Q&A: Looking Back and Moving Forward

This quarter’s Chat with the CIO (Eric P. Leve, CFA) features Blaine Townsend, CIMA®, CIMC®, Director of Sustainable, Responsible and Impact Investing. Eric and Blaine kick off a thematic edition of “the 9:05” by looking back at the 2010s and considering what the next decade holds.

December 31, 2019


Eric P. Leve, CFA: Blaine, you and I can often kick around a wide array of topics when a free moment arises. We’ve both had at least a half-century on this planet, a period in which the earth has seen its share of changes from social and technological to financial and political. But, not to fall victim to the “recency effect,” I don’t think I’ve experienced a decade where the interactions of these spheres have triggered more fundamental change. Let’s take a look at a small slice of the major events of the decade and, with great risk, try to imagine where they might lead us moving forward.


Blaine Townsend, CIMA®, CIMC®: As financial wonks, it’s tempting to start our conversation with the markets. But really, that’s just a reflection of how our lives have changed. Prior to 2010, “Hey Siri” or “OK Google” would be met with dead air. Easily read a magazine or watch a show in bed? Think paper or a TV set, since iPads didn’t exist. The change in video content has transformed water cooler talk dramatically. When TV networks dominated, top shows captured a majority of watchers and drove fervent conversations the next morning. Now, with everyone binging their own highly-curated selections, that discourse has fallen away. The ability to self-select has far-reaching implications.


Eric: Definitely. “Nightly News” has given way to hyper-personalized newsfeeds. That process has changed the dialogue: we now get the news to fit who we are (or want to be), leading to increased polarity of viewpoints. Worse yet, we are finding that social media is doing the same thing, sending us messages that algorithms calculate to fit and incrementally tilt our perceptions.

Blaine: It may not be too much of a stretch to say that modern media delivery helped fuel some of the division we’re seeing more broadly in society. 2010’s dawn of the Arab Spring was widely described as the first crowd-sourced protest. The Arab Spring is interesting: it initially brought a wave of weak democracies in place of tyrants, but by the decade’s end, there was little to cheer. With the exception of Tunisia—where it all began—most of these countries today are no better off socially, economically, or politically than in 2010. Of equal importance, this foment led to the Syrian Civil War and the exodus of Muslims from the region to Europe.


Eric: And that was undoubtedly the catalyst for much of the populism that grew in Europe over the past decade. The impact has been a much more restrictive environment for immigrants into Europe and faster turnover of the Continent’s elected leaders. Populism, along with the ongoing struggles to build the European Union, will presumably continue in the next decade.


The UK’s exit from the European Union doesn’t seem likely to inspire other countries in the near term. If anything, the combination of the upcoming leadership change in Germany and Christine Lagarde’s new vision for the International Monetary Fund should pacify the bloc’s southern countries and, with luck, build a stronger union over the next decade.


Blaine: I’ll take the other side of your argument here as well: although modern media may have led to some myopia, it has also provided a platform for some that otherwise might have failed to find a voice. Generation Z calls itself a “woke” generation, one more sensitive to social justice than any other in at least 50 years. The ubiquity of social media and the intensive use of it by Millennials and Gen Z’ers has propelled many movements. “Occupy” and the “99%” were first used in New York in 2011; the idea of inequitable income distribution became a thread that ran through many other causes during the decade.


But, echoing your thoughts above regarding social media, the idea that our data wasn’t solely being used to serve us, but to manipulate us as well became clear through the Cambridge Analytica scandal. We accept cookies and perceive them as a small price for access to myriad sites. The underlying truth, only now becoming clear, is that we are trading our privacy for convenience. Relatively speaking, the reactions have been swift: from Europe’s GDPR in 2018 to the California Consumer Privacy Act that just went into effect on January 1st. Here I feel a bit optimistic. The response time between the recognition of issues and the implementation of legal and/or technological fixes seems to be shrinking. And, it serves as a signal of another broader shift in the last ten years: consumers and investors alike are demanding greater transparency and accountability.


The underlying truth, only now becoming clear, is that we are trading our privacy for convenience.

Eric:Alright Blaine, you brought up investors, so let’s talk turkey. What has the market told us over the past decade?


Blaine: A lot. Just looking at the composition of the S&P 500 Index shows how the world is changing.


This first one’s not a shocker: technology is booming. At the end of 1990, the sector made up less than 6% of the S&P and now, at the beginning of the 2020s, it has grown explosively to almost 20%. In the past few years, it grew so large that S&P moved some of its largest index member companies to other sectors; if you include those, technology would have comprised 28% of the S&P at year-end.


On the flip side, in the early 1980s the energy sector was the largest in the S&P, reaching as much as 28% of the index. By the beginning of 2010s, its share had fallen to 11.5% and, as of year-end 2019, it was just 4.3%. But this doesn’t mean that U.S. energy production is suffering; it is actually quite the opposite. In 1970, U.S. crude oil production hit ten million barrels a day before declining to as low as five million per day a decade ago. According to the Energy Information Administration, the U.S. should produce more than thirteen million barrels per day in 2020. The reality, though, is that modern drilling in the U.S. is productive but not profitable. And even that productivity is diminishing as oil wells deplete faster than anticipated. In a future where it takes less energy to produce a dollar of GDP, this trend will likely continue.


For further proof, just ten years ago at the turn of the last decade, the largest U.S. corporation by market capitalization was an oil company. That company fell to only the twelfth largest in the intervening ten years. And now, the five largest companies are technology-related.


These trends are likely to continue in the next decade and what we narrowly call “technology” has become the foundation of most every commercial enterprise. From “smart” utilities and industrial robots to the Internet of Things, it is hard to imagine what aspects of our lives will be truly “analog” by 2030.


Eric: What do you think about the “graying” of America, namely the demographic shift as Baby Boomers retire in ever-greater numbers and America has fewer working-age people to replace them?


Blaine: Absolutely right. In 2020, the global population will have more people over age 30 than under for the first time. This will be a decade where those Baby Boomers will demand more from technology and healthcare to keep them vital and connected to their families and communities. At the other end of the age spectrum, it is a daunting time. It is probably less clear than at any point in our lifetimes which job skills will be most needed in an increasingly post-industrial economy. With population growth slowing generally and little perceptible increases in productivity, economic growth may not be the tailwind it has been for much of the post-WWII period.


Eric: OK, we’re both running out of time and caffeine. Let’s each throw out a final thought for the next decade.


I’ll start with my not-quite-unabashed love for the “sharing economy.” One example is car sharing. It may be a bad business model but for elderly, mobility-impaired, blind, inebriated, or non-car-owning people, it is a brilliant solution. The next decade will tell us whether these seemingly beneficial services can be profitably and responsibly delivered. Up to this point, they are neither money-making nor adequately-regulated.

The next decade will tell us whether these seemingly beneficial services can be profitably and responsibly delivered.

Blaine: Good one. I’ll go with plastics, a topic on few peoples’ minds in 2009. The recent realization that much of recycling has been a hoax—that we have simply shipped our waste to developing countries who are now less willing to accept it—is a significant turning point in the conversation about plastic. Individuals can continue to debate the sources of C02 and O3 levels, but the mounds of plastic are undebatable and everyone can play a daily role to mitigate it. The convergence of social media, climate change, technology, and demographics will only gain strength ahead.


Eric: Thanks Blaine, I look forward to continuing this conversation over the next ten years. It will no doubt be an interesting decade with innumerable reasons for chatting at the (potentially virtual) water cooler.