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Future technology development and investing – Part One.

July 3rd, 2009 · Greg Atkinson · 12 Comments

Technological advancements and the fortunes of mankind have been intertwined since our distant ancestors worked out how to harness the power of fire or use a sharpened stick to hunt for food. The future will be no different so it makes sense as investors to try and have some understanding of how some technologies may develop over the next decade or so.

Often when I read articles about investing I can tell straight away that many authors have little or no knowledge of the technologies that impact our lives or the economy as a whole. This leads them to make predictions that appear to assume that our current technological level will not develop much in the years ahead and thus they overlook many important technology based trends.

Most of us would appreciate that all of the various technologies that surround us from agriculture to the internet are in a constant state of ongoing development. So it puzzles me when economists and market commentators often simply extrapolate our current world into the future and come up with alarming scenarios like global shortages of food, water and energy. Rarely do they contemplate that these problems could be mitigated by technological advancements just as they have been for thousands of years.

An economics degree does not make a person a technologist and in the 21st century I would suggest that anyone who tries to outline how the global economy may look more than a few years out without a good appreciation of how technology may evolve is simply not taking into account some pretty major factors.

In 1903 the Wright Brothers made the first powered flights that only lasted seconds and reached a maximum altitude of around 120 feet. Around 40 years later a B-29 Superfortress could fly at 33,600 feet and cover distances of around 9000km and in just a few decades after that man travelled to the moon and back. So why is it economists and other assorted experts seem to discount the impact future technology will have on the economy and on humankind in the coming years?

I am not suggesting that I (or anyone) can map out with any certainty how technology will develop, but at least we can look at some areas where we can be pretty sure improvements will be made. I am not attempting to cover the areas I mention below in great detail, my aim is to merely toss up some ideas and concepts just to highlight how technology may change the world around us and why this is something investors should be interested in.

So let’s have a look at some areas where technology is likely to deliver some big changes in the years ahead.

Electrical Power Generation

Electrical power generating technologies such as solar, geothermal, wind and tidal will develop at a much quicker pace over the next few decades due to the extra focus (and funds) they are receiving while at the same time existing mainstream methods of generating electricity (i.e. coal, oil and nuclear power plants) will be improved.

Perhaps one (or some) of these technologies may fall out of favour due to high cost and/or poor efficiency but I have no doubt that over the next few decades we will see significant breakthroughs in the area of electrical power generation. There are also many other ways of generating electricity that are simply not reported very often but are being worked on in research centres and institutes across the globe.

In addition many of the problems associated with nuclear power will be solved and more efficient reactors will make this a much more attractive (and safer) option for many power hungry countries.

New electricity transmission technology may also result in less power being lost between the point of generation and the point of consumption thus increasing the overall efficiency of electrical power grids. This may also allow power generation facilities to be located long distances from major cities.

Of course our homes and offices need more electricity than they did twenty years ago due to computers, air-conditioners and large flat screen televisions etc., but these devices are also becoming more energy efficient and as a result we will probably see a decline in per household electricity consumption in most developed nations in the years ahead.

In Tokyo for example around 50% of the electricity consumed in an office building is due to the use of air-conditioning and yet existing technology can cut this consumption by up to 50% in a large percentage of these buildings. Clearly there are many areas where we can more effectively use electricity so the potential to reduce consumption in these areas is enormous.

I am not suggesting the overall demand for electricity will decrease, but simply highlighting that there are plenty of areas where it can be used much more efficiently.

Therefore I believe that the world will not only be able to generate enough electricity to meet demand in the foreseeable future, but also that this electricity will be generated increasingly from non-fossil fuel sources, distributed far more efficiently and used more effectively. (no matter how hard Australian pushes “clean” coal)

Food Production and Supply

As strange as it may sound there is no food shortage problem on planet earth at present. We quite simply and immorally have a food distribution problem where in developed nations we waste vast amounts of food, while in dozens of developing countries people starve to death. Yes there are serious localised food production problems, but on a global scale there are plenty of calories available and in some countries over eating is actually making people obese.

The major problem that has confronted mankind for thousands of years has not been that mother earth cannot produce enough food, but rather how can various sources of food be harvested, stored and distributed. As the world’s population has grown humankind has found better ways to grow crops, fish oceans or manage livestock. But no matter how much food is available there have always been places where people have been starving.

I know of no point in human history where starvation has occurred because the world’s food supply was exhausted, and we would only face a serious food shortage on a global scale if we totally mismanaged things for a very long time. (of course that is always a possibility!)

Therefore the key challenges we face in the years ahead will be to use the food resources we have better and to make sure food is distributed more evenly.

Technological developments in agriculture will continue to improve crop yields and reduce the losses caused by pests and droughts etc. Hopefully improved farming practices will also spread to developing nations thereby increasing their ability to produce more food. There will be plenty of acreage to support both food production and growing crops for biofuels.

Even in developed countries there is scope for increased food production. In Japan for example food production could be increased by simply utilising the considerable amount of farmland that remains idle due to an aging rural population and regulations that inhibit large scale farming practices or basically encourage farmers to grow unsuitable crops.

A few less nutcase dictators and civil wars would also do a lot to help feed more people. Here the solution has less to do with technology and more with politics. For some strange reason the nations of the world seem to be able unite for the Olympic games but unable to get together and toss out rulers who essentially starve their own people. Sad but true.

Transportation

In most major cities it is pretty clear that there could be major improvements made in terms of getting people and goods around. In most cases more advanced transportation systems could not only enhance the quality of life for people by reducing pollution and commuting times, but also increase productivity.

So it is probably not unreasonable to expect that governments around the world will turn to public transport as one way to reduce traffic gridlock and generally make their cities more liveable.

But even if people can travel around a city easily by car the fact is that most vehicles of today are a very inefficient form of transport. We simply do not need a four cylinder internal combustion engine to move a human between points A & B in a city, which is quite often what happens when people use their cars to commute to and from work.

In some years time I suspect OPEC will rue the day it allowed oil to creep up to around $150 USD a barrel as this may turn out to be the oil shock that finally woke the world up. Slowly but surely there is a shift away from large petrol guzzling cars to smaller hybrid vehicles. I just read an article in a business newspaper in Japan for example that reported that hybrid cars are now one of the most popular products on the market and that Toyota, even in the midst of the current economic downturn, had to restart some production shifts to meet the domestic demand for these vehicles.

The aviation and shipping industries are also working to reduce their dependence on oil. A number of airlines have undertaken trials using aircraft operating biofuel jet engines and this combined with more efficient engines should lead to an air transportation sector less dependant on oil.

On the shipping front both wind and solar power are being tested as supplementary ways to propel vessels, although it does seem a long way off before we will see many large sized commercial vessels covered in solar panels or utilising sails in some form…but then again who can say for sure?

The general theme I guess in transportation is that technology is helping the overall sector move away from a dependence on fossil fuels and should also aid a move towards expanded public transportation systems. But you never know..we could just end up with more roads!

………………………………………………………………………….

Of course there are many other areas of technology which I have not discussed covering healthcare and communications for example, and so I would welcome any views on these or other areas I have omitted. Or perhaps you feel the problems we face cannot be solved by technology…all views are welcome.

In Part Two of this article I will try and outline how technological advancements in the areas I have mentioned may have some bearing on the long term investment outlook. In addition I will even dare to suggest which areas investors may want to focus on in order to tap into the future opportunities that these technological advancements may present.


12 responses so far ↓

  • 1 Dan // Jul 4, 2009 at 3:29 pm

    Hi Greg. Nice article – thought provoking actually. I think food production, despite the drought, is going to be Australia’s big growth area down the track – it will just take time to adjust to new climactic conditions.

    A thing, barely related, that I wanted to mention which was censored on another website (the one that loves the yellow shiny metal whose name eludes me at this moment in time), is that precious metals markets are actually a very risky investment area currently. Despite the fact that people say “kings of ancient times valued it, therefore it is valuable today”, these metals belong to the most volatile of the resource markets. Of great interest to me was the website http://www.gata.org which seeks to expose market manipulation in the price of yellow shiny stuff. Having read what they have to say has made me interpret things in a different light lately.

    Cheers Greg!

  • 2 Greg Atkinson // Jul 4, 2009 at 9:22 pm

    Dan thanks for stopping by and for the link. I am glad I am not the only one around that thinks there is far too much hype about gold and not a lot of facts.

    I agree with you regarding Australia and food production, especially if Australia can maintain high quality produce. Not sure global warming will be a problem though..last time temperatures were up we had a lovely sea in the middle of Oz and some lush forests there as well apparently ๐Ÿ˜‰

  • 3 Ned S // Jul 5, 2009 at 2:29 pm

    Dan – I had no joy putting a link on a site that mentions yellow shiney stuff reasonably regularly a few months back. Seemed strange as the site reproduced an article by an author, but despite trying on four occassions over two days, I couldn’t get a link to another article by the same author to show up there.
    I sure thought the additional article fleshed the picture out. The article started out “Gold is not the ultimate inflation hedge. Nor is it often much use compared to stocks, bonds or real estate…” Link to same follows:
    http://goldnews.bullionvault.com/gold_value_real_021120094

  • 4 Ned S // Jul 5, 2009 at 2:41 pm

    Following is interesting re gold. It starts off saying: “Gold is not the ultimate inflation hedge. Nor is it often much use compared to stocks, bonds or real estate…”

    http://goldnews.bullionvault.com/gold_value_real_021120094

    I tried to post a link to it on another site a few months ago and had no joy.

  • 5 Ned S // Jul 5, 2009 at 3:05 pm

    Dan/Greg – There is interesting article on gold by a bloke called Adrian Ash that starts off saying “Gold is not the ultimate inflation hedge. Nor is it often much use compared to stocks, bonds or real estate…”

    I’ve tried to post the link here (and elsewhere in the past) but have never had any joy? Just google “Long Run Value Gold Part II” if interested.

  • 6 Dan // Jul 5, 2009 at 6:24 pm

    That’s a great read, Ned, and a good find:

    “Any other class of financial asset, provided it offers a yield, income or growth, should win out over gold.” … that’s all we need to say about gold.

    I suspect, Greg, that the reason people are so obsessed with promoting gold is not because they are trying to save the planet from losing all its wealth, but because they have a stake in selling gold themselves. We can never know this for sure of course, and I respect the commentators who are talking up the bear market currently, because in the end I think they will be right, but gold is not the answer IMHO.

  • 7 Greg Atkinson // Jul 5, 2009 at 9:43 pm

    Dan what I have generally noticed about people pushing gold is they only present one side of the argument..i.e. the bullish side, and that always raises a red flag with me.

    As for the stock market all I can say is after every bear market there will be a bull market, but people seem to confuse the term bull market with a rip roaring rally towards the heavens ๐Ÿ™‚ The market will find a bottom and come off it…and probably has. But this does not mean now is the time to rush in and try to make a fortune.

    Sometimes I think a lot of people are “digital” in that they either think it is the end of the world or we are all about to get rich..there is actually a lot of space in between ๐Ÿ™‚

  • 8 Dan // Jul 7, 2009 at 8:05 am

    The digital (binary) analogy is excellent, Greg. The big weakness of modern Western society is that its people refuse to think, plus there continues to be the erosion of meritocracy (rising corruption). Everything, even our approach to language (simplify it, reduce vocabulary, etc) is aimed at narrowing our thought processes. As a result, people only develop one way of approaching problems and they develop an inability even to identify problems.

    Just reading the newspaper every day there is report after report of a failed government project, with experts saying things like “it would have been better to do a risk assessment before starting”, but on the opposite page there is the usual report of a new government initiative that is being rushed through Parliament and fast-tracked because the End of The World Is Nigh (a War on Something, or a Something Crisis).

    I think the Gold Bugs are no different from any other breed of fan-boy. Yes, there is money to be made from gold, but, like any other investment, success comes from shrewd analysis, not from blind faith. But analyzing the gold market is not easy because, frankly, it’s rigged. Better to find a non-rigged market (or a market where you understand the process by which it is rigged) and go from there.

  • 9 Greg Atkinson // Jul 7, 2009 at 8:31 am

    Dan we do seem as a society, to be less focused on thinking and more focused on simply acquiring stuff. You can see the lack of thought in action on many discussion forums where people seem to get their entire view of the world via T.V current affairs programmes…scary!

    I agree with your comment about erosion of meritocracy. We seem to be finding new ways to cut corners, do things the easy way and generally take the lazy option. It is not going to serve us well in the decades ahead.

  • 10 Ned S // Jul 7, 2009 at 11:43 am

    Wonder how widely we’ll see the following reported by the bullion fans? :-

    “India, the worldโ€™s biggest consumer of bullion, doubled import taxes on gold and silver as the government sought to raise funds to spend on roads and supply food grain to the poor at below market rates.

    Purchases of gold bars will attract a duty of 200 rupees ($4.1) per 10 grams, while silver will be charged at 1,000 rupees per kilogram, Finance Minister Pranab Mukherjee said in his budget speech in parliament. Gold imported as jewelry or in any other form will attract a duty of 500 rupees per 10 grams.”

    Source: http://www.bloomberg.com/apps/news?pid=20601091&sid=auq8d2Kodx5w

  • 11 Greg Atkinson // Jul 7, 2009 at 1:33 pm

    Ned – I doubt this will get a mention where the gold bulls gather ๐Ÿ™‚ They also fail to mention that as gold prices go up, demand for gold jewellery tends to head in the other direction and in fact people start taking their rings etc, down to the local gold trader to cash in.

    The smallest demand for gold is for industrial use (includes dental) which is in fact the only thing we actually need gold for. It is a funny old world.

    By the way on the subject of technology some Japanese firms are trying to work out a way to recover gold more cheaply from disposed electronics etc. It seems one of the largest reserves of gold in the world is sitting in Japanese industrial waste dumps. Already some company has been able to recover gold from industrial liquid waste.

  • 12 Dan // Jul 7, 2009 at 6:39 pm

    The gold bugs usually make no mention of jewellery. It’s all out of proportion, really.

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