What will be the byproduct of the 2010s?
by Conor Sen
With markets slowing down for the first time since last summer Iâm trying to step back from the day-to-day and extend my time horizon a bit.
Itâs the second quarter of 2016 now, and the decade is almost two-thirds over. At this point in a decade âthemes for the decadeâ have often emerged. So whatâs the theme of the 2010â˛s, and what from the 2010â˛s will be impactful as we head into the 2020â˛s? To think about that, I went back and thought about the past few decades. This is more of a journaling/brainstorming activity than one of my normal snappy posts, so apologies if itâs a bit meandering. This is based on my own limited knowledge and others will have their own perspectives and/or find problems with my interpretations.
1970â˛s:
Key cheap/plentiful input: Infrastructure. The interstate highway boom was ongoing, Atlanta/DC/SF Bay were opening new transit lines. Suburbia and the Sun Belt were newish and booming, and there was no such thing as the Rust Belt yet.
Key expensive/scarce input: Almost everything. Labor, capital, energy, âbureaucracy.â
Major capex theme: Investing to keep up with booming demand from the young Baby Boomer generation and to beat back the inflation strangling the economy.
US policy themes: âFDR Democrat excessâ which started to unwind at the state/local level in the late â70s (CA Prop 13 passed in 1978)
Global highlights: Rise of Japan
Legacy: Middle East/oil problems, Japanification of the auto industry, massive capex spend paves the way for end of inflation in the early â80s, beginning of the decline of the American manufacturing worker, American cities in crisis
1980â˛s:
Key cheap/plentiful input: Asian labor. Asset prices. After inflation peaks, credit gets cheaper, commodities get cheaper.
Key expensive/scarce input: American labor.
Major capex theme: Plunge in inflation/interest rates/energy creates even more consumer demand from 30-something Baby Boomer generation, and corporations race to keep up. Rise of the personal computer.
US policy themes: Supply side-ism. Tax cuts and deregulation.
Global highlights: Japan peaks, commodities bust
Legacy: Many of the problems the US is dealing with today stem from forces that accelerated in the â80s. The hollowing out of manufacturing and the Rust Belt, the rise of Wall Street and elites, rigid GOP ideology.
1990â˛s:
Key cheap/plentiful input: Chinese labor. Commodities. Credit/leverage. Personal computers.
Key expensive/scarce input: American labor.
Major capex theme: suburban infrastructure (houses, malls, office). Personal computer technology. Telecom infrastructure.
US policy themes: neo-liberalism
Global highlights: the decade of the American Baby Boomer, rise of China
Legacy: Financial sector innovation/deregulation and tech/telecom investment paved the way for the 2000â˛s
2000â˛s:
Key cheap/plentiful input: Leverage, emerging market labor, bandwidth/computing power
Key expensive/scarce input: Suburban homeownership, risk assets
Major capex theme: China/commodities, EM infrastructure, exurban US housing, digital infrastructure (mobile/servers/cloud)
US policy themes: neoconservatism/neoliberalism excess
Global highlights: China/commodities/leverage boom ends in a global financial crisis
Legacy: The world is still recovering from a global bust.
2010â˛s:
Key cheap/plentiful input: Just about everything. Labor/credit/increasingly commodities/digital infrastructure
Key expensive/scarce input: Physical infrastructure, end demand, well-functioning government
Major capex theme: A commodities boom goes bust, digital infrastructure/software, infrastructure for high-earning 20-something Millennials without families, increasingly perhaps transportation/self-driving vehicle capex
US policy themes: Austerity turns to gridlock, possibly populism
Global highlights: Struggles everywhere as the financial crisis and post-crisis regulatory changes lead to demand shortfalls and inadequate government response, aging of the Baby Boomers
Legacy: As we enter the latter part of the decade commodities have become cheap, credit is still cheap (with many DM government yields now negative), labor is getting increasingly scarce, and in the US a housing/infrastructure shortfall is becoming more painful.
More 2010â˛s/2020â˛s thoughts:
Trump/Sanders primary surprises suggest a growing demand for a different policy direction, yet with the likelihood of a Clinton victory itâs unclear if this will happen in the near future. Whatâs notable is that itâs not clear either the public or private sector has made investments this decade that will lead to growth in the 2020â˛s. The 1980â˛s were powered to some extent by the heavy capex of the 1970â˛s. The 1990â˛s consumption/tech boom was powered by investments made in the 1980â˛s. The broadband internet/tech boom of the 2000â˛s doesnât happen without the telecom investments of the 1990â˛s. And FANGs/Uber/$30-40 oil donât happen without investments made in the 2000â˛s.
Demographics suggest a Millennial family formation boom in the 2020â˛s plus acute infrastructure and healthcare needs for Baby Boomers approaching their 70s-80s, and infrastructure needs are undeniable, yet the key âinvestmentsâ being made this decade seem to be corporate stock buybacks, infrastructure for a phase of life Millennials will soon outgrow, and software development at âunicorns.â
The one âoutputâ of the 2010â˛s worth thinking about is gushing corporate profits that could fuel a future investment boom. If the 1980â˛s were fueled by the capex of the 1970â˛s, the 1990â˛s consumption fueled by the wealth generation of the 1980â˛s, 2000â˛s tech fueled by the telco/dot com boom, and 2010â˛s âFacebook/Uber on a smartphoneâ fueled by tech investments of the 2000â˛s, perhaps 2020â˛s capex/infrastructure needs will be funded by all the cheap capital generated in the 2010â˛s.
Copyright Š Conor Sen
