Marcus Cake

We are witnessing an epic battle between Economic development and Geostrategy. The Wikipedia definitions are provided below:

• Economic development “is a sustainable increase in living standards that implies increased per capita income, better education and health as well as environmental protection.”
• Geostrategy, “a subfield of geopolitics, is a type of foreign policy guided principally by geographical factors as they inform, constrain, or affect political and military planning. As with all strategies, geostrategy is concerned with matching means to ends—in this case, a country’s resources (whether they are limited or extensive) with its geopolitical objectives (which can be local, regional, or global)”.

At different points in history, either economic development or geostrategy prevail. The proportions of time that our history has spent in one or the other is debatable. Few would debate that we are in a period dominated by geostrategy. The battle may be even narrowly defined. It is a battle by an insolvent superpower to maintain its supremacy, preserve its industries and maintain access to global resources. There have been many superpowers throughout history. At this point, it is the United States. In 1900, it was Great Britain. There will be another superpower in 2100.
Economic development would include:

• the adoption of new structures that are now possible because of advances in technology
• globalisation of financial markets
• multi-lateral trade
• coordinated pursuit of the principles in the “Universal Declaration of Human rights“
• treat others the way you would like to be treated
• multiple currencies can act as a store of value in a global capital market
• long term planning by individuals, governments and the global community
• greater individual freedom to create, participate and prosper in the global community
• harnessing community knowledge through online communities to deliver innovation and solve problems

Geostrategy include:

• protection of existing industries
• bilateral trade
• aggression
• short-term opportunism
• maintenance of the USD as the world’s reserve currency in a US centric capital market
• two-tiered internet
• extending ownership of knowledge through intellectual property laws

Technology boom delayed
The anticipated technology boom is being restrained by concern over geostrategic events. I have previously written about the forecasts of HS Dent (see A technology boom through to 2010 and Update: A Technology boom through to 2010. Harry S Dent recently provided a “Special FREE Update To Our Long Term Forecast Dow 15,000 by Early 2008 and 20,000 by Late 2009“. It is available free from his web site. It provides an update to previous forecasts. An extract is provided below.

Special FREE Update To Our Long Term Forecast Dow 15,000 by Early 2008 and 20,000 by Late 2009, October 2006

Extract:

• “When we occasionally get significant divergences from our clear fundamental forecasts, then we ask: What are we missing? There are always new curve balls in economics, and that approach keeps driving greater insights and new indicators that only make ourfuture forecasts more credible and accurate. The fact that this last bubble in stocks has taken a year longer to accelerate than we originally forecast has caused us to add a new long-term geopolitical cycle to refine our long-term forecasts—and that is the broader subject of this special report.
• Today, the same economic expansion that began in the early 1980s with the Baby Boom spending cycle continues, although you might not know it from investor sentiment. Corporate earnings are at all time highs, yet investors seem to be unimpressed by those earnings, as stock P/E ratios are at lows not seen in nearly a decade. The good news is that this investor pessimism is quietly laying the foundations for another strong bull market in stocks! The bad news is that the factors that have contributed to the investor pessimism—such as wars, tensions in the Middle East, out-of-control government spending, and surging commodities—are likely to make the next boom less spectacular than we have been forecasting.
• Make no mistake, we still think the next bubble has been emerging since July 2006 and that most stocks will soar to unprecedentedhighs—most likely to around 20,000 on the Dow by 2009—but geopolitical trends and tensions make our original forecast of32,000 to 40,000, spelled out in the Next Great Bubble Boom, much less likely.
• As John Maynard Keynes once famously said, “the market can stay irrational longer than you can stay solvent.” Through our continued research, we have found that market psychology is heavily influenced by long-term geopolitical trends, which run in cycles that will be discussed below. This negativity is what ultimately persuaded us to change the price targets on our long-term forecast while still predicting a continued very strong boom into late 2009 or so.
• The more important insight is that this boom is not over yet. It will be over when the Baby Boomers peak in their spending and thetechnology S-Curve cycles peak around late 2009.
• In effect, we have an epic battle in the marketplace between the forces driving the markets higher—demographics, spending, technological innovation, and acceptance—and the forces that are holding us back— commodity prices, geopolitical tensions in the Middle East and North Korea, and the wars in Iraq and Afghanistan. We are now changing our forecasts and targets accordingly for the next bubble and for the timing of the next major downturn in light of these trends and events.
• Our goal is simple, but bold: To offer a radical new approach to forecasting economic trends that will affect your life, your business, and your investments over the rest of your lifetime—and that is something that mainstream economists do not offer or even think is possible. We are keenly aware that, even with our twenty-year history, this represents a new theory that needs to be constantly expanded and adapted. We continue to add new indicators to refine our radical new forecasting methods, which has improved our forecasting both long term and short term!
• The most likely scenario now is that the next bubble that started in July 2006 will last for three years, peaking around late 2009. The basic targets for now are the Dow around 20,000, and 4,300 to 5,000 for the Nasdaq. If we saw a 3-year bubble as strong as late 1984 to late 1987, then the Dow could reach as high as 27,000, but that is less likely.
• This new forecast also means that we are likely three years away from the next major stock crash and secular bear market,
• and as little as four years from the beginning of a major decline in home prices and real estate after the recent slowdown that we forecast.”