We haven’t seen anything yet. That’s the message from Haim Israel, who has spent the past six years imagining the future for Bank of America and divining its investment implications. The Jerusalem-based strategist recently unveiled his outlook for the 2020s. The coming decade, he says, is likely to produce greater change than any previous one, because technology is causing trends to unfold at an accelerating pace.
Israel, 47, draws on the work of about 700 BofA securities analysts as well as four other thematic research analysts at the firm. At home, he has another four-person team, namely his children, ranging from 8 years old to 17. “They are the No. 1 resources,” Israel says. “They think very differently.” Israel asks them about trends like e-sports or social-media app TikTok, and what they think about the job market, education, banking, and the world. We sat down with Israel recently to talk about his team’s latest outlook.
Barron’s: How long have you been a futurist?
Haim Israel: We created this framework at Bank of America in 2013, with the idea that underlying forces need to be considered when you look at investment opportunities. We identified 28 of them in three categories. The first is innovation: Big Data, artificial intelligence, robotics, cybersecurity, privacy, genomics, all that stuff. Second is people: aging, silver economy, Gen Z, Gen Y, millennials, education, inequality, everything that has to do with demographics. Third is Earth—everything having to do with our planet: climate change, food security, water, waste, renewable energy, energy storage. These are the megatrends that will impact our lives. Forget about the short term. Even the long term is not that long term anymore. It’s happening way faster.
What is long term now?
These megatrends are five to 10 years down the line. One of the words we keep using is “techceleration”—accelerated growth rates led by technology. It took 64 years for 50 million people to use airplanes. For cars, 62 years. For Pokémon Go, 19 days. These things are actually happening here now. We thought that peak oil would come much later. Now, everybody thinks the point of no return on global warming is around 2030, way earlier than expected. There will be demographic implications—100 million people will fall below the poverty line because of climate change and the change in food security. Also, renewable energy is actually cheaper to produce in some places than fossil fuel. We see a hockey-stick ramp-up in terms of demand and supply. There will be electrification of transportation, which today consumes 50% of global oil demand—cars, ships, airplanes, railroads. By the end of the 2020s, one third of all new cars sold will be electric vehicles. That’s a massive impact on carbon emission.
What are the other nine themes for 2020?
One is the rise of the state and peak of globalization. Countries will start [pulling] back, rather than talking about the world. If we had this discussion after the fall of the Berlin Wall, there were 15 physical barriers around the world. Today, there are 77. A lot of our projected megatrends, like aging and climate change, are forcing governments to take care of themselves, understanding there are going to be massive challenges. As a result, we’re starting to see the peak of globalization, meaning limits to the movement of free capital, goods, money, services, and knowledge.
You are predicting that two or more internet systems will result.
The trade war today is not about tariffs; it’s really about the race for technological superiority, understanding that intellectual property is an asset that needs protection. In the 2020s, we’ll start talking about the internet in plural. We could see the Chinese protocol versus the U.S. protocol. Russia hasn’t expressed an intention to have its own internet, but wants more internet sovereignty—more control over the content on the internet. The 5G protocols are being debated now between the U.S. and China. In the race for technological superiority, the FAANGs [ Facebook (ticker: FB), Amazon.com (AMZN), Netflix (NFLX), and Google parent Alphabet (GOOGL)] are the leaders in the U.S., while the BATS [ Baidu (BIDU), Alibaba Group Holding (BABA), and Tencent Holdings (700.Hong Kong)] are the leaders in China.
The BATS aren’t restricted by U.S. privacy rules and have a big advantage.
More than one internet—that’s opportunity but also massive cost. It affects trade, information, knowledge, sharing. Governments need to rebuild a lot of infrastructure.
China is already building infrastructure all over the world.
They saw this day coming. The New Silk Road already surrounds 63 countries—one third of global gross domestic product, give or take. They’ve built ports, railroads, pipes. Huawei built a lot of telecom infrastructure now being deployed in countries like Poland and the Czech Republic. It’s not clear that the West will go with the U.S. If your telco infrastructure is built by Huawei, you can’t shut it down overnight and say we’re moving to the U.S. protocol. You have to have either two systems or start investing in your own infrastructure.
Another subject of interest is quantitative failure.
We’re starting this decade with interest rates at zero in most places. Roughly $13 trillion of assets have zero or negative interest rates. And $18 trillion of assets are sitting in central bank balance sheets. There’s still no inflation. The old models are challenged. That’s why we’re seeing modern monetary theory and new models. Governments no longer have the arsenal to use monetary-policy tools. So countries will have to start pumping money through fiscal stimulus. And with interest rates at zero, we have deflationary pressures all over the world, because of aging, automation, job loss, climate change.
Demographics is a massive theme with you.
In the 2020s, we’ll have more grandparents than grandchildren, more people over 65 than people under 5. Japan isn’t the oldest country on the planet. It’s China, because of its one-child policy, which has since been abolished. In this decade, close to 800 million people will join the silver, or over 65, economy. It will pressure pension systems worldwide. In the Western world, life expectancy is rising. The financial system will see massive challenges. Today, the total pension deficit is $24 trillion. For every year that life expectancy goes up, this number goes up by $1 trillion. The job market—services, medical, health care—will have to adjust. Especially in the U.S., the silver economy still holds more than 50% of the spending dollars. However, they only do 10% of spending. Who are the winners? The cruise line industry, experience economy, home renovation, health care, retirement communities, life insurance.
Also: Generation Z—those born after the year 2000—will be way more destructive than millennials. They’re already around 20% of the world population. They were born into a digital world, with a smartphone in their hands. Millennials were born to an offline world and had to adapt to online. This year, Gen Z is turning 18 and 19 and integrating into the real economy, getting real jobs, moving out of their homes. They’re into sustainability and services rather than goods. There will be a 50% drop in drivers’ licenses in the U.S. They’re the force behind what we call peak cars. They use payments rather than traditional financial services. We call them the Difti generation, as in, “Did It for the Instagram.”
Won’t they go from Difti to thrifty as they age?
It’s a question. Their behavior is very different from the world where most of us come from. They’re more reluctant to go to universities because of student loans. They don’t want to have the same number of kids. Eventually, some of their behavior will be more traditional, but on a much narrower scale.
Any other themes?
Smart everything: There will be 500 billion connectable smart devices by the end of this decade. By 2025, we’ll connect with an online device every 18 seconds, or 4,800 times a day. Next year, there will be more smart speakers than humans. Today, global data are multiplying itself every two to three years. We’re using only 1% of it; the remaining 99% isn’t stored or analyzed. We finally have the tools to start analyzing it—Big Data analytics, AI, machine learning, deep learning, smart algorithms. Think about how much we managed to achieve with 1%. Smart everything is unlocking massive economic value add.
Space is another big theme. In 2022, 3,200 nanosatellites are going to be launched by Amazon. These are the size of the palm of your hand. They will make a massive contribution to communication, bridging the 40% of the globe that’s not connected to the internet, networking the world. Space tourism will be another industry. Electronics and defense electronics will win big time from all this.
What are the actionable ideas?
We are big believers in software but mainly hardware, semiconductor processing power. We believe in cloud-based data storage, renewable energy, health technology, new media. There will be hurdles for oil and gas, and for traditional commerce and auto makers.