Faster Pace of Change Produces Economic and Stock Market Growth
As I look back and analyze what has happened in recent history, I have concluded that what many others and I have been focusing on may be wrong. Interest rates, oil prices, government policies, tax rates and current events do have a major impact on our economies and stock markets year over year. However, what really produces the growth, increasing productivity and the greater efficiencies that increase corporate profits? Sure, individual companies are constantly improving what they do and designing new products. This does increase revenues and profits. However, while so much of what we hear and read about talks about these incremental changes, I think we often ignore the bigger picture. Perhaps the most important factor that produces growth in stock prices over time is something rarely mentioned - the pace of change in our world.
The pace of change was very slow for thousands of years. It was almost steady. However, that has changed considerable in the last three centuries. Now, by some estimates, the pace of world change is doubling every decade. World renowned futurist and author of the best selling book “The Singularity is Near” Ray Kurzwell, sees an exponential increase in the rate of change. He believes we will see 20,000 years of change in the next century alone. Kurzwell states, “….few observers have truly internalized the implications of the fact that the rate of change itself is accelerating.”
We often hear about the negative effects caused by the pace of change. For example, Philosopher Geoffrey West wrote, “Rather than being bored to death, our actual challenge is to avoid anxiety attacks, psychotic breakdowns, heart attacks, and strokes resulting from being accelerated to death.” There are those for whom change is difficult. However, there are also many others like myself who are energized and emboldened by the opportunities change creates.
In my career, I have witnessed the adoption of computers and then the Internet. I think all of us grossly underestimated how these things would change our lives in so many ways. The development of the global positioning system (GPS) has revolutionized travel. I don't think one can overestimate how mobile phones have made people and businesses more productive and efficient. Digital cameras have also had a huge impact on efficiencies. Internal combustion and jet engines now produce close to twice as much power for the same size using the same amount of fuel as they did only 20 years ago. Decades ago, one dump truck with one driver hauled gravel. Now, one truck and one driver drives a gravel truck that also hauls a trailer with another box full of gravel behind it, effectively hauling twice as much gravel as before with each trip.
The transportation of goods has experienced a revolution in recent decades. For example, computers have been able to keep track of every product, vehicle, boat, airplane and container. When the computer transfers this information to the Internet, anyone involved in the transportation industry can then keep track of the products and their location. GPS devices can show dispatchers exactly where vehicles, boats and airplanes are so that goods can be shipped as quickly as possible by using the most efficient mode of transport. This is just one example of how different advances have combined to lower costs and increase corporate profits.
Computers have revolutionized the investment industry as well. Investors were able to invest in the actual S&P 500 Index using an ETF for the first time in January 1993 for a fraction of a cost of owning many mutual funds. Today there are 1,620 ETFs in the US with a value of US$5.5 trillion. When I started my career, I wrote down buy and sell orders on a slip of paper and handed it to the office secretary who entered them. Today I can buy a stock on the New York Stock Exchange in a minute on my own laptop using the Internet anywhere as long as I have a cell signal, at home, in an airport and even riding in a car!
Advances in technology have also lead to totally new activities such as gene editing, artificial intelligence and robotics. As more and more products are linked to the Internet, more conditions can be monitored and changes made without any manpower required. Businesses and consumers are adopting communication technology faster than ever before. I know several people who are now frequently buying things online who thought it was something they would never do years ago. If you watch an old hockey game, you will notice how the skating speed of the players on the ice has even increased over the years. We are finding ways for humans to be faster and stronger as well.
When I began my career in 1981, personal computers were just being introduced and small business owners were the main people buying them. Most others and I did not even imagine developments like the Internet, GPS, digital cameras and mobile phones and mapping DNA. Yet, these innovations have completely transformed the way consumers, businesses and health care providers function. It is these transformations that have enabled companies to experience substantial growth in profits and thereby increase their share price as well over the long-term. Experts cannot make accurate long-term forecasts about the future when they don’t even know many of the innovations that are likely to come our way in the years ahead.
Previous Updates have referred to 16 to 18 year cycles that suggest US stock prices could triple in the next ten years or so if history repeats. Many have asked me what I think will enable that to happen. To tell you the truth, I don't think many of us know what exactly will produce the growth that is needed to enable stock prices to rise that much. All we do know is that the pace of change ten years from now is very likely to be double what it is today. That is a major factor that could enable stock prices to advance in a major way over the long-term. Yet, I don’t believe market analysts and investors are factoring this into their long-term economic and market forecasts. What I have observed over my career is that the accelerating pace of change is a very significant factor propelling stock prices higher over time that many people don’t seem to be aware of. We should constantly remind ourselves of this.
Please see the long-term cycle chart below as of January 2021. Chart produced by RBC Technical Analyst Bob Dickey.
SAR Update
After a quiet period, we had two back-to-back calls last week. The first call came in for a woman who was trapped in a vehicle that had driven over a cliff several kilometers up a forest service road (FSR), which sounded pretty dramatic. The FSR was a sheet of ice so it was no wonder a vehicle went off the road. I was able to put my off road driving experience to use as it took me three tries to drive the SAR vehicle I was driving up an icy hill in 4-wheel drive with excellent snow tires. The fire department vehicle at the scene had chains on. The photo on the next page show what we saw when we arrived on scene.
It turned out to be a car over the bank instead of a cliff. It was a quick rescue and I was glad the women were not injured as their vehicle stopped with the roof against a tree. It could have been much worse!
The following day we were asked to transport an injured woman from the very north end of Harrison Lake to an ambulance waiting in Harrison Hot Springs. The roads were not passable and it was raining with clouds only 50 metres off the water so transport by air was not possible. I drove our SAR vehicle with the 28- foot boat in tow to the boat launch along with three colleagues. I was the starting pilot on our new vessel at night, in the rain with no visibility so I relied on the compass and GPS display to guide me. There can be logs and debris on the water but time was also factor so we could not go slowly on this trip that was 73 km one way. This trip was more of an adventure since there was risk and it required total concentration. After an hour of piloting it was time for a break so an able colleague took over. I had to unhook a log boom at the end of the lake to get to the pick up area. The clouds ended up lifting on the journey back which made the return trip much more comfortable and relaxing on totally smooth water. After a number of hours on the water, we were able to take the woman off of our boat and take her to the paramedics by the ambulance. Thankfully, it all went well and it was a great team effort! It was great to be able to use our skills, experience and equipment to help someone.
This is what we stare at for hours when piloting the boats at night. The GPS is the screen showing our boat at the top end of the dotted line in the blue background, which is the lake. The GPS is in front of the window behind the steering wheel. The compass is the black globe on the left. Navigating by instruments is good training for ignoring our emotions or inclinations and just following the tools no matter what we feel like doing. This experience is useful for ignoring our emotions and following technical tools for the markets as well. Have a good weekend my friend!
