Crisis-Proof Investing: Strategies for a Shaky Future
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Well, can the money for the rest of us? This is a personal financial on money, how IT works, how to invest IT and how to live without worrying about IT. I'm your host David stein.

Today he is episode four forty two. It's title crisis proof investing strategies for a shaky future. I recently received a question from a member of money for the rest was plus our premium membership community.

He is looking ahead forty years and trying to figure out how to invest in an era where on one side, there's the potential catastrophic impact of climate change, and on the other, the potential catastrophic impact of a consumption disaster from attempts to cut carbon emissions, either through regulation or through personal choice. This member owns his primary residence. He is based in canada.

He's in his early forties, high net worth individual as a sizable whole life insurance policy, his own business in a large stock portfolio. Forty years is a long time, forty years, and now is the year twenty sixty three. I'll probably, if you did, I hope not, my kids will hopeful ly still be alive.

One of the early renditions of money for the rest of us that I launched in twenty twelve was called the next forty years. IT was a website about a forty year time horizon and figuring out how to invest and save for retirement over that time period. The website lasted about two months, and I shut IT down.

Forty years ago, I was in high school. One of my teachers, who was well ahead of time, decided he wanted to have a class to discuss the future. SHE invited ten students to participate in the semester long class I agree to attend, and we spent a number of months discussing alvin toffler book the third wave.

This was a book over four hundred pages long, publish in one thousand nine hundred and eighty. And IT was about the future, the first wave being the agricultural revolution, the second wave, the industrial revolution, and the third wave, the information revolution. Back in high school, I didn't understand much of the book.

In fact, I found IT was boring. As the other students, we spend a lot of time playing boggle the word game during class, although we had some meaningful discussions about the future and what was going on in in the early eighties. Forty years later, I read the book, I was amazed how much more clear IT was tops.

I wrote, the third wave brings with that a genuinely new way of life based on diversified renewable energy sources, on methods of production that make most factory assembly lines absolute. I knew non nuclear families on a novel institution that that might be called the electronic cottage and unrated ally change schools and corporations of the future. Above all, the third wave civilization begins to heal the historic breach between producer and consumer, giving rise to the consumer economics of tomorrow.

Presumers is a word tougher made up. IT means consumers who produce or do a lot more things for themselves in terms of productions. And that's where he talks about methods of production that could make assembly lines obsol.

He felt that we would have much more laser time, and given the cost of services to produce things that we would produce more and more. As the work week got shorter, he gives the example of a dress pattern where the consumer would buy a cassez tape with a program that would drive a smart electronic story machine. Even the clumsy est house husband he wrote with such a cassez could make his own custom fitted shirts.

Mechanically, incline tinkers could do more than tune up their autos. They could actually have build them. As with most long term predictions, forty predictions, there was an element of truth.

The rise of youtube means we can do more things for ourselves if we choose to do them. But we're not. We're buying more and more things in the us. The population has cried sixty percent since nineteen and seventy, yet we consume four hundred percent more than we did back then. I saw a study by pitney bows that showed over the last five years, this would be through twenty twenty one global partial volume.

The amount of packages shipped increased at twenty percent analyzer rate harder, and fifty nine billion parcels shipped in the thirteen Marks that they track in twenty twenty one, that five thousand parcs every second, four hundred and thirty six million moving through the system each day. That's sixty six parcel per person per year coming to their house, one hundred and sixty six parcels per housel. That's on average three or four arrivals of packages via U P, S, fedex, amazon delivery per week per housel three to four packages.

We can compare that to india. Only two parcel per person per year versus sixty six per person per year in the us. And surprisingly, seventy seven parcel per person delivered per year in china.

Back in the two thousand united states, postal surface shipped two point four billion packages. Last year, I was seven point two billion. We're not making more things at home.

We're buying more and more things in. The volume is increasing. Now top ler felt that we would be working less. In fact, women are working more. Fifty seven percent of women are working versus fifty one percent in one thousand nine and eighty in men, the percenters drops.

So it's gone from seventy eight percent down to sixty eight percent in the united said today, the average worker is working about the same as they were forty years ago, about eighty hundred hours annually today, versus about the same back in one thousand nine hundred and eighty forty years ago. In sweden, an example that topper gave was working less and less fewer hours back in one thousand nine hundred and eighty. They're actually working more hours today, fifteen under and twenty hours in one thousand and eighty and over sixteen hundred hours today.

Now other countries are working less today than they were back in one thousand hundred and eighty, but that the presumed having more time to make things, they are not. And in many cases, they don't have more time. One of those those other predictions was that we wouldn't need secretary administrative assistance to type for us, that we would be able to just dictate whatever we said and send IT off electronically partially right? IT didn't free up enough time.

The ease of sending email, which he eluded you in his book, has LED to twenty eight percent of people's workday is spent reading an answering email, according to mackenzie. That's about two point six hours a day on email, hundred and twenty messages per person. He mentioned this electronic cottage, which essentially was worked from home.

And more, more individuals are doing that, but they're not working less, at least in the U. S, of working about the same. He was correct about an energy transition, but he felt that oil Prices would Spike because there would be a shortage. In fact, the idea of peak oil shortages that's been predicted many, many times.

Tough the vote, whether the n comes in the oil in some plomaert irgc or more likely, in a succession of sing shortages, temporary gluts and deeper shortages, the oil epic ending, iranians know this kuai nigerians Venus wallet to know IT, petroleum companies know IT, which is why they're scrambling to diversify out of oil. One president of a petroleum company told me at dinner in tokyo m not long ago that in his opinion, the old giants will become industrial dinosaurs as the railroad tap. His time frame for this was breath takings.

Ly, short years, not decades. That has not happened. There is an energy transition. Toffler felt that the relative Price of oil would continue to climb higher and higher. In fact, the real Price of oil, after adJusting for inflation, is lower today at eighty one dollars a barrel than IT was back in the early eighties when IT was over ninety five dollars of marrow.

Adjusted for inflation, there is an an oil shortage at times there's a glut and that because of technology has allowed greater access to oil through horizontal drilling, fracking, Better determination where there are oil deposits, total mental oil produce has increased by two thirds between one thousand and ninety five and two and nineteen. And we have not despite more renewables, our primary energy supply around the world is still heavily dependent on fossil fuels, eighty percent in the us, ninety percent in japan. Overall, the world's dependent on fossil fuels has gone the last twenty years has gone from eighty seven percent down to eighty five percent, even though renewable energy is increased fifty times even with the renewables.

Some of the technology used to generate electricity, such as steam turbines, that was invented back in one hundred and eighty four, the gas turbines was deployed commercially in one thousand nine hundred and thirty eight. And so as I think about this forty years, looking back forty years, looking ahead forty years, life isn't that different today than IT was forty years ago. And I thought about this as I was.

We were in spoke in washington. I was walking in the neighborhood on the south side of spoken. Many of the houses were built in the twenties, beautiful homes.

And there was still a lot of cement being used. A lot of oil, gas were still eating basically the same food. If someone time traveled forty years IT wouldn't be that different in my senses. If we look forty years ahead, IT won't be that different. Things take a while to develop.

Now there there's been times when we consider the world of thousand and eighty verses, one thousand nine and twenty or one thousand nine, twenty to nine hundred and sixty, but from one thousand and eighty to twenty twenty, IT hasn't changed. In part of IT is because the scale is so much greater with eight billion people. There are so many people in the world is so increasingly complex that is not easy to have a major transition.

For example, four billion tons cement are produced each year, two billion times of steel, much of IT to build out the developing world. If we look at per capital power consumption in developed markets, it's basically plat toed at about eight point to make lot hours per person. And that's going back to two thousand five.

So our use of energies more efficient even though it's still highly dependent on fossil fuel. But if we compare that to developing world, they're using two point seven, eight, eight hours per person. That's up from one point five megat hours per person in two thousand five.

I don't think the developing world to get up to eight point two mago hours per person. Hopefully those two numbers, developed world and the developing world to come closer. But clearly, there will be more demand per person, per energy.

Much of IT will continue to come from oil and natural gas and coal. Unfortunately, last year, we did an epson on population. The population is a little easier to predict because it's based on fertility rates today. With eight billion people living on the earth today, that's expected to be nine point seven billion in twenty fifty and ten point four billion and twenty one hundred.

So not only will the developing world get more populated, even though areas the developed world will see their population stagnate, the demand for these big things that we need, oil, cement, fertilizer, that will continue to put pressure on the world's resources. And lead to the continuation of of rising world temperatures. If we look at and this is prepared by nasha, the average annual temperature across the world today and then going back compared to the long term average from one thousand hundred and fifty to hundred and eighty, that average temperature has increased pretty much every year.

The world is getting hotter. And because of that climate change, there is more variability. We get greater extremes like the extreme heat we're seeing this year.

But we also see extreme flooding events because warmer air can hold more, more moisture in clouds, which increasingly dump records amount of rain in records amount of time. The understanding of climate change and global warming, not new scientist, understood the mechanics of IT back in the late ninety century. But there's been a collective reluctance to take action.

We, as humans have a status quo bias. We don't like to make changes. There's a level of inertia. We can see that recently in the controversy regarding congestion pricing in new york, the federal highway administration, just to prove that manhattan could charge higher fees to enter manhattan south of sixty a street, depending on whether the rush hour or not.

Proposals are twenty three dollars for a rush hour trip to seventeen dollars during off peak hours, and the ideas that would raise a billion dollars a year to go toward mass transit, maintaining the subway system in new york after the approval, new jersey, the statement jersey filed a lawsuit trying to stop IT governor fuel Murphy of new jersey, who is democrat, said, the bottom is that we have to put our foot down to protect new jersey. We're not going to allow this poorly designed proposal to be fast track. There is a reluctance to change.

There is a reluctance to be inconvenience. And so as we look at forty years, given the demands of a growing population, the demands of a highly complex system using technology, in many cases decades, if not over almost a century old, to produce energy, despite renewed on the margin, the mass is so big that were unlikely to see massive change when IT comes to combat in climate change, which will impact investing as or get to in a moma, which was with this members question. Before we continue, let me pause and share some words on this week.

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Now there are pockets where there is extreme temperatures that the impacts economic output, and saw an article in the lost y journal focusing on businesses in the city area that have had very, very hot summer ninety days of hundred degree plus temperatures, and that you can see IT in the workhorses small businesses, employees that work for small businesses in texas in tourism, arts and entertainment are working fewer hours to summer versus prior years. Businesses are seeing fewer people come and go out to eat. They're staying at home because it's so unpleasant hot, but that means it's more pleasant somewhere else.

Where is usually maybe colder this time a year and so that the economic impacts and including from disasters can IT will impact local regions. But when we talk about investing, we're talking about global investing. Will climate change impact global investing? The uncertainty is sure we change how we invest if we're looking out forty years. And in some ways, no, because given the population will continue to increase, given technology will continue to evolve, allowing for workers to become more productive, given there continues to be demand to purchase goods and services as we've seen four hundred percent increase in demand for goods in the us.

In the last fifty years, human nature doesn't seem to be changing despite the risk of climate change, which means corporate profits and aggregate will continue to grow and corporations will continue to pay a share of this corporate profits and dividends so that dividends and that dividend growth will lead to increases in the stock market over time. Just like we've seen over the past forty years, the base cases that will continue mothers been chAllenges in terms of, well, how to stock holders see the climate risk of the individual companies. The c last year announced that companies we're going to have to start reporting or estimating their direct Greenhouse gas emissions.

That would be scope one emissions as well as indirect Greenhouse gas emissions from purchasing electricity, and then scope three, which would be missions from their suppliers. There was a lot of push spec to that by businesses saying it's too difficult to calculate or not can be able to do IT. We're double counting.

That includes companies like exxon and walmart have fought the reporting requirements. And as result, individual investors try to figure out well who's at risk from climate change and to what extent they have hard time to do that because companies are reluctant, in many cases, to report IT or the risk models are using aren't adequate and they will be impacted somehow. We don't know how severe, but in aggregate, across thousands of companies across the world, unless we hit some type of global tipping point, a major, major catastrophe, he like forty years and now won't be that different today to be warmer and they're be pockets of suffering, clearly.

But in aggregate, things will probably be Better than they are today, hopefully in terms of quality of life and well being. And that does that mean we can ignore the human suffering. But we have to be Frank, collectively, the world seems reluctant to act to implement carbon tax to change consumption habits.

But that doesn't absorb us from our own personal responsibility. On average, four packages per houseful per week. I thought I think about a lot at our cabinet idaho's d because ups driver visits some of our neighbor's four times a week.

And it's a good six miles out of the way to drive up into the little mountain subdivision to drop off a package. Ups drivers shown up at seven o'clock ck. He's at the end of his right that the last thing he wants to do is to drive six miles out of the way on bumpy dirt roads to deliver a package.

So we just try not to to order anything that will be delivered to our house because I don't want to take off the U. P. S.

driver. So we can, we can take personal responsibility to reduce consumption. It's not happening collectively, at least what we've seen in the last forty years when climate change has been well known and even before that.

So our report, a book coming out called wasteland, was profile in G. Q. Talking about donations of use clothes, ten to thirty percent of second hand clothes, donations that that go to a second hand store, the only tend to thirty percent result.

A lot of IT could destroyed or it's getting cent to the southern hemisphere. Sixty two million tons of clothing is manufactured every year. That's about eighty to one hundred and fifty billion garments player. When there's only eight billion people, we're making ten to twenty times that amount of clothing each year and were drowning in close. And yet the buying continues despite everything we know about climate change.

So when we think about investing for the next forty years, how do we invest generally investing like we're already investing in the last forty years, primarily and stocks because his earnings grow, dividends grow, the stocks market will appreciate. We'll get new technologies that will increase productivity, will have cash flow, will have cash flow growth. We do need to diversify.

I use an asset garden approach with a large variety of asset types, including portfolio hedges. No, we shouldn't put all of our money and gold thinking we're going to get some type of huge catastrophe. But I five percent in gold, five percent in crypto currency, own land.

Maybe we'll get a huge catastrophic tipping point with the client. In all likelihood, we're going to be somewhere between catastrophe and the technical optimist. AI is not going to save us a topic we discuss an epson for thirty nine.

It's fascinating technology. It's helps us be more productive, as I discussed, which could increase corporate profits. We don't know who those will accuse to hopefully across the entire economy. By last week, sam altman en and alex benia announce something they called world coin, where they're building this data abase. I hope you get eight billion use user to get their irises scand.

They will be able to prove they're human because the fear AI will get so smart that we won't be able to tell who is human or not seems unlikely, just given what i've have learned about A I, and certainly people much, much smarter than that. Yan lecon, who has met as chief A I scientist, has said that large language models like ChatGPT will never achieve real understanding on their own. Even if trained from now until the heat death of the universe.

It's just not how they're made up. Emily bender, a computational linguis at university washington, describe G, G, P as a static tic parent to word predictors I ve used in the past. But as some all in point sale, that's what our own brain does.

IT can make predictions, long term predictions, as we seem with tofu. Er some can be correct, some can be wrong. But there are emerging properties that can come if somethings very simple, and that A I is amazing.

But IT is not going to solve climate change. And while IT can help us be more creative and productive, it's not gonna totally change the world, just like in some ways, the internet. We still need steel.

We still need cement. We still need oil and natural gas, and call the build houses to grow food the basics. The entertainment options are so much greater today.

The ability to learn and grow and read that e books, the internet and now AI is absolutely be amazing. But given the scale of what underpins the global economy and the complexity, it's not gonna be completely transformed by AI in the next forty years. So we should continue investing like we have been investing long term, diversified some hedges, primarily cash low generating assets.

But what we can do is increase our flexibility, our spending flexibility, keep our debt baLancers low, live in away that we can adjust if our income changes or if there is some type of catastrophic tipping point because there will be at local levels in some areas less likely globally. But certainly some areas were even in our own family. We lose our job.

There's a flood, there's an earthquake, and we need to have that margin of safety, that savings and emergency savings, perhaps emergency food supply, not be so constrained that we can't cut our spending and survive without default ting on debt. So we can build an flexibility and we can decide personally what we feel morally responsible to do regarding consumption and contributing to climate change, particularly if in a country where we're overconsuming relative to the rest of the world. But looking out the next forty years globally will continue to change, gradually, will model through theyll, be local tipping points, war, disaster.

But the idea of a technical, optimistic future, where it's gonna the singularity or the world is going to completely collapse and will be back living like the one thousand nine century, just seems incredibly unlikely. And we an invest based on that. We should invest in the diversified way, but make sure that we build in our personal resiliency and flexibility for whatever may come.

The next forty years, in some ways, will be a lot like the last forty years. That episode four forty two. Thanks for listening.

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