Maintain Your Position on the Right Side of Change

The global economy has entered a time of convulsive change, some very beneficial and some disastrous, that will influence financial markets for years to come.

Record-breaking technology advances are producing exponential growth prospects and black holes in global economies and financial markets, thanks to seeds planted more than 20 years ago during the tech and telecom boom. Staying on the right side of change determines success and failure in investment portfolios, professions, businesses, and countries.

The five innovation platforms that will revolutionize the global economy are DNA sequencing, robots, energy storage, artificial intelligence, and blockchain technology. Gene treatments, 3D printing, cloud computing, big data analytics, and cryptocurrency are among the 14 technologies used in these platforms. Importantly, they span economic sectors, providing challenges for short-term, compartmentalized, and highly specialized research endeavours. Mostresearch departments in the financial industry are structured in this manner, creating inefficiencies to exploit when "convergences" build the new global order.Energy, industrials, communications services, health care, consumer discretionary, and financial services are all fragmented businesses that face disintermediation.

For example, autos, trains, and aircraft are expected to succumb to the confluence of robotics, energy storage, and artificial intelligence as autonomous mobility improves. They will collapse the transportation cost structure if they are combined. Current health care is set to give place to the merging of next-generation DNA sequencing, artificial intelligence, and gene treatments, which, when combined, should considerably boost returnson investment, resulting in a golden age of health care comparable to that of the 1980s and 1990s.Meanwhile, traditional financial services are likely to commoditize, thanks to application programming interfaces (APIs), social platforms, and the blockchain technology that will enable the convergence of business and consumer marketplaces, disintermediating the middlemen dominating today's financial ecosystem.

The convergence between and among innovation platforms and technologies seems to be throwing economic and company forecasts for a loop, particularly in the developed world, saddled with mature infrastructure.Because of the lowering costs and increased productivity associated with technologically enabled innovation, the platforms indicated above are beginning exponential growth trajectories.

For example, in response to a 28 per cent drop in lithium-ion battery costs for every cumulative doubling in worldwide unit production, prices will continue to plummet, "turbocharging" electric vehicle (EV) sales.EV sales will more than double globally over the next five years, from an anticipated 2 million and 2.5 per cent market share this year to 40 million and 45 per cent in 2025. If we are correct, EVs will drive exponential growth in the car business for thefirst time in 100 years.

The bad news is that the more expensive gas-powered automobiles that currently dominate the market will lose nearly half of their sales base at the same rate. Furthermore, if transportation becomes self-driving, as we anticipate it will, the auto industry will continue to contract as capacity utilization per car rises. In other words, according to figures developed during the industrial period when the industry was in its infancy, auto-related GDP will fall substantially in the coming years as unit sales, and prices fall, all to the benefit of consumers. The exponential increase of EV sales will not stabilize the sector for four to five years, although with a new cast of actors. Meanwhile, as the cost of transportation falls, consumers will profit.

Autonomous vehicle networks expand over the next five years, transportation costs will drop by more than half, from $.70 per mile in personal automobiles to $0.25.Since innovation is moving at such a breakneck rate, conventional equities and fixed income benchmarks are rapidly inhabited by so-called value traps or stocks and bonds that are "cheap" for a purpose. Standing on the right side of change, avoiding sectors and organizations in the crosshairs of creative destruction, and welcoming those generating disruptive innovation and possibly another chance at the Roaring Twenties, will be critical to investing success.