this isn’t important – it’s just not that important.

Article – Warren Buffet on US fiscal cliff

Personal

Got back this month from Nepal. Those long flights are brutal! Nepal was as amazing as I had heard and read.  We trekked for 7 days through the Langtang Valley in Eastern Nepal – walked on the same mountain trails used by locals as their only supply routes.  Every step was a vista!

The communities survive much as they have for hundred’s of years – they hand plow using their yaks, they plant millet, corn, wheat; they raise and milk nyaks (female yak!) to make cheese and curd.  They make a local brew from millet called “roxy” which can be potent. The guest houses we stayed in all had solar power, cell phones and TV’s for the owners – but no indoor plumbing!  I really enjoyed learning a little about the culture and way of life.  For a few pictures – go here!