It's been a great 30 years for Research magazine. But what do the next 30 hold? And what do 2038 capital markets look like? Hard to know, unless someone's taken a time machine forward and back with first-hand experience. The best I could do was ponder likelihoods for you.
Thirty years out, which stock category will have been the world market leader? Actually, they will have all ended up pretty close to each other. I say that because over very long past periods all major categories, correctly calculated, have had pretty similar returns within about a 2 percent annual bandwidth. In the future that will probably continue being true for both countries and sectors. Nothing changes about fundamental economics -- equity prices are determined, always and everywhere, by supply and demand. When one category gets hot, demand increases and prices rise. Firms cash in by issuing more stock or doing IPOs. Eventually, supply swamps demand and prices fall. This repeats over and over again, country- and sector-wise, until over long periods there's just not much return difference. During the next 30 years, categories will bounce around wildly, but betting on a single country or sector for the whole period doesn't get you superior results over time -- just a different ride.
In 2008, folks fussed that emerging markets were "decoupling" from developed ones. Nonsense. The world continues more correlated than people fathom and will get ever more so by 2038. The long-term performance spread between developed nations has been ever tighter and will continue tightening, tied to technology and globalization.
Speaking of technology, in 2038 laptops and cell phones are gone -- too bulky. Teenagers don't text anymore -- pass?! Instead, everyone will wear a tiny wireless earpiece linked to a voice-activated, credit-card-thin wallet-computer. It responds to your voice uniquely as your laptop, phone, address book, garage-door opener, TV remote, heart pacemaker, car key, alarm clock, credit card itself, and even controls your garden sprinkling system.
Of course, older people can't hear well or see the text on those darn tiny credit-card computers, so working with 9,000 mega-googolbytes of memory and extra loud sound, holographic images will be projected anywhere you like via amplifiers and large screen monitors. Street monitors will be more common than phone booths were in 1990.
Globalization and free trade will have boomed too, despite politicians' best efforts to squelch it. America's misguided farm subsidies will have been abandoned completely in 2024. The only nations with subsidies or tariffs will be submerging, less-developed nations. Everyone knows you can't have trade barriers in 2038 and survive.
The No. 1 emerging market in 2038 is North Korea -- long freed of her despotic shackles and booming. Next? Cuba! The top five are rounded out by Myanmar (no longer an Islamo-theocracy), Kazakhstan and Kosovo. Nations that remained despotic and theocratic stagnated -- still miserable backwaters. Afghanistan remains the world's heroin capital. Nothing's changed in 30 years -- economic prosperity isn't possible outside free, capitalistic societies -- never will be.
What of formerly emerging China? In 2018, 10 years after its Olympics, the cumulative years of the many being oppressed to support a relatively small (if growing) urban minority, ratcheted social tensions leading to total military revolution. Anyone in 2008 could have told them a society with 1.2 billion subjugated in subsistence poverty to benefit 100 million in a few population pockets will ultimately face revolution. It took another 12 years for China to emerge with a democratic constitution with strong private property rights, but since 2030 they've thrived and are an emerging market again. Yet despite its long revolution, it has a much larger economy in 2038 than 2008. Those 30 years saw wildly swinging booms and busts, but China's annualized stock market returns haven't averaged differently from Germany or America over those years.
Peak Oil, Global Warming, and Other Silly FearsOne big question: What happened with oil? Did the icecaps all melt, or did the world finally kick its "harmful" fossil fuel dependence? Neither -- and no one cares anymore. No one talks about global warming. Pass?. In 2038 everyone blusters about a different but as-of-yet officially unproven "environmental disaster" known as seismic nano-radiation leakage -- triggering volcanoes and earthquakes from wireless radiation. I can't say how that plays out in 2068 -- I don't want to ruin your future fun -- but will say it makes global warming look insignificant by comparison. Folks will point out repeatedly and adamantly that the lessons learned in proving global warming false are the exact proof set demonstrating the near certain risks of nano-radiation leakage.
Oil's price? $435 a barrel. (Inflation!) We still get headlines screeching "Is $440 Oil Next?" But overall, people don't much care. Now, nuclear and coal is a much higher percentage usage than oil. America and India are the world's leaders in nuclear energy innovation, having overtaken the French in 2029. Back in 2008, France had long been getting most of its energy safely and cheaply from nuclear sources. America finally realized anything France could do we could do better and stopped sweating oil. To the amazement of Barack Obama, then 78 and senior senator from Illinois and Senate minority leader, there hasn't been one single nuclear power plant accident of any magnitude.
But people still use oil. Classic car enthusiasts fill their old '57 Chevys and '67 Mustangs any time because rational people have finally realized we'll never, ever run out of oil -- we just don't use enough of it anymore for that to happen! Bill Gates, number 94 on the Forbes 400 list of richest Americans with an estimated net worth of $942 billion has the world's largest collection of antique cars and is the world's largest single gasoline consumer. Among cars, the 2013 Mustang is particularly prized because it was the last car to roll out of an American factory -- unions finally killed the industry. All American cars are imported. But no one cares -- we get way cheaper and better cars from India and Brazil. As for ethanol, ethanol pumps are museum pieces, remembered as a quaint, brief obsession of folks with no faith in free markets.
Changing Capital MarketsGlobal capital markets have evolved hugely. Most obviously, there are no longer any physical exchanges -- all are fully electronic. The New York Stock Exchange is a museum (with an ethanol pump!). You can still buy single securities -- but why? Anyone and everyone can trade whole packages of whole or parts of single securities with complete and total transparency. Structured Investment Vehicles (SIVs) as they were known in 2008 are gone. That complete transparency for any package of securities you demand costs two basis points per trade, but everyone does it.
Most investors have lost their home-country bias. In small countries investors have most of their portfolio in securities based outside their borders. Most package trades include global stocks or securities. No one considers trading in just their home nation's stocks any more than they consider investing in ethanol or buying American-made cars.
Following the repeal of Sarbanes-Oxley, there was a general backlash against silly capital markets regulation. Now, there's one common securities regulatory body for the U.S., E.U., Australia, South Africa, Canada and India. Developed Asia has a single regulatory body too. Less developed nations keep struggling with over-regulation, particularly Venezuela and Colombia.
Thirty Years in AmericaThough it's been 30 years, America is still the world's largest single economy, though it's shrunk from 25 percent to 14 percent of the world. American growth hasn't slowed -- it's been at its long-term average; the rest of the world, especially formerly "emerging" markets, just grew faster. While America's stock market has had the same basic 30-year return as the rest of the world since 2008, it's a smaller percent of the world. Returns in the fastest growing emerging markets have been kept down by new equity supply creation which has increased their percent of total. Now, in 2038, America is 29 percent of the world stock market instead of 47 percent in 2008. Still, no one has freer or more transparent stock markets than America. And nowhere is private property as rigorously protected. (Formerly communist China is perhaps a close second in protecting property rights.)
Texas is the most populous state followed by Florida -- both with no state income tax. California has lost significant ground and is third with Washington state a close fourth. New Jersey just raised its income tax again to 21 percent -- the nation's highest. Eighty-four people remain in New Jersey, mostly state legislators who can't figure why state tax receipts are down. They plan another tax hike in 2039.
Global inflation has been in the low, single digits -- the world's central banks finally got the hang of it. Milk costs $17, keeping pace with inflation. One year of college costs $400,000 because of its huge value -- the spread between college-educated income and non-college has become starker since 2008. A pair of sneakers costs $75 and a laptop $35 -- electronics just keep getting cheaper.
Senator Chelsea Clinton (D-NJ) lost the 2036 presidential race to the incumbent, former Texas governor Barbara Bush. Clinton is deciding whether to mount another campaign to unseat the likely 2040 Republican nominee, current Vice President Jenna Bush. The Bushes ran in 2036 under the motto, "Get a Two-fer."
Ironically, the world's richest guy, John Simon, runs "Trillionesque," a firm with a $2 trillion market cap founded in 2014. But that doesn't seem so big in a world where the stock market's weighted average market cap is $350 billion. Bill Gates, once the world richest person, when not playing with antiques cars or engaged in philanthropy, travels the world preaching at today's youth that they wouldn't make it if they had to go through what he had to go through in the old days.
The world's largest asset manager by far, with 14 percent market share, is Fisher Investments, now based in Camas, Washington. But Ken Fisher no longer runs money -- long-retired. Tied at number 94 with Bill Gates on the Forbes 400, Ken is 88 and still churning out books. The latest, his 28th, is on how the baby boomers were truly "The Greatest Generation."
In all, the world has moved towards greater transparency and freer markets, translating into greater societal wealth and prosperity. In 2038 we're all looking forward to the next 30 years, which many of will see, since the average life expectancy is now 142. And there is wide expectation that Research magazine will be among the three largest business magazines and still delivered in paper form. See you in 30 years!
Kenneth L. Fisher is founder and CEO of Fisher Investments, an independent, global money management firm. He has been writing in Forbes since 1984. His latest book is The Only Three Questions That Count (John Wiley & Sons).