, chief investment officer of Mastholm Asset Management LLC, Bellevue, Wash., was asked by Pensions & Investments to write an essay on the future of society and the financial markets. Here's what he had to say.
I remember my first glimpse of the future. I was 13 or so, and had been assigned an extra book report on "The Population Bomb" for being a wise guy in social studies class. For those of you who don't remember the book, the basic premise was that the world was already doomed (it was written in 1968) to massive warfare and environmental catastrophe because population growth would soon vastly outstrip our ability to feed ourselves. I don't remember all of the details, but I do remember being vividly impressed that by the time I was 30, I was going to be spending a lot of time fighting with my neighbors over who got to eat the last edible grasshopper.
This scenario caused me to mope around the house fairly depressed for about two days. But being 13, I soon got over it. And, of course as it turned out, the book wasn't exactly much of a guide to the future. After all, the trend in India h asn't been plague and starvation; it's been the countrywide expansion of Kentucky Fried Chicken outlets.
Oddly, there seems to be a strong correlation between thinking and writing about the future and extreme pessimism. In trying to think about the future of society and the financial markets, I reviewed a number of "guides to the future."
All were fairly grim.
Thomas Malthus wrote the first of hundreds of versions of "The Population Bomb" as early as 1798.
Sir Thomas More in "Utopia" (1516) saw a contented population, but all living in a world that was not that different from a prison.
The 17th century English philosopher John Locke believed man would overcome most material challenges, but opined mankind "would then set about killing each other over matters of taste."
I don't even want to think about the global warming and general environmental doom books.
Movies tend to follow the same pattern. Even the relatively benign "Star Wars" trilogy assumes a universe in which the extermination of entire planets is par for the course. "Blade Runner" posits a future in which it constantly rains, the population sports distinctly strange clothing and tattoos and is addicted to a liquid substance, and the economy is controlled by a vaguely sinister force of technicians (which, when you think about it, is not a bad description of Bill Gates' Seattle). Level of optimism? Zero.
Books on the future of financial markets aren't much better. For those of you too busy to read any of the several hundred published every year, I can give you a brief synopsis that would fit about 99% of the genre: Social Security is a fraud; your employer is incompetent and a fraud; and your pension is toast. The author's recommendations are the only things that stand between you and a future in a dark room trying to improve the taste of Cat Food Helper. You will probably fail, because you are too stupid to appreciate the author's financial genius.
And, worst of all, all of these trends are personified in Warren Buffett, the man who is considered -- if anyone is -- the investor with the best track record in seeing the future. The "Sage of Omaha" has promised to leave his vast fortune to causes promoting zero population growth. In other words, a man who has resources to put any project for human improvement into motion, thinks what the world needs most is fewer human beings.
Personally, I think all this pessimistic moaning is foolish, and I think Buffett is more than a little misguided -- I don't care how much money he's made over the years. Human stupidity being the force that it is, it is unlikely the future will be without its share of disasters, but I don't see much chance of unrelieved gloom and darkness either.
That said, here are a few predictions for the near and far future. For anyone scoring me in the remote future, a 10% correct rate should be considered an outstanding performance.
Millions of cybergeeks come to realize that signing onto the Net and downloading the Pamela Anderson Lee-Tommy Lee video is not the same thing as actually having a life. Internet use plunges, taking the stock market with it. People come to realize that valuing the Internet, which only replaces other forms of economic activity without creating new sources of growth, at $2.7 trillion by early 1999 was bubble-market thinking with a vengeance. The most popular book in Japan is Hiroyuki Tanaka's "Hey, Is It Finally Our Turn Again to Start Laughing?"
Clients angered by five years of massive underperformance of index funds withdraw from such funds at a rate of more than $7 billion per week. The industry advertising campaign ("Hey, we may be boring as all get out and designed to be mediocre, but we're really, really, cheap") backfires and the pace of withdrawals accelerates. Unfortunately, no active managers have survived to enjoy the ironic turn of events.
The Justice Department, mired in the ninth appeal of the Microsoft antitrust case, condemns Microsoft for preliminary plans for Windows 2007, which include a video streaming device that forces all people turning on PCs to watch five minute s of Bill Gates' home movies. Gates condemns the Justice Department comment and threatens to move the company to Canada, one of the six countries he personally owns.
Microsoft and the Justice Department settle all antitrust claims. Microsoft is allowed to do whatever it wishes, whenever it wishes, except that it agrees not to "charge for oxygen in any room where a PC is operating." Justice Department lawyers issue a press release asking Microsoft not to kill their pets.
The new Ford Explorer, 66 feet long and equipped with an anti-missile defense system, hits the market barely one week before the overthrow of the Saudi monarchy sends gas prices to $14 per gallon. Martha Stewart publishes a special edition of "Martha Stewart Living" on how to turn your SUV into a guest house.
The first baby boomer attempts to withdraw funds from his 401(k) and Schwab accounts but finds no buyers. This is commonly held to be the beginning of the last trend to be initiated by the enormous size of the baby boomer contingent -- the endless bear market. All asset prices fall as boomers, who tend to act with the mass conformity commonly associated with ant colonies, all try to sell their stocks, bonds and houses at the same time. Other segments of the population attempt, without success, to feel sorry for the boomers.
Amazon.com's stock price reaches $30,000, split-adjusted, after announcing "Project I." The company says it has enough information about its customers to stop selling books by standard authors, instead publishing books in which its customers are the main characters. My first volume ("Stud with a Gun") concerns my single-handed defeat of the Iraqi Secret
Service in time to meet Sharon Stone's granddaughters at the Paris Ritz. Amazon charges me $440. I don't particularly care, and neither does anybody else. Amazon actually turns a profit.
The human genome is fully mapped, and techniques of genetic alteration of chromosomes reach high levels of sophistication. Pfizer hits $14,000 per share after completing Phase III trials on a drug changing six genes that allow a patient to lose weight while eating up to 40 pounds of sweet and/or fried foods per day. Cuba, the world's leading exporter of sugar, becomes a major world economic power. Five thousand people in Tenafly, N.J., receive the first shipment of the drug. The manager of the local Safeway describes the ensuing scene as "a lot like what you'd expect if you gave a bunch of locusts debit cards." Fighting at the Tater Tot aisle is particularly vicious.
Fierce debate breaks out over the ethics of choosing genetic structures for unborn children. A hospital in Kentucky is sued when it refuses to replicate Elvis Presley's chromosomes for a local couple. Genetic pre-selection is temporarily s uspended after the "Little Rock Episode," in which, mysteriously, thousands of prepared donor eggs are given the chromosomal structure of the late President Bill Clinton.
A bewildered hospital spokesman tells the press, "We just have no idea how the little suckers got in there. It's almost supernatural."
Emerging markets reach their 1997 levels. Tiny Nepal is the best-performing market despite having only eight listed companies, six of which produce yak butter. This is the fourth rush to invest in emerging markets since the 1850s, a develo pment that appears to follow 50-year cycles. The countries targeted for investment have no financial structures or value-added wealth creation this time either, but as in previous cycles, this proves impossible to explain to investors. 2065
Delta Airlines announces the first regularly scheduled flight to Mars. First-class passengers will enjoy the two years the flight will take in Sorbotron, a huge bubble on top of the aircraft that replicates life on Earth in fantastic detail. Warmth in Sorbotron will be provided by coach passengers, who will be lying in 18-inch rows under the dirt of the "forest" part of the cabin.
Further advances in statistics and parallel computing with machines based on light-based chips prove plan sponsors wrong and fund managers to be correct for saying all along that it is possible all money managers can be statistically above average at the same time. Fees rise to 350 basis points. The industry groups for money managers say they are not angry about the historical skepticism of plan sponsors -- "just very deeply hurt."
Worldwide prosperity and scientific advances lead to a world without poverty, disease or war. Average life expectancy reaches 140 years. Learning becomes the main form of status, and great thinkers are the new superstars.
Meanwhile, an alien space probe from Planet Raguasa III examines the inhabitants of Earth and utters an historic verdict: "Boy, do they look tasty . . ."
It's always something. But have a great future anyway.