Herculitus asserted that "life was flux" or in Greek, "Panta Rhei." He directed a reader of his philosophical missives to accept that there was no difference between this state of things and any progression to something else. Life was merely a series of changes, therefore, there was no change at all. According to Herculitus: The way up and the way down are one and the same. Living and dead, waking and sleeping, young and old, are the same."

Today, as with any day in the past, people have to make a decision whether to accept and embrace change. Those who cling to the past are generally likely to be frustrated and angry because change will not stop. There is no way to "conserve" the past by preventing a progression to something new in the future. Like mother nature creates a rain shower, or a storm, or a typhoon, change will come when it is ready, on its own terms and with a severity that is largely uncontrollable in most cases.

For those who accept change is constant, there is a path into the future that is more encouraging and kind. So, while we have little control over how change occurs, we can largely see it coming if we allow ourselves to. I say "if we allow ourselves to," because many of us block our view to the future because we feel it invalidates how we feel about ourselves today. Too many of us tie our self-validation to things and ideas that simply are not permanent. In our minds and our hearts, we often equate impermanence with being wrong. None of us want to feel as if we are wrong, so rather than accepting and adapting to change, we deny it exists, or futilely try to prevent the only true constant in life.

For those who accept that change is ever present and just a normal state of existence, they can not only adapt and survive using a tactical mindset, but thrive. Tactical thinking is nothing more than recognizing that a change might occur and having a productive course of action when the change comes. Embracing change allows us to prepare for the inevitable or unpredictable, and to happily adapt to whatever change occurs.

Three Big Changes Coming to the World Soon

There are thousands of changes that will occur in the coming decades. Some are small, some are big, some are massive. Most changes are at the personal level, but some affect us all. Today, in this year's "freedom letter" I want to talk about just three massive changes that are going to happen soon. How soon? I don't know. I just know that as we have progressed to today, we will also move into tomorrow.

The three coming changes I will cover are global in nature. Each is part of a secular trend (very long-term) and will evolve in unpredictable ways. The pace of these changes, sometimes coming slowly, sometimes suddenly, often with setbacks or interruptions, will generally bring a certain amount of fear. We need to avoid fearing change, otherwise, we could face much worse consequences. History teaches that lesson repeatedly. On that, I will quote another philosopher:

"Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering."

That of course is from the wise Jedi Master Yoda from the Star Wars saga. With that in mind, let us not be afraid of change, instead, let's embrace and prepare for it, because that is the path of greater freedom.



Technology Will Continue To Accelerate

Technology, not offshoring of jobs, has been at the heart of the massive transition away from low level manufacturing in America. The jobs of yesterday cannot be brought back because most of those jobs no longer exist. A few recent studies estimate that 80% of job losses are technology related. That doesn't mean that there aren't jobs to be had. There are about 6 million unfilled jobs in America right now and about half of those are unfilled due to skills mismatches. We need more people to upgrade their job skills to adapt to technology.

As investors we need to be very aware of technology as well. While we don't want to do much speculation, there are clear trends emerging in tech that we should be looking for ways to invest in. We want to be, and can be, overweight in technology investments because tech companies have exposure to every sector of the economy. Consider Amazon. Is it a tech company or a retailer? Or PayPal. Is it tech or finance? Apple. Tech or telecom? Priceline. Tech or consumer discretionary? 

With all that in mind, here are several emerging trends in technology that will create a lot of disruption in the economy the next decade or more, but also offer great opportunities for those looking for work or to invest.

  • The power of computing will increase dramatically again. The cloud and new types of processing are likely to increase computing power by double, triple or even tenfold in just the next decade. That is amazing when you consider that a smartphone is now smarter than the computers used to send man to the moon. A next step, called "Quantum Computing" is right around the corner after that. Quantum computers operate at an atomic level that is outside the binary world - series of zeroes and ones - of computers today. These computers operate more efficiently with energy and will likely be 10,000 times (ten thousand) to a million times more powerful than today's computers. The trick is that these computers are able to do many computations simultaneously versus how today's computers do things sequentially one at a time. The problem in reaching this technological threshold for scientists is finding a way to turn quantum-mechanical theory into a working machine. With some of the world's biggest companies, as well as, governments and militaries pouring billions of dollars into developing quantum computers, it is only a matter of time before we create these devices at a functional and affordable threshold.
  • "Big data" will get even bigger as more and more information is stored and able to be retrieved from "the cloud." This data will feed into the "smarter computers" and enable more useful analysis. Large networks of data storage centers spread redundantly around the world will create opportunities and challenges as well. The energy needed for these systems, and the computers around the world, require a lot of energy. One study says that we will need much more power soon to keep the world of data and computing to keep developing.
  • The Internet of Things - IoT - is just getting started, but will give us the ability to control our cars, houses and information remotely. We will be able to create settings for home climate control, summon our car or send encrypted information. Already IoT is playing a role in how cities manage energy, traffic controls and street lights. The applications range from military to medicine to anything we'd like to operate from somewhere else. As standards become normalized and end points are installed, we will see a more consistent and customizable world emerge.
  • In this digitally connected world, security is a key hurdle that we will have to deal with perpetually. Homomorphic encryption and blockchain technology are evolving to meet those needs. Hacking though will never go away and they will never stop trying to defeat the latest security technology, so the opportunity to work in or invest in the evolution of security will be perpetual.
  • Increases in computing power will have a direct impact on the development of artificial intelligence. Already we have Watson from IBM working on solving medical problems from treatment options to helping develop new biotech medicines. Soon, more computing power will bring more ability for computers to learn. It will be incumbent on us to make sure that the artificial intelligence does not decide we are obsolete and treat us the way we treat old things, which is often to throw the old thing out. Artificial intelligence has the potential to solve many of the world's toughest problems and could be a part of creating much higher standards of living for billions of people. Then again, Elon Musk and several other prominent (and often rich) scientific minds have sounded the warning that we need to keep an eye on how things develop.
  • Virtual Reality (VR) will continue to evolve and be a force in entertainment, not just gaming, but being able to feel as if you are within a movie or show. The bigger deal might be Augmented Reality (AR) however. Augmented reality is a direct view of the real world with an overlay visual created by a computer. Imagine the ability to receive information in different industrial, emergency or military situations. A pilot could receive better data about a storm she is flying into. Architects and engineers could receive could see structural data of a building while looking at it. Students could learn while seeing explanations of what they are looking at. Firefighters could see how to get around in the dark of a smokey building. Surgeons could operate without looking away at monitors. The list goes on an on.
  • Applications for new and improving alternative energy and transportation technology will lead to a complete change in how we get around and how we power everything - more on that below. 

Climate Change Will Impact Everything

Climate change is difficult for many people to believe. If something can't be seen and understood at the personal level, it is easy to deny. It is also easy for those with a motivation to deny climate change to create a narrative to perpetuate a falsehood if the thing in question is not entirely tangible. 

There has been an evolution in climate change denial the past decade or so. In the not so distant past, people who did not "believe" in climate change claimed it was not happening. They'd say that "yeah well, in the 1970s they were afraid of an ice age." Today, it's so apparent that climate change is happening that they argue it's "sun spots" or some other natural occurrence and not man's use of fossil fuels which are the chief addition to carbon emissions. To those who would argue against a need to fight climate change, I say "nuts." 

There are very simple ideas that we should all be able to understand, one is a causal correlation. That is, when one thing happens consistently alongside another, the two things are generally related. That is the case with climate change. We know that carbon has been increasing in the atmosphere at a rate that has broken us out of a HALF A MILLION YEAR RANGE. We also know that the global temperature has been setting new record highs almost every single year since the 1990s. It does not take a climate scientist, or even a fifth grader, to see that once carbon started to rise past the upper limits of the natural range, that temperature started to soar.

Here are some charts from NASA - the people who took us to the moon and provided the technology infrastructure so that you can read this online and then call somebody from your smartphone about it.





If the science doesn't convince you that climate change is real, then consider these statements from the military: 

"The impacts of climate change may increase the frequency, scale, and complexity of future missions, including defense support to civil authorities, while at the same time undermining the capacity of our domestic installations to support training activities. Our actions to increase energy and water security, including investments in energy efficiency, new technologies, and renewable energy sources, will increase the resiliency of our installations and help mitigate these effects."

"Climate change poses another significant challenge for the United States and the world at large. As greenhouse gas emissions increase, sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating. These changes, coupled with other global dynamics, including growing, urbanizing, more affluent populations, and substantial economic growth in India, China, Brazil, and other nations, will devastate homes, land, and infrastructure. Climate change may exacerbate water scarcity and lead to sharp increases in food costs. The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world. These effects are threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions – conditions that can enable terrorist activity and other forms of violence."

"Finally, the Department will employ creative ways to address the impact of climate change, which will continue to affect the operating environment and the roles and missions that U.S. Armed Forces undertake. The Department will remain ready to operate in a changing environment amid the challenges of climate change and environmental damage. We have increased our preparedness for the consequences of environmental damage and continue to seek to mitigate these risks while taking advantage of opportunities. The Department’s operational readiness hinges on unimpeded access to land, air, and sea training and test space. Consequently, we will complete a comprehensive assessment of all installations to assess the potential impacts of climate change on our missions and operational resiliency, and develop and implement plans to adapt as required."

"Climate change also creates both a need and an opportunity for nations to work together, which the Department will seize through a range of initiatives. We are developing new policies, strategies, and plans, including the Department’s Arctic Strategy and our work in building humanitarian assistance and disaster response capabilities, both within the Department and with our allies and partners."

Those statements are from the 2014 Quadrennial Defense Review put out by the Pentagon. Not only is the U.S. Military concerned with climate change, they have assigned a reason for it in the first place: "As greenhouse gas emissions increase..."

It is important that we consider the roots of the climate change denial narrative. Largely, the "research" that suggests that climate change is overstated or unknowable as to its origins, has in fact largely been funded by the fossil fuel industry or organizations that they support. It is not a difficult trail to find with a few simple searches of the internet. 

If you doubt that man is having a dramatic impact on the environment, then I ask you to consider some old wisdom: "better safe than sorry." I think that is a worthwhile idea.

At the end of 2015, 198 nations, including the United States, China, India, Japan and all of the European nations came to agreement that climate change must be fought on a global scale. Limits on carbon emissions were agreed upon and the beginning of talks on enforcement mechanisms are being studied. Ultimately, nations will have to hold each other accountable through their trade decisions.

For investors, the Paris Climate Agreement is important because when 197 nations agree to implement a series of policies with one end in mind, then it is clear that there is a huge tailwind in favor of the businesses and technologies that support those policies. Ultimately, it doesn't matter if you believe in climate change at the investor level. You just need to respect that policies supporting electric vehicles and alternative energy are coming and that the end of the oil and coal age have begun. Simply applying that knowledge will more likely lead to better investing outcomes.

And that leads me to possibly the greatest investment opportunity of our lifetimes. Greater than utilities and housing after World War II, anything in medicine, any technology, the internet or cell phones. Anything. 

The Entire Energy System Will Soon Be New and Improved

"I'd be investing in clean, renewable energy. The big new fortunes of the future are going to be made by those who develop alternatives to burning fossil fuels." ~ Ted Turner

That was Turner's answer to the question from National Geographic, "If you were in your 20s again and aiming to earn your first billion, what would you focus on?" That was 2009. Since then, Turner has in fact put much of his money into alternative energy even though he is in his 70s.

The energy system of the planet is going to change dramatically for several reasons.

  • Despite low oil and natural gas prices today, there is still long-term resource scarcity for fossil fuels at economic prices. Even without the climate change threat, fossil fuels are within a generation or two of becoming much more expensive.
  • Climate change is possibly the most urgent reason the energy system will change. Again, I point to the Paris Climate Agreement. Government policy and initiative will drive further adoption of alternative energy.
  • By about 2050, due to the energy involved with all of the technology we use, there is a possibility that we simply don't have enough power for it all and we will need massive adoption of alternative energy, particular solar.
  • For security reasons, it is imperative that we upgrade the electrical grid to account for cyber hacking our energy infrastructure.
  • Technology and production for electric vehicles and hybrid cars is improving so rapidly, that any significant increase in fossil fuel costs will drive people even more quickly, to the new lower priced transportation that will be coming to the market. 
  • Technology and production for solar and battery storage are improving so rapidly, that any significant increase in fossil fuel costs will drive people to adopt alternative energy more quickly.
  • Emerging market nations will skip building or expanding old power grids and move to those based on renewables and storage.

Here's what we can expect to happen in general with investment ramifications. 

  • Deep water drilling for oil will become a very specialized and small business. This is already happening and will be permanent as deep water projects are large and costly requiring a lot of upfront money. Because these "megaprojects" take a decade or longer to pay back the banks and companies investing in those projects, only the most economic projects will get developed due to the fear that EVs and hybrid cars could adopt quickly in the 2020s.
  • Solar will continue to be a major part of new power generation. Already wind and solar are a majority of the new power generation that we need. Soon, solar and wind will be replacing coal fired power plants that are currently being replaced by natural gas.
  • Natural gas will remain a prominent part of the energy equation until the middle of the century for base power generation and back-up. Natural gas will slowly decline as a percentage of electricity generation as we use more electricity and it is supplied by solar and wind. Eventually, alternative energy and battery technology will get good enough to relegate natural gas to backup power status.
  • Electric cars and batteries are coming down fast in price while range increases. There will be a press release in the next decade that goes something like this: "We now have EVs that go 400-600 miles on a charge, cost the same as internal combustion engine cars (gasoline cars), require less maintenance due to not needing oil changes and as many moving parts, are faster than ICE cars and drive themselves if you want them to." When that PR comes, from Tesla, Toyota, BMW or whatever company, it will mark the spot on the calendar that we will remember as the rapid adoption of EVs. Hybrid vehicles, especially for SUVs and pick-ups will become very popular as those vehicles often get used for longer trips.
  • The combination of improving solar tech, batteries, EVs and hybrid plugin cars will require a lot more electric generation. The synergies between those will be massive and lead to new homes having solar roofs as a matter of course in the 2020s and a battery storage system that I anticipate will not be lithium based. 
  • The grid will start to become much smarter and use the IoT to control everything from meters to street lights. Power transmission will become much more intelligent as well, being able to be directed to where it is needed at a millisecond notice. This buildout will take two to three decades, employ hundreds of thousands long-term and surely create some big winners in the space among private and stock companies. 

For investors, and those looking for better paying more secure work, these changes present a massive opportunity. I am dedicating a significant portion of my time and financial resources to understanding this segment of the economy. There will be utilities to invest in for the more conservative as always, but also industrial, construction, engineering and technology companies to invest in for bigger gains. 

The More Things Change...

...the more they stay the same. Just as we made the jump from horse and buggies to gasoline powered cars, we will make the jump to EVs. And just as we moved to a more modern electric grid after World War II, we'll do it again, hopefully this time without a world war.

Change is constant. Thus, it is the same. Embrace change and the opportunities it brings. We can do invest in these massive changes with a margin of safety as investors as long as we avoid blind speculation and find emerging trends that are becoming profitable. 

Happy Independence Day

Kirk Spano