The Hitchhikers Guide to Climate Change

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Addressing climate change requires a mix of practical solutions, innovative thinking, and a change in our collective attitude. It’s like realizing that the Earth is not unlike a spacecraft, and we’re all astronauts. The only difference is we can’t step out for a breath of fresh air if we mess this up. As we embark on this journey, remember the words of the great intergalactic traveler, Ford Prefect: “Don’t Panic.” With a bit of effort, creativity, and a willingness to change, we can navigate through this. And perhaps, one day, we’ll look back and tell ourselves, “So long, and thanks for all the fish” – knowing that we did our part to keep the planet habitable for the dolphins, and ourselves.

Today, Tomorrow, and the Apocalypse

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The future does not need us, and apparently, we don’t need it either.

The future isn’t what it used to be.

Humankind evolved to have a long-term view, either from religious teachings, the seasons, empires, and epoques, beyond the temporal spaces of our lifetimes. We went from living in an extended present to thinking about a long-term future.

Our horizons have gotten much shorter. When I wrote my latest book, “The Ten Year Horizon,” ten years seemed a sufficient and faraway temporal space to discuss a long arc of basic scientific research and discovery that could address our most urgent problems. However, it’s most appropriate to think a century ahead in order to understand the future we really want. It’s not just for us, it’s for generations to come.

Collectively, mankind has never had so many ways to destroy itself through self-made dangers including nuclear weapons, bioterrorism, climate change, antibiotic resistance, and many other self-manufactured threats. It is time for temporal maturity and ignore the tumultuous waves striking the boat today and keep our eye on the long-term horizon.

Short-term thinking has brought the potential for a catastrophic crisis even closer. Perhaps now it is time to grow up and think about the future. What do we want to be – because whatever that may be, we are certainly not working towards it now.

Uncertain Markets and Future Returns

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Volatile stock and bond markets are not going away anytime soon, and investment strategies focused on discipline, market-tested algorithms, and the patience to withstand near-term turbulence will continue to deliver better results. As US stocks have dropped about 25% and US long-term treasuries dropped nearly 30%, specific strategies that combine futures, derivatives, and other securities along with market-neutral equity trading have produced superior returns. This impressive overall performance can be expected to profit from market movements and even market shocks that, while specifically unpredictable, will be inevitable from now on. In the face of dismal predictability and lack of confidence, it is discipline, time-tested algorithms, and a multi-strategy perspective toward broad market sectors that have outperformed and will continue to deliver superior risk-adjusted returns and better overall performance.

Digital Assets, Central Banks, and Regulators

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The collapse of FTX shows how easily crypto is manipulated and the “crypto ecosystem” is fundamentally driven by centralized players and not any true form of decentralized or digital assets. Cryptocurrency is a sideshow and benefits no one other than speculators hoping for a greater fool. However, the combination of digital asset regulation, central-bank cooperation, and distributed assets via decentralized platforms still represents one of the most intriguing opportunities, and, with the potential disruption of global finance, one of the most exciting investment areas today.

The Next Ten Years

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The onslaught of market-making bad news seems almost a daily event. A gloomy picture of slowing economic growth, elevated inflation, and confusing fiscal and monetary policy has added a lethal mixture to the market’s performance. Fiscal stimulus is sidelined, and monetary policy is constricting economic growth and entrepreneurial innovation. It makes for a gloomy outlook and an even more depressing long-term perspective. The next 10 years look more like a lost decade. High-growth company valuations have been significantly discounted, and over time as discount rates drop, their valuations are likely to increase substantially. Higher-yielding fixed income securities will be a standout performer as interest rates are reduced, the higher-yielding BDCs, REITs, leveraged loan securities, and high cash flow instruments, along with high-dividend equities, will prove extremely attractive and are currently available at bargain prices. Providers of value and users of value will be the winners for the next decade. Those generating real cash flow and disruptive innovation will define the next decade.

Predictions and Nonsense

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Predictions usually end up being nonsense. We simply draw a trajectory from what we know today. But innovation is a discontinuity. Things are unpredictable because innovation does not come from consensus thinking. It comes from small groups and individuals with a spark of entrepreneurship, intelligence, and vision.
One of the fundamental tenets of predicting technology is that most forecasters get things spectacularly wrong.

A Monster Is on the Loose

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The rewards for innovative success have become enormous and unpalatable, especially among the five technological giants (Amazon, Apple, Facebook, Google, and Microsoft) forcing these firms to spend absurd amounts of money on lobbying in Washington DC. It’s an expensive and wasteful distraction, but essential in this brave new world. If nothing else, it clogs innovation. It is to our detriment – and the world is literally burning while politicians fiddle – and even more disastrously – impede innovative activity. Applying friction to free thinking and new ideas never ends well.

Does the Future Need Us?

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Brilliance combined with quirkiness and rule-breaking perpetuates an image of daring entrepreneurs and risk-taking capitalists generating outsized wealth. This simply doesn’t happen unless what is created matters. While we might question how much one needs to play a videogame or interact with social media, an advanced society needs advanced solutions to the intractable problems it faces. As John F. Kennedy said, “Our problems are man-made, mankind can solve them, as well.” Perhaps. The harsh reality is that brilliant, hard-working entrepreneurs and thoughtful investors lose much more often than they win. We need their risk-taking and willingness to lose. It’s how we win. We need the benefits technological innovation delivers even if we don’t understand that innovation’s ultimate purpose.

A Solution and a Sideshow

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Innovation is unpredictable and astonishing – it can address the world’s most critical issues today, from hunger to efficient energy, to devastating diseases. It is also too often misguided, inefficient, and meaningless – creating nothing more than distractions and wastes of time cloaked in an image of technological wonder. Misguided and manipulative business plans sit side-by-side with the groundbreaking disruptions that may address society’s greatest problems.

Think Differently and Better

Think Differently and Better

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The market is consensus thinking. Performing above average means being different. Simply being different doesn’t define success. Success means understanding what it takes to not only think differently but understand when consensus thinking is wrong and executing and implementing those choices effectively. Doing better (generating superior returns with less overall risk) is difficult. Understanding “what’s really going on” is not a simple formula. It requires different, deeper, and better thinking. Depart from the investment crowd, focus on the factors that are necessary and, in combination, sufficient to make a difference, sustain performance and manage risk. It’s not easy or obvious, but it is superior.