Since 1990, global growth has been a product of American strategic, technological and financial largess directed abroad.
Markets have been driven by convergence and consolidation in interest rates, currencies, technology, capital flows, politics, and way of life. Alongside this has come a consistent drop in volatility and ever-more bureaucratized investment strategies.
But the age of global consolidation is over.
The US has been withdrawing from the world stage, and its disengagement is accelerating. A disengaged and independent US is leaving political and financial vacuums in its wake, causing volatility and greater multilateral entanglements. At the same time, the investment community has doubled down and is highly leveraged to global consolidation and continues toward underperforming, copycat strategies.
The era of idiosyncratic volatility has begun.
Countries reliant on an American system of global stability will experience extreme challenges in reinventing their economies — a process which will be met with many bouts of country-level volatility. Independent, non-bureaucratized strategies are the only ones which will thrive in the coming age. In the coming world, high valuations are driven by independence rather than consolidation. Profiting from this will require unencumbered philosophies and teams. As the world structurally rebalances, it is the nimble, boots-on-the-ground approach which has the edge in capturing crisis alpha and rapidly advancing local opportunities.
The generational hand-off will forever change the way the West thinks about investing.
Having their sociopsychological roots in Marxism and their financial lives anchored by central bank subsidies, the Baby Boomers whose influence once dominated the capital markets have exhibited an unique intolerance for volatility, new ideas, non-bureaucratized productivity and other kinds of economic “bio-diversity.” As Baby Boomers retire, the indebtedness they leave behind is more extreme than at any time in human history. The dynamics caused by this retirement will induce a financial Irish Potato Famine. Millenials are left with few traditionally safe options.
Because all other industrial nations including China are facing near terminal demographic decline, American Millenials are the only replacement population cohort in the industrialized world. They are stuck with the world’s bills — an intergenerational White Man’s Burden. But they will also assume the industrialized world’s demographic and sociopsychological leadership. The Baby Boomers’ system was dependent on extracting subsidies from the Millenials’ future. And so as Millenial Americans come to dominate the markets, they find they would toss out the entire system if they could.
The entire complexion of the investment industry and financial markets is about to change.
Millenials prefer the experiential and values-driven to the grandiose materialism of their utopian, Baby Boomer forerunners. The monoculture of bureaucratized investment managers will give way to a hand-hewn polyculture of practitioners — a global heterarchy of independent, technology-enabled, lifestyle-forward, “authenticity-driven” managers who place a unity of philosophy, strategy, and tactics at the forefront of their business models.
The new model of investment manager is independent, plugged-in, maverick, of the people, professional but out-of-the-box.
The retreat of the Royal Navy brings out the rakes, pirates, individualists, entrepreneurs, engineers and poets. These personalities will once again populate an industry of accountants and jobbers. America’s gift to the world is her frontiersman ethos: the possibility of each individual building and creating according to a higher power, but NOT dependent on tribal kin groups for direction and ideas. A mature Millennial breed of investment manager combines vintage with global, individualist with responsible, lifestyle with contribution, and creative with high Sortino ratios.
Millenials bear a great responsibility.
The previous generation which fetishized the anonymous, materialist, utopian end of history tried fervently to cover the tracks of our civilization, to murder our primeval king. And in the wake of the financial calamity they leave, it is up to the Millenials to reconstitute the vibrancy of our culture. Otherwise we will fall into permanent secular decline. The collapse of the old pyramid cannot be rebuilt merely by copying the previous, legible hierarchies. Millenials must go into the ancestral forest and call forth the ancient lessons. They must call forth their instinctual genius, creative spirit, and hawk-like innovation.
How we think about investing and custodianship of the future is central to our renaissance.
-RC