Thread by @niravstoons

As 2019 (and the decade) draws to a close, some thoughts on trends in the coming decade. Few things which I feel will drive the change

1. Demographics
2. Renewable energy and batteries
3. MMT takes over policy
4. Regulatory squeeze on Tech firms

1. Demographics

The western world (particularly US) saw the Baby Boomers born in 1945-64 after fewer kids born during the World War 2.
Median Boomer was born in 1955 and retires in 2020.
That has large implications to the world of finance ...

Since bulk of the investments in stocks are from households in their 401k Pension plan, the retirees shall start withdrawing from their pension at the margin instead of adding to it.
This also has implications for investments/savings in Hedge Funds and Private Equity ...

... Europe has similar retiree problems, if not worse as the next cohort has fewer people.
Older voters will have more political clout, and vote for more status quo policies - just due to the numbers. Working Age population shall decline, despite immigration by Syrian refugees

Meanwhile in East Asia - China due to its one child policy from late 1970s, 80s shall see a large fall in working age population. Similarly South Korea, Taiwan shall follow the path of Japan in 1990s.
Given their aversion to immigration, we should see lower growth ahead ...

... The trade of the coming decade could be long Chinese Government Bonds (though with rise in food inflation recently we could be in for shocks) ... just like JGBs have kept rallying for 30 years ...

India at the other end will have largest addition of labor force ever. India reached peak births in 2005 and then births per year have declined, but all those born will come of age and look for jobs in 2020s ...
Can be a huge issue - or an opportunity if India replicates China

... india is still growing population (though less than 1% a year) due to longer life spans, and reaching replacement rates of fertility.

Other end Middle East, Africa, Pakistan ... those should see rising populations ... and more unrest due to competition for resources

... Malthusian conflict is possible (especially if the population isnt really productive) ...

Some countries like Canada and Australia are supplementing workforce via skilled immigration, but that might not be replicated in Europe and East Asia

As the world on the whole ages ... there might be different drivers of growth ...

Boomers sell McMansions but Millennials dont want to buy those?
Less buying of autos more of healthcare?
Pensions and healthcare commitments in Europe cant be met with tax collections?

This will also lead to clash of the generations.
Retiring Boomers vs middle aged Millennials.

In Japan older cohort won, didnt want inflation to eat into their savings. I reckon Europe goes similar way.
But US could see rise of Millennials and inflation making a come back?

2. Renewable energy and batteries

In 2000s and 2010s we have seen falling costs in Solar and Wind energy which now are comparable to existing coal plants
Another trend in 2010s was the rise of Shale oil and gas which saw lower oil prices.
What lies ahead in 2020s?

Bill Gates had said 'people overestimate technology in the short run, but underestimate it in the long run' (paraphrasing)

We might have reached an inflection point in renewable energy plus battery storage where distributed solar or wind is economical?
...

We saw the Nobel Prize in Chemistry given to Dr Goodenough and others for development of batteries.

If this is scalable like IKEA packs - we could see each house / apartment building / office building having a solar panel and storage batteries, leading to cleaner energy

But as this gains in scale, we might see marginal cost of power going to zero or negative during the day and very high just around sunset.
Battery storage might smoothen it out, but need for variable prices and smaller but quick start gas fired turbines instead of coal or nuclear

Also - if electric cars and buses become common, isnt that the most common storage device for energy?
We could see office buildings and carparks generating Solar power and selling to cars which are parked all day

This wider adoption might see lead taken by China, and sunny countries like Australia and Singapore?
May be US with its big oil be a bit late in the game.

China has already pushed 2wheelers and buses to be electric and this leads to lower demand of crude oil ?

While many smart people like Vaclav Smil - point out to issues with Wind Turbines (takes more CO2 to build the steel turbine and oil to lubricate it) and Solar + Storage (disposal of panels and batteries post life) ... I am hopeful of spread of renewables and smart grids

Here I think some one who has got it right is @elonmusk
Many people think his firms might not be financially viable, but I think a hockey stick curve might be past the horizon. $TSLA might be an option play.
Tesla, Solar City, Powerwall ... all fit in parts of the puzzle

@elonmusk So even if $TSLA might be technically bankrupt (I dont have any position) it is a going concern and if it can scale up and deliver the pieces will fall in place.
Even if $TSLA goes bust ... some one else will ride the renewable wave (I lean on side of $TSLA over $TSLAQ)

@elonmusk Again their plants in China or demand from overseas might see them through ...
just like Amazon makes money on Webservices, I think Tesla could make money on battery packs selling to China or buses in India etc

@elonmusk Meanwhile what does renewable energy do to Coal or Crude Oil?

Countries like India might still build coal plants and oil refineries, we might see peak demand.

Also given US has shale oil below the ground - any price spike will lead to higher production, limiting powers of OPEC

@elonmusk For most of the recessions since the 1970s have seen oil price spike fuelling inflation, which central banks try to counter by hiking interest rates.
If we have a lot more energy supply - this constraint removed - leads to longer business cycles?
Longer recession free periods?

@elonmusk Stabilizing energy prices would also keep inflation in check ... (coupled with aging world as in previous thread) ...
2020s could see wider prosperity, and loosen OPEC's veto on geopolitics.

3. #MMT takes over policy

post 2008 it was the golden era of Central Banks, whose large unconventional policies pulled out the world from the Great Recession and Financial Crisis.
But this time, its a bit different ...

Given the low level of yields in the developed world, and in the past each recession has seen US Fed cut rates by 500bp, there isnt enough room. Also in Europe cutting rates from -50bp to -60bp wont help much at the margin, so Central Bank tools seem blunt

Instead we should see Government spending go up, pushing up deficits (which could be ultimately financed by Central Banks printing money) ...
this Modern Monetary Theory has found a lot of backers and soon we might see politicians explicitly state it.
...

... Trump's tax cut could have been the start, but everywhere we might see government spend more, and due to rising inequality, we might have Universal Basic Income #UBI in some format ...

Earlier, Central Banks inflated asset prices. This made the rich richer, who spent more, and this was supposed to trickle down to the economy.
But with wider inequality, things like job guarantees, direct cash transfers (-ve income tax) will be needed as people vote for it

What does it mean for the markets?
- higher taxes for the rich
- GDP driven by government spending
- higher deficits financed by central bank balance sheet
- weaker developed market currencies (as they do it before Emerging Markets?)

4. Regulatory squeeze on Tech Firms

I am no expert on technology, but I think Technology companies today are in similar position where banks were in 2007 (or tech companies themselves in 1999)
Huge profits brings in hubris in the industry and envy among politicians/regulators

Antitrust laws were meant for physical products, and protect consumer from being over charged.
But when Google search and Facebook are free, you are paying them with your attention (Advertisements) and your Data (Marketers targeting you) ...

Regulators are coming to terms with that, and monopolies, and we should see some regulations where compliance will be expensive for tech firms (compare to Dodd Frank and Volcker rule reducing Banks profitability)

Technology companies had a quiet 2000s but a bumper 2010s. Will 2020s look more like 2000s?

Many Unicorns in tech space were funded by cheap liquidity and Softbank could borrow cheaply via Retail Bonds in Japan to create Vision Fund ...
This bubble seems close to popping

Firms like Uber / Flipkart / WeWork who gave large discounts to get consumers hooked, might see a large Price Elasticity of Demand ... so raising prices a bit might see demand drop off drastically

All in all - I am bearish on tech stocks (not technology per say)