This might seem more like a wish list than a forecast — there are always risks that can derail predictions — but we believe these are high probability events over the long-term.
Our timeline is flexible, some events may take longer than a decade while others could occur a lot sooner.
Also, some of the reasons for optimism present both a problem and an opportunity. It depends on which side of the trade you are on.
#1 US Politics
The political divide in the United States is expected to heal after neither President Biden nor his predecessor, and current GOP front-runner Donald Trump, make the ballot in 2024. The first due to concerns over his age and the latter due to legal woes and inability to garner support from the center. A younger, more moderate candidate from the right (Nikki Haley) or left (Gavin Newsom?) is likely to be elected in 2024 and lead the reconciliation process, allowing Congress to focus on long-term challenges rather than political grandstanding.
Nikki Haley & Gavin Newsom – Wikipedia
#2 The Rise of Europe
Prime Minister of Estonia, Kaja Kallas – Wikipedia
Europe is expected to rediscover its backbone, led by the example of Eastern European leaders who have long understood the existential threat posed by Russian encroachment. Increased funding and supply of arms to Ukraine will sustain their beleaguered ally. NATO will re-arm, securing its Eastern border but is unlikely to be drawn into a war with Russia.
#3 Decline of the Autocrats
We are past peak-autocrat — when Vladimir Putin announced Russia’s full-scale invasion of Ukraine on February 23, 2022.
Vladimir Putin announces invasion of Ukraine – CNN
Russia
The Russian economy is likely to be drained by the on-going war in Ukraine, with drone attacks on energy infrastructure bleeding Russia’s economy. Demands on the civilian population are expected to rise as oil and gas revenues dwindle.
Fire at an oil storage depot in Klintsy, southern Russia after it was hit by a Ukrainian drone – BBC
China
The CCP’s tenuous hold on power faces three critical challenges. First, an ageing population fueled by the CPP’s disastrous one-child policy (1979-2015) and declining birth rates after the 2020 COVID pandemic — a reaction to totalitarian shutdowns for political ends.
Second, is the middle-income trap. Failure to overcome the political challenges of redistributing income away from local governments, state-owned enterprises and existing elites will prevent the rise of a consumer economy driven by strong levels of consumption and lower savings by the broad population.
Third, the inevitable demise of autocratic regimes because of their rigidity and inability to adapt to a changing world. Autocratic leaders grow increasingly isolated in an information silo, where subordinates are afraid to convey bad news and instead tell leaders what they want to hear. Poor feedback and doubling down on past failures destroy morale and trust in leadership, leading to a dysfunctional economy.
Iran
Iranian Ayatollah Ali Khamenei – Wikipedia
Demographics are likely to triumph in Iran, with the ageing religious conservatives losing power as their numbers dwindle. The rise of a more moderate, Westernized younger generation is expected to lead to the decline of Iranian-backed extremism and greater stability in the Middle East.
#4 High Inflation
The US federal government is likely to avoid default on its $34 trillion debt, using high inflation to shrink the debt in real terms and boost GDP at the same time.
#5 Negative real interest rates
High inflation and rising nominal Treasury yields would threaten the ability of Treasury to service interest costs on outstanding debt without deficits spiraling out of control. The Fed will be forced to suppress interest rates to save the Treasury market, further fueling high inflation. Negative real interest rates will drive up prices of real assets.
#6 US Dollar
The US Dollar will decline as the US on-shores critical industries and the current account deficit shrinks. Manufacturing jobs are expected to rise as a result — through import substitution and increased exports.
#7 US Treasury Market
USTs are expected to decline as the global reserve asset, motivated by long-term negative real interest rates and shrinking current account deficits.
Central bank holdings of Gold and commodities are likely to increase as distrust of fiat currencies grows, with no obvious successor to US hegemony.
#7 Nuclear Power
Investment in nuclear power is expected to skyrocket as it is recognized as the only viable long-term alternative to base-load power generated by fossil fuels. Reactors will be primarily fueled by coated uranium fuels (TRISO) that remove the risk of a critical meltdown.
TRISO particles consist of a uranium, carbon and oxygen fuel kernel encapsulated by three layers of carbon- and ceramic-based materials that prevent the release of radioactive fission products – Energy.gov
Thorium salts are an alternative but the technology lags a long way behind uranium reactors. Nuclear fusion is a wild card, with accelerated development likely as AI is used to solve some of the remaining technological challenges.
#8 Artificial Intelligence (AI)
Scientific advances achieved with the use of AI are expected to be at the forefront in engineering and medicine, while broad productivity gains are likely as implementation of AI applications grows.
#9 Semiconductors
Demand for semiconductors and micro-processor is likely to grow as intelligent devices become the norm across everything from electric vehicles to houses, appliances and devices.
#10 Industrial Commodities
Demand for industrial commodities — lithium, copper, cobalt, graphite, battery-grade nickel, and rare earth elements like neodymium (used in high-power magnets) — are expected to skyrocket as the critical materials content of EVs and other sophisticated devices grows.
Expected supply shortfall by 2030:
Prices will boom as demand grows, increases in supply necessitate higher marginal costs, and inflation soars.
#11 Stock Market Boom
Stocks are expected to boom, fueled by negative real interest rates, high inflation and productivity gains from AI and nuclear.
#12 Save 50% on a New Subscription
Conclusion
There is no cause for complacency — many challenges and pitfalls face developed economies. But we so often focus on the threats that it is easy to lose sight of the fact that the glass is more than half full.
Our long-term strategy is overweight on real assets — stocks, Gold, commodities and industrial real estate — and underweight long duration financial assets like USTs.
Acknowledgements
- World Politics Review, Alexander Clarkson: In Russia and Iran, External Aggression Masks Internal Vulnerabilities
- McKinsey: The semiconductor decade, A trillion-dollar industry
- ZeroHedge: Skyrocketing Battery Mineral Demand Set to Outpace Supply By 2023, February 14, 2024
- Wikipedia: China’s One-Child Policy
Hi Colin,
I’m still looking for the evidence that nuclear power is the only viable long-term alternative base-load power. I’ve previously commented “Whilst the scale required to achieve a tenfold increase in wind and solar is large, so is the cost and schedule to design, build and commission nuclear large plants, SMRs and micro reactors to achieve a comparable increase in electrical production. Also, whilst wind and solar are currently at a low level, they appear to be increasing exponentially. Can you provide more information and the relative cost/schedule for increases to wind/solar vs nuclear to justify your conclusion.” Your 11/10/23 post covered the renewables case & said “In this post we will focus on renewables, to be followed by another on nuclear”. I’ve not seen the corresponding post on nuclear – did I miss it?
Hi Graeme, I have posted on nuclear since then but I owe readers a comprehensive update on the current state of nuclear. I’ll do my best to get this out in the next week or two. We have plenty of material — it is just a matter of synthesizing it into a manageable format.
It is important to keep an open mind but, as far as we are aware, the only alternatives for base load power are fossil fuels and nuclear.
Fascinating outlook Colin, most of which I won’t challenge.
However, I think America’s outlook is bleaker than you think because its government debt is unsustainable with both sides of politics wanting to borrow more to pay for their own agendas (Republicans – tax cuts and Democrats – social spending).
Also, the growing income and wealth divide in America will continue to polarise its politics which has become toxic. Higher inflation is normally associated with higher crime and lower real wages. Ultimately the United States may become the Divided States with the Progressive East and West Coasts seceding from the Conservative Middle states.
The USD is likely to be downgraded as a reserve currency and the SWIFT payments system undermined by other options. This will cobble America’s ability to create money to pay its way in the world. Its status a superpower will diminish as the Global South gradually gets its act together and becomes more prosperous and assertive.
On China the CPP has been remarkably successful at overcoming adversity in the past and turning China into an economic superpower. America is now trying to stymie that, but the harder it tries (e.g. tariffs, chip bans) the more it seems to make China resilient (e.g. China is now developing its own nanochips). But I agree being a totalitarian state that doesn’t tolerate dissent is its biggest internal threat on two fronts.
Firstly, as you say it blocks fearless advice being given to its supreme ruler, President Xi. Secondly, on Maslow’s hierarchy of motivation once physical safety and material needs are met an educated people strive for self-actualisation and free thought.
The CCP in making China prosperous and educating its masses has sown the seeds of its own destruction. But this could take longer than we think because the more America tries to contain and confront China the more its residents will support the home grown CCP rather than embrace representative democracy which is portrayed as a foreign ideology that results in dissent and division that might return civil war.
With totalitarian states it’s best to let its own citizens’ revolt and force change because outside intervention simply postpones that.
Thanks Colin, Regards, Percy
Thank you Percy for your insights.
With autocracies, I agree that Kennan-style containment is the best strategy. This could last several decades in China’s case. Less so with Russia & Iran — which would leave the CCP isolated.
The global South has a poor track record in terms of getting its act together. This is unlikely to change. Though Javier Milei is a new broom in Argentina.
As for our allies, the difference is largely based on whether the US has the ability to solve its own problems. A lot rides on the next election.
A bipartisan solution to solve the debt problem would be feasible with the right leadership. High inflation is the solution. It is not ideal but can be managed as in the decades after WWII. A weak Dollar would boost the US manufacturing economy.
A great time to own stocks, commodities and other real assets if this occurs.