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Ten Crazy Predictions for the Next Ten Years

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By RedneckRoleModel
December 14, 2007

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It's the end of the year, when columnists like to predict things that might happen over the next year or longer. I'm no good at predicting the next year, but I do like thinking about long term trends. So I've put together Redneck's Ten Crazy Predictions for the Next Ten Years. It should be emphasized that these are crazy predictions, many of which won't come true. But I think there's a strong chance that several of them do come to pass, and since they're so out of left field right now, they have the potential to surprise a lot of people. Some even have investment implications.

Let me know what you think, and what your crazy predictions are.

Ten Crazy Predictions for the Next Ten Years

1. FatBrainMartian will change his screen name 19 times in the next decade.

2. There will be no ethanol production in the US by 2018. Production is increasing at double digit rates, but there will be no ethanol made in 2018. Why? Because ethanol has a lower energy content than gasoline, and it's corrosive, making it unsuitable for transport via pipeline. We make ethanol today because we don't yet have the technology for making plant-derived synthetic gasoline. However, today there are dozens of companies, startups, and university labs developing microbes to efficiently convert plant matter directly into synthetic gasoline, eliminating the need for a product as inferior as ethanol. Someone will get it right within the next decade, and whoever does will make one of the greatest fortunes of the century by selling their technology as a retrofit into existing ethanol plants. The DNA sequence of such a super bug will be the most valuable intellectual property on the planet.

3. Private colleges and universities will be free for 90% of the American population by 2018. Most of the Ivy League schools have eliminated all tuition and fees (room and board) and all student loans for families making less than $50,000 per year. This week, Harvard capped tuition and fees at 10% of income for families earning up to $180,000 per year. The trend started in 2001 with Princeton; today, there are approaching 30 schools that have implemented such policies (http://en.wikipedia.org/wiki/Student_financial_aid). Colleges that have not implemented such policies will be at a huge disadvantage in recruiting, so college presidents, admissions deans, and boards of trustees are all hitting up alums to fund these grants. At some point, a university will seek to one up the recent Harvard announcement by making its tuition and fees free to all but the top 10% of families by income. When that announcement is made, dozens of schools will follow suit within 2 years. Within a decade, only hedge fund managers and professional athletes will actually pay to send their kids to college.

4. San Diego City, Orange County (CA), and the states of West Virginia and Illinois will file for Chapter 9 bankruptcy within ten years. They will be driven into bankruptcy by the huge debts in their pension and retiree health care systems. To stay afloat, they must earn over 8% per year on their investment portfolios, something that's particularly difficult in a balanced portfolio of stocks, bonds, real estate, international stocks, and alternative investments. It's even more difficult for municipal and government funds, which typically are not able to attract top notch investment talent. And it's nearly impossible to do if yields on stocks and bonds are rising, not falling. A mild bear market of a year or two would be enough to push the weakest of America's municipal pension systems into bankruptcy, because the funds have not yet recovered enough of their losses from 2000 to 2002. The four listed above are the weakest.

5. Intel, with a market cap of $160 billion, will buy back $100 billion of its own stock over the next ten years. The share count will be unchanged. The stock price will be little changed.

6. Oil will rise to $650 per barrel by 2018, but production will never exceed its peak reached in 2005 - 2006. Contrary to some people's beliefs, this will not cause the end of the world.

7. The Euro will collapse from $1.50 to below $0.60, driven by the profligacy of Italy. As the country continues to rack up huge debts in a currency they cannot print, Italy will hold the ECB hostage: either allow the currency to drop, or Italy will withdraw from the Euro and reissue all their debt in new, inflated Lira. The ECB, terrified of the exposure of Continental investors to mountains of potentially bad Italian debt (bought because it offered 30 bps of spread over German debt!), will capitulate. The chief victims: sovereign wealth funds who were desperate to diversify out of the dollar when the Euro was at $1.50.

8. The global labor arbitrage will be over by 2018. Already, production of certain goods is moving from China to the countries of Indochina, but there is a limit to the amount that can be moved to such places, since none are the size of China. By 2018, there will still be over a billion people in low wage countries willing to work for half the prevailing wage in China, but they will be beyond the reach of global capitalism, in failing states with insufficient infrastructure. Integrating those last billion people into the global economy will be the great challenge of the twenty years to come after 2018. Closer to home, a manufacturing operation choosing between sitting in the US or China will have little incentive to choose China, unless the labor content of the product is extraordinarily high.

9. US wage gains, at all income levels, will exceed 5% per year over the next decade. Corporations, faced with the retirement of the boomer generation, will have no choice but to offer ever escalating salaries to keep boomers on into their 60s and 70s, and to compete for workers in their 30s and 40s, who will be overwhelmed by companies desperate to hire them. Wage gains will be a bigger engine for US economic growth in the next decade than home equity withdrawals were in the past ten years.

10. And now for my favorite: elephants, cheetahs, giraffes and lions will roam free across North America. Unlike most other continents, North America has essentially no native charismatic megafauna, since these animals were driven to extinction 13,000 years ago by the arrival of Native American hunters. Huge ecological niches now go unfilled in North America, making what we perceive to be wilderness actually an artificial landscape. Conservationists and naturalists have been trying to persuade large landowners to perform small experiments with imported, wild elephant populations for years. Someone, maybe Ted Turner, maybe someone else, will agree, and when elephants in North America are shown to increase biodiversity and create niches for other species to exploit (as they do in Africa), the rush to repopulate North America with large mammals will be on. People will make good money setting up a safari industry in the United States.

Best,
Redneck

PS In two weeks I'm going to reveal the winner of my stock picking contest for 2007. And since this year's contest went so well, I'm going to do it again. So start thinking about your entries.