I’m thrilled to be here with you. Hopefully, people will trickle in, and if they don’t, there’s an upside. Here’s the upside for you: I came bearing your present to incentivize some questions. This is the second edition of my book, which just came out last month. [visual] I was going to offer a copy of the book for the best question. The person with the best question will get a copy. Second best question, we’ll give you two books. And, of course, third best question, you might have to read the book. So, anyway, I’m thrilled you’re here. Let me begin.

We’re facing a world filled with chaos. It’s hard to make sense of it. We’re not sure what to make of it all, but I have a framework for thinking about it that I’d like to share with you, and hopefully it proves useful for helping you figure out how to navigate through this uncertainty.

Here’s a handful of topics we can talk about that could be on your mind given the news of the day. [visual] You can say, “Oh my goodness, what’s happening in Hong Kong?” In fact, open any news channel this morning, and you would have heard all this news about Hong Kong protests. But, of course, if you’re from the U.K. or pay attention to what’s happening in the U.K., you would say there’s the Brexit consideration and what’s happening there and Theresa May. And Mexico and the U.S. are having this trade spat, and maybe it’s getting better, or maybe it’s not. There’s the Federal Reserve, etc. You can go down the whole list here, and there’s a lot of chaos. There are all these confusing crosscurrents that are out there.

What are we to make of it? Well, what I want to suggest to all of you is that there are some root causes to everything that we see here. We can disentangle, we can pay attention to what’s happening at that root cause level, and that will give us a better understanding of why everything we see happening is happening. It will help us make sense of what’s happening and also give us a way to navigate through it.

So, what are these four root causes that I’m going to talk about? There are four transitions, four key transitions, that are underway, and that’s really, I believe, the source of the current chaos. Let’s dig into them.

The first one is what’s happening in China. China underwent a credit-fueled investment boom, which has since gone bust. They overbuilt. The result has been extra capacity, too much supply, if you will, in areas such as iron or steel, copper, zinc — all the things that go into building stuff. They’re transitioning through that overcapacity toward a consumer-led society. It hasn’t yet happened, or it’s starting to happen. It’s underway. So that’s No. 1.

No. 2 is what’s happening with technology. And what we see happening in technology is that there is an acceleration of output, greater productivity, more outputs given similar or fewer inputs. The result is more supply. If China has an oversupply problem, I would argue that technology on a global basis is exacerbating it. It’s making it worse. So we’re having more supply being produced, given similar inputs.

No. 3 is what’s happening with energy, and here we have developments that are taking place in alternative energies as well as traditional energies. The United States is having a fracking- and shale-led investment boom, which is producing a lot of supply. So there’s a lot more energy in the world today. One might argue there’s a lot more supply forthcoming, and so we have more supply, or extra supply, because of too much supply, if you will, because of the Chinese transition. We have more supply coming because of the technology acceleration. We have more supply coming because of the energy developments.

And No. 4 is we look at demographics, and we see that the world’s aging. The world’s largest economies are all aging. It’s true in the United States. It’s true in Europe. It’s true in Russia. It’s true in China. It’s true in Japan. And what we also know, with pretty good evidence, is as countries age, they spend less on average, and so the result is less demand.

Does it surprise us then, given these four transitions, that when we put these pieces together, think about what I just said. I said No. 1: China transition, more supply, overcapacity, too much supply. Transition No. 2: what’s happening with technology and acceleration of output, more supply. No. 3: energy, technology developments, other developments, more supply. No. 4: demographics. What’s happening? Less demand. And so when we put these pieces together, what we see is that we have deflationary pressures, not inflationary pressures. And if you see the deflationary pressures in the world, this will help explain a lot of what’s going on.

First of all, you know that when countries have a production capacity that’s larger than the global demand for something, they want to compete to make sure they’re able to attract that little bit of demand. Think of smartphone manufacturers today. If there were a smartphone company based in Korea, they’d want to sell their devices globally. They’d want the Korean won to be lower priced compared to the U.S. dollar, the Japanese yen, the Chinese renminbi, because it would make those Korean smartphones that much more competitive on a price basis. But the Chinese don’t want to stand by for that. They want the yuan to be lower, and the Japanese don’t want to stand for that. They want to have the yen to be lower. And the result is, you have a currency war dynamic where countries use their currencies to compete for the demand that exists in the world.

Does it surprise you then when there’s this rising tide of winner-take-all dynamics? Some countries are going to win; some are not. Within the countries, some industries will win, and some will lose. Technology is sort of creating this dynamic where there are winners take all. Inequality is rising within countries, and, as that happens, it leads to some of these unrest pressures. You have “I don’t” and “I want,” and so the result is take to the streets.

Now, this gets manifested in lots of different ways. In Hong Kong, it happens to be under the guise of politics. We don’t want the Hong Kong government to be able to extradite us to China, right? So that was the news of the day. But the unrest could be like Occupy Wall Street. They have too much money. We don’t have enough. It could be a form of Brexit, which you could argue is a form of unrest.

And so populism and nationalism are close cousins of this dynamic. Because in this world, where there isn’t enough demand, and some people are winning and some are not, it’s a fertile terrain for a political leader to step forth and say, “I hear your pain. I understand it’s not your fault; it’s their fault.” Who’s “they”? It doesn’t matter. It’s the other people; it’s their fault. They are the reason why you are not enjoying the life you think you could have. And so the phrase becomes “Make blank great again.” And it could be “Make America great again.” It could be “Make the Philippines great again.” It could be “Make Britain great again.” It can be “Make Brazil great again” or Mexico or whatever it is. It doesn’t matter. Because this idea that the world economy is what we should pay attention to doesn’t make sense in a time when people are being left behind.

And so the ordinary person on the street says, “I know you’ve told me that globalization is good. All these economists have been saying globalization is great, and it lowers the cost, increases trade and produces these gains for everyone to share. Isn’t that a great thing?” And the ordinary person says, “No, I don’t care about the global economic pie. What I care about is my slice.” We care about our slice, not the pie size. And so the result is that, instead of globalization, you start seeing things like “slowbalization” or reverse globalization or what have you. It also naturally leads to protectionism, right? Tariffs, trade wars. Doesn’t that make sense? In this world where you say, “Forget about the size of the global pie, my slice, that’s what we care about. Tell me about the American slice, not the global pie.” And when you get that dynamic, what you see happen is all the dynamics that you see today — trade wars, tariffs, protectionism, nationalism, all that populism.

These are natural outputs of these conditions where you have too much supply relative to demand. And despite that — this is the part I find fascinating, and many of you in this room probably think more about financial markets than I do. I tend to think on the economic level rather than the financial level. But when I look around the world, the market doesn’t seem to care about these dynamics. This is a pretty pessimistic world I just described to you, right? So I’ve got this pessimistic outlook, or not outlook, but current worldview, and the market doesn’t care. The U.S. markets are within 2 percent of all-time highs. China’s market is up 15 percent, 20 percent this year. Markets don’t seem to care. And if they don’t care, the question is, where’s the disconnect? What are we missing? And so I think that’s just a really interesting point to pause on.

All right, so I realize we’re in Miami, not Las Vegas, but I suppose if the bar were open now, given that description, we would want a drink because it’s pretty depressing. It’s a pretty depressing outlook or view of the world. By the way, everything I just said, I believe it’s all true. I think these dynamics are in place. These transitions are underway. There’s too much supply relative to demand in aggregate. This is aggregate global supply versus aggregate global demand. Of course, there are countries and areas and pockets where that may not be the case. The United States’ labor markets today are tight; they may have wage inflationary pressures. That’s not suggesting that that’s not true; I’m just saying, on a global basis, deflationary pressure is ruling, and, if that is ruling, then these are the outcomes. So now I’m going to say something that I also believe: Everything I just described to you is irrelevant, and you can stop thinking about it.

This is all the modern news media’s efforts to get you to pay attention to the short-term. This is all short-term stuff. Why? I’m going to walk you through why I believe that, but the reality is that we need to shift our time horizon. We need to look out further rather than staying on these headlines. Everything I described to you, you would likely hear about. Turn on the TV when you go back to your room or when you get back home. Read the newspaper today or tomorrow. You’ll see this stuff — trade wars, tariffs, threats, globalization, currency wars, interest rates, inflation, deflation — all that stuff’s in the news. But I want to suggest we can look further and look through this noise to come up with a compass by which we can navigate through this uncertainty. So what do we do when looking forward?

The first thing you do is see that the global middle class is booming. I described those first four dynamics as transitions, right? Transition implies we’re in one spot, but we’re going to another. And so the spot we were in is in overcapacity in China. They built too much. The transition to which they are heading is a consumer-led society that starts to consume more and more goods and services. Likewise, that’s happening elsewhere in the world. It’s happening in Brazil; it’s happening in Mexico; it’s happening almost everywhere. And so what we see is that the middle class is starting to grow and spend more money as they grow. Now, why is that important? If you heard the first part of my talk, as an economic doctor, you may have said, “Hey, that’s the sickness, too much supply.” What would the medicine be? The medicine you would want would be more demand. And what I’m telling you is I see a demand shock coming.

What do people do when they get more money in their pockets? They spend it. Great. On what? This is the focus of a lot of my research, and what I’ve done is to analyze with excruciating detail what happens when people get more money in their pockets. What do they spend it on? At what level of income do they start spending it? At what level of consumption, etc.? One of the things that I found, and this is seemingly irrelevant for those who think about the financial world, but I want to go with it for a second because it’s going to illustrate what I think is the power of broad thinking.

Let me describe what happens when some people get more money in their pocket in terms of what they do with their diets. With more money in your pocket, there tends to be more meat in your mouth, and more meat in your mouth has big implications. You may not think so, but let me walk you through it. You are what you eat, right? So, you may say, “OK, well, if people eat more meats, so what?” How big is livestock as a percentage of global economic activity? It’s not very large or small in the grand scheme of things. OK. But what went into the livestock? Well, it turns out that the protein has to eat too. The animal has to eat. So, to raise 1 pound of chicken, that chicken had to consume 2 pounds of grain. What about pork? If you have pork, that pig had to consume up to 4 pounds of grain to produce 1 pound of pork. And for beef, the cow had to consume up to 8 pounds of grain for 1 pound of beef.

Now, this is really interesting because if you stop to think about what this means, you have to imagine this. Imagine a family of four sitting around in an emerging market where their incomes are rising. Today, they have four bowls of rice on the table. Now, they get a little more money in their pocket, and they say, “You know what? I want to put some chicken on top of this rice.” The equivalent of what just happened. If we assume for a moment that the chicken was eating rice, which is probably not true, but if the chicken was eating rice in the right ratios, what you would assume is the table just went from four bowls of rice to 12 bowls of rice, right? Because now there’s one bowl of rice in front of each person and two for the chicken that’s on top of it. So, you have the equivalent of three bowls times four people, 12 bowls on the table.

Then they go to pork. You’ve gone to 20 bowls of rice. Then they go to beef. You’ve gone to 36 bowls of rice on the table. It’s an exponential dynamic that’s happening. Now, that is really powerful. You can also go further and say, “Well, what goes into the grains? If you are what you eat, can we push it further so that you are what you eat, eat, eat? It turns out the grains have to eat too. What do the grains eat? They need fertilizer. They need water. They need sunlight. There’s a whole bunch of things that plants need to grow, and when it comes to the key ingredients of plant growth, I’m not going to bore you with a primer on fertilizers because I think some of you would leave.

But the reality is there are three key ingredients that are the limitations for plant growth. No. 1 is nitrogen. There’s plenty of nitrogen even in this room. The key with nitrogen is you need to get it into a format that plants can use, and that requires energy. You have to fix it and that requires a lot of natural gas, if you have a good source of natural gas and cheap energy, you can create fertilizer, nitrogen-based fertilizers, pretty easily. The second key ingredient is plants need to have potassium and it is mined in rock format in the form of potash. Potash exists in Canada. It also exists in Belarus and Russia in large quantities, and then it’s spread elsewhere. It’s not concerning because you just need to mine it, and it’s available.

More concerning to me, and something that I think is worth thinking about, is water-soluble phosphorous, another key ingredient, the third key ingredient, for plant growth. Water-soluble phosphorus is mined in the form of phosphate rock, and phosphate rock is not evenly distributed around the world according to the U.S. Geological Survey. The latest data says almost 75 percent of proven phosphate rock reserves in the world are in Morocco and the Western Sahara. Now, why does that matter? Because that means Morocco could emerge to be more powerful than Saudi Arabia or OPEC ever was in the land of fertilizer in food. Think about that. Morocco could be more powerful in the land of fertilizer and food than Saudi Arabia or OPEC ever was in the land of energy.

Who’s paying attention to Morocco? Well, I will tell you the U.S. Intelligence Community pays attention to this. It turns out the United States has a free trade agreement with Morocco — I think the only one on the African continent — and I think this may be a motivating factor behind it. Because this is perhaps a spigot in terms of being able to control unrest in the world, right? If you can increase yields or decrease yields to prevent food and famine and unrest, this is a geopolitically important development.

All right. So let’s imagine the world starts eating lots of protein. That’s one trend. Like I said, you’ve got this exponential trend. The problem is we also are having more people on the planet. And so when you combine these trends — more people on the planet and each diet getting more protein intense — what you have is an exponential trend on top of an exponential trend. So you’re going from four bowls of rice to 36 bowls of rice, but that’s just one table. Now imagine the world where there are more tables being added all the time. And each one of those tables is going through the same transition. What you see is that this has an exponential demand shock on top of an exponential demand shock, which gives me comfort that this middle-class consumption boom is likely to happen. And this is exactly the medicine we need. What else do people do when they get more money in their pockets?

Well, they move more, right? Think about this: The average person in an emerging market may go from a bicycle to a moped to a motorcycle to an air-conditioned car. They don’t want to go back. They start getting more energy intense in their movement. However, that also produces more pressure on the environment. We get environmental concerns like smog and other forms of pollution. And so there’s another thing that middle-class consumers around the world demand, which is they want the ability to breathe the air of the place they live in. They want to see the sun every now and then. So the result is that you get more and more pressure and development and incentivized behavior around the development of alternative energies, cleaner energies.

And, of course, you need to be able to store clean energy. You need batteries, and the whole supply chain of batteries needs to be available without bottlenecks to build out that industry. So you even heard just yesterday, Elon Musk at his annual meeting mentioned that he may enter the mining business. He’s going to enter the mining business. I thought that was pretty funny because I was like, OK, well he’s already boring holes. They can just check the ingredients that come out of the hole, solar power it and figure out if he’s got the ingredients he needs to make the batteries. So battery development is a key bottleneck because you need to be able to asynchronously produce and consume energy. Otherwise, alternative energy doesn’t work. You have sun during the day, but you may want heat at night when it’s cold, so you have to be able to store it when you have it being produced, put it aside and then use it when you need it. Batteries enable that.

Batteries also enable electric vehicles. We’ve got this boom coming in the electric vehicle industry. Globally, we have countries mandating that car producers move a certain percentage of their fleet to be electric. And, in some cases, there is a mandated phaseout of the internal combustion engine by the year 2030, by the year 2040 or what have you. And so countries and companies are trying to get ahead of this curve to say, “We’re going to do it earlier. We’re going to get there faster. We’re going to be progressive, and we’re going to get the whole market.” So I think there’s a really interesting opportunity around the electric vehicle business, but that will produce, as I think Elon Musk mentioned yesterday, some bottlenecks in this whole supply chain.

Because in the same logic, it’s what I gave you with protein. The chicken has to consume grains; the grains have to produce. If you go down the whole value chain, you’re going to get environmental concerns driving you toward alternative energies and electric vehicles. And then they need batteries.

What do the batteries need? The batteries need lithium, cobalt and other ingredients in order to be made, which is why Musk said he may enter the mining sector yesterday, but you could see bottlenecks emerge. Here’s an interesting tidbit. It turns out that 75 percent of the proven lowest-cost — there’s some debate in how you define that — lithium in the world exists in three countries. Just three countries have 75 percent of the proven lowest-cost lithium. They are Bolivia, Argentina and Chile — this lithium triangle in Latin America. Again, it’s a geopolitically significant commodity with a limited supply. That’s a really interesting dynamic from an investing and thinking perspective.

All right. What else do people do when they get more money in their pockets? They spend more money on health care. We have very good evidence that what people do is spend money on health care. They transition away from sheer emergency medical care toward preventive care, toward lifestyle issues, and so you get this migration that takes place.

A person says, “Oh, my daughter’s sick, emergency medical care, go to the emergency room! Well, let me get her a vaccine because I don’t want her to get sick.” You have to have some money to get proactive in health care. You’re going to move toward lifestyle issues. And then finally, Western diets sometimes produce Western diseases. And so you get this migration as you have income where health care starts demanding more and more of your budget.

I know that folks who come to MDRT are successful entrepreneurial business folks. I’m an academic. Look, I teach at Harvard, I teach classes, and I do some advisory work, but I think I have an entrepreneurial opportunity, and I would love some feedback.

I think this is really interesting. I have very good evidence that more money in your pocket results in more meat in your mouth. We know that. We also have pretty good evidence that more meat in your mouth produces more dietary-related illness. So Western diets produced Western diseases. Cardiovascular disease, diabetes, etc. tend to be correlated with a diet high in protein. I’m not saying there’s a causal factor. I’m just saying that’s what we know. So there’s maybe some question, but there’s a relationship there, and then I have very good evidence that we have more money in your pocket, more money being spent on medicine and health care. So is it not possible then to find an opportunity to make some money off of this?

Could we have a joint venture relationship between a large protein producer and a pharmaceutical company? In America we have a company called Tyson Foods, which produces a lot of beef, chicken, pork, etc. And we also have Pfizer, a company that produces cholesterol medication. So you could imagine yourself going down a buffet line — you have your steak, you have your chicken, and, at the end, there’s a bowl of some cholesterol medication. You take a pill and pop it. It’s a joint venture relationship.

I say it in jest to sort of poke fun at the idea that “Oh my goodness, here we are. We’re going to have a steak, and they’re going to give us a pill, and maybe we go to McDonald’s.” They give it to you on your way out the door. “Here’s a Lipitor.”

The reason I bring it up is these are exponential trends on top of exponential trends. The same dynamic I was describing to you earlier with the protein is true in health care. And so, again, it gives me great confidence that what we have is a demand shock coming, and the demand shock is going to alleviate a lot of these pressures we feel in the world that are causing what we deem from our lens of day-to-day news consumption as chaos. It’s not chaos. This is all logically an output of these trends and transitions. We’re going to see some of the dissipation because of this demand shock.

As much as I wish that I had a crystal ball and knew exactly what was going to happen, sadly I don’t. So what I want to do next is transition toward paying attention to some of the risks to this worldview that I have. I want to give you a road map of what you can pay attention to after I leave this stage, after you leave Miami, once you’re back home, when you’re reading the newspaper next month, next year, the year after. How can you contextualize what you’re reading into this thesis, to tell whether Vikram was onto something or, wow, he was really off, and be able to make sense of the news as it comes out? Not thinking, oh, there was that theory. I don’t know if it’s right.

Let’s pay attention then to the first of the four transitions we talked about. One was about what was happening in China, a transition underway, and I said a consumption society’s coming. Well, it turns out there is this Great Wall of China, as we all know, but there’s also what I would call the Great Wall of Debt. It’s a gigantic sum of money, which is increasingly being found to be perhaps at risk.

Bad loans are rising rapidly in China. And I did say earlier that China had undergone a credit-fueled investment bubble that burst, and it was now transitioning to a consumption society. Well, it turns out if this debt turns out to be a bigger problem than we anticipate, then my whole thesis might need to be pushed out a couple of years. This may not be a five-year view; it might be a seven-year view. We’ll have to take some extra time for that consumer society to come forward.

By the way, on the flip side, you could also pay attention to what’s happening with the Belt and Road Initiative in China and their desire to reconnect Beijing to the Middle East, down to Africa, up to Europe by rebuilding the Silk Road. And that Belt and Road Initiative might in fact create a commodity boom, bringing forward my thesis. Because if they need more commodities, that could bring the thesis forward. So again, paying attention to what’s happening in China remains a really important dynamic.

What about technology? These are two fish, salmon. [visual] They’re the same age. The one behind has been genetically modified. They’re the same age. We think that technology is able to produce supply and things that we use like physical goods, etc. But what if technology can actually impact the protein production chain we just discussed? Does that mean we need to rethink our thesis there? Yes. This is what I’m getting at. This is a race between demand and supply, and, if technology continues to accelerate and produces more and more supply with the same or fewer inputs, then we have to be cautious about whether my thesis is actually going to come true. If supply continued, then we’re going to be stuck in the same situation we thought, which is too much supply, not enough demand and competing deflationary pressures, creating what we think is chaos.

You may find this interesting. There is a company, a U.S. company, that had a patent on the genetically modified salmon in this picture. They had FDA approval to release it into the U.S. food supply without any labeling requirements. They did. You may have actually consumed it. And then some regulators got involved; some activists got involved. It’s been stuck with regulatory stuff, and so right now it’s not available. It was only tank-based growing anyway. The company is AquaBounty Technologies, and they’re doing some really innovative work. I think it’s an interesting dynamic to watch.

But technology generally is my point. As you see more and more technological progress, advancement and output, and the supply grows, that is a reason to pay attention in my thesis from the perspective of it, which may mean that this demand shock needs to be bigger or supply continues racing, and then we don’t get the demand value that we thought.

Then we have what’s happening here in the Southwestern United States over in Nevada. This is a picture of the Ivanpah Solar Field. [visual] It’s in the middle of the desert in Nevada, and it has computer-controlled mirrors. So all these mirrors are moving, and they migrate like this with the sun all day long. They point the sun off the mirror, and it points it up to that glass tower in the middle there. There’s not one solar cell involved here. All of these are just mirrors moving, and, as the mirrors move, they heat water in those glass towers, which creates steam. That steam turns a turbine, and each one of them — there’s three of them in the middle of the desert — powers 60,000 homes worth of electricity. Not one solar cell is involved here. Powering 60,000 homes of energy. Each one of them.

So you could say, “Wow, what’s happening with energy?” Again, more supply is racing ahead, reducing prices, creating deflationary pressure. Now, if any of you are paying attention, you’ll notice that the slide doesn’t say “alternative energy.” It says “hidden protein.” [visual] And this has to do with one of my students when I was teaching at Yale University. Sometimes when you teach in a place like Yale, the students act and think they know more than you, and, in many cases, sometimes they do. So it’s fun for me; I get to learn. But this one student said, “Excuse me, Dr. Vikram.” They called me Dr. Vikram because they couldn’t pronounce my last name, but he said, “Dr. Vikram, the slide is mislabeled.”

I said, “Excuse me?” He said, “Yeah, it’s mislabeled.” I said, “OK, wise one, please educate.” And he said, “Well, it turns out if you’ve read the National Resources Defense Council’s report and the other environmental studies that had been filed with the EPA and other organizations, including the local permitting authorities there in Nevada …” I said, “OK, wise one, I have not yet read those, but it seems you have, please share.” And he said, “Well, it turns out that when the birds get close to that central glass tower there, their feathers are lighting on fire. Some of them are dying. This is actually a fried chicken slide.”

I said, “OK, fair enough. Point noted. I will actually share that with the audience if I ever use the slide.” So at least my work here is done. Anyway, alternative energy was the point of this slide.

All right. Here’s the point I want to make that is really important, and it’s one of my pet peeves when I talk to the modern media and when I talk to all media outlets. Everyone talks about the world growing, and when they talk about the world growing, they talk about GDP. GDP is growing. This country grew 3 percent, 5 percent, 6 percent, 2 percent — it’s growing. I don’t know what that means. I really don’t. My whole thesis that I’ve shared with you this morning is that there’s more money in your pocket. That’s per person. That’s very different. That’s a division problem relative to what the media talks about.

The media talks about the growth rate of a country. But what if the population grew more? Then you actually had a shrinking of what went into everyone’s pocket. There’s a division problem here. You have to have not only the growth that you read about in the newspaper — 3, 5, 7 percent — but what did the population grow? If the population grew more, then everyone’s per pocket income went down. And so GDP does not equal GDP per capita.

Again, I talked about a demographic transition and what was happening. What I didn’t talk about is the world’s fastest growing populations. I talked about the world’s fastest growing or the world’s largest economies and that they are shrinking or getting older, but the world’s largest populations are actually growing. And so think about this. I think the time from when I was introduced to when I get off stage will be roughly an hour. Over the course of the hour I’m with you, Nigeria is going to add roughly 540 people. By the way, it’s going to happen over the next hour, the hour after that, the hour after that, while you’re on a plane home, every hour you’re on the plane, while you’re sleeping those eight hours — 540, 540, 540, 540, 540, 540 — all day, every day, 540, 540, 540 every hour.

And if you think that’s bad, look at what’s happening in India. Eighteen hundred people per hour are being added. India is actually adding 1 million people to its labor pool every single month. What does that mean you have to do in terms of job creation? You’d better create a million jobs this month and then another million next month and another million a month after and another million the month after. Otherwise, unemployment de facto rises. That’s the net increase in the labor pool that’s taking into account people who are retiring or should be retired. And if they don’t feel like their lives have gotten to the stage they want to, they may not retire, which means it may actually be higher than this number.

All right, well, you might think given that dynamic that Prime Minister Modi has a plan to address it. He says he’s got this “Made in India” campaign. He’s going to try to bring to India global manufacturing so that India can do what China did — that India is going to build a middle class through industrialization. They’re going to take the poor, illiterate farmworkers. They’re going to put them in a factory, give them some equipment, and the output is going to go, as in the Chinese case, from maybe three to five bushels of wheat to 500 iPads. And look at the value increase that’s taking place! [visual] Share some with the worker. Middle class is there; consumption society is off and running. We’re good to go.

Well, as it turns out, I think the window of opportunity globally for industrialization-based development has closed. Technology has raced ahead to the point where India and Modi are fighting robots.

Who’s going to get the job? And I’ve talked to, I think, about eight different Fortune 500 CEOs at this point about this dynamic. Who are they going to hire when they put manufacturing in India? Are they going to hire the person who’s going to complain, doesn’t know how to read English? He’s going to want days off — his religious holidays, all these other things. Or is he going to hire the robot that sort of comes in, works around the clock, doesn’t complain, doesn’t make errors, is good to go, is perfect all around, doesn’t stop and has great productivity? And, by the way, when they make a mistake, you fix the algorithm, and the person never makes a mistake again, or the robot never makes a mistake again. So what does this do to the middle class? If India doesn’t create jobs, India doesn’t get a middle class, and if India doesn’t get a middle class, we have to re-evaluate my whole thesis. My whole thesis was this middle class booming, spending more money — more money, more meat, etc.

What if that doesn’t happen? Take the thesis, push it further out. It has to get pushed out five, 10 years if this doesn’t happen. By the way, I think it is happening. I think this just may slow it.

So what does this all mean? Let’s stop and think about this. This is all fine and dandy. I’ve given you a nice dynamic of what’s happening in the world, how we got here, where I think we’re going and the risks to that worldview. But all of you have different sorts of pressures when you go back to your desk and go back to doing what you’re doing. You have to think about, Well, all right, I’m advising a client. I’ve got to think about the needs in this. What is the financial outlook? What is this world going to be going forward? What do I need to pay attention to?

What I want to do now is just pause and sort of reflect a little bit on what this means to what you do when you go back to your desk.

The first thing I would suggest is that we are on the verge, I believe, of some nonlinear changes. What do I mean by “nonlinear changes”? You make a change. Nothing happens. You make a little change. Nothing happens. You make another change. Nothing happens. You make another change. You make a third; you make another change. Nothing, nothing, nothing. And suddenly, oh my God, massive disruption occurs. And you think all along we made these changes. Nothing was happening. Nothing was happening. You hit a tipping point. It’s what happens in avalanches. It happens in other dynamics. Does it happen with money? I think so. Look at this. This is a graph. [visual] This is admittedly U.S.-centric, but it’s dollar-based, and it tends to influence global interest rates. Every single time you’ve had meaningful rises in interest rates, you get one of those dark bars vertically that indicate a recession. And, in fact, it almost always happens after there’s a pause. So you go up, you pause, and then there’s a recession.

The question is, Are we on the verge of some nonlinear change in market activity in response to those interest rates, or is it a lag? Maybe it’s a lag and not a nonlinear change, but I imagine that the cost of debt rising, the cost of money rising, is going to cause problems for lots of businesses, lots of investment strategies and lots of markets. I just don’t know when. I don’t know when or how that’s going to happen, but you have two ways to interpret it. That is for sure.

You can view this as a big threat to what you’re doing and how you’re going to navigate, or you can view it as an opportunity. In the case of investing well, maybe you raise some cash to get ready for this situation where you’re going to be able to buy stuff a little cheaper. Maybe you sort of take a different approach. I don’t know, but there are definitely opportunities that arise here. All right. What about climate change?

Actually, let me share this story before I describe whether it’s an opportunity or a threat. I live in the Boston area, and I was invited by an elementary school to come and give a talk about climate change and some of the dynamics at work there. Now, these are 7- and 8-year-olds, and so I showed up at the elementary school. I’m about to start talking, and sure enough, when I’m there, one little boy in the room raises his hand and says, “Mr. Mansharamani” — he didn’t say it so eloquently, but he tried. He said, “It turns out my dad is saving the environment.” I was like, oh, lovely. This is great. We’ve got a perfect person who’s going to help us understand climate change. And so here we are in Boston. I’m convinced this student’s father is at MIT in some lab. He’s creating some new technology. He’s at a startup. He’s got some engineering capability. He’s taking carbon and sequestering. He’s doing something to save the environment. He just told me; the kid said, “saving the environment.” I said, “So what does your dad do?” He said, “My dad drives a Tesla.”

And so I paused, and I was like, “Oh, OK, so please explain this to me. He drives a Tesla. How does that save the environment?” “Oh, you don’t understand? You don’t know?” I said, “No, I don’t know, please.” He says, “Well, my dad drives a Tesla, and we don’t need to buy any gas. We don’t buy those dead dinosaurs that you put in your car.” I said, “All right, and that saves the environment how? Don’t you have to put some fuel in your car?” And he said, “Yeah, we put electricity in our car. The car runs on electricity, not gas.” I was like, wow, that’s great. And so I asked, “So where does the electricity come from?” And he said, “The wall.” And I said, “OK.” I didn’t want to break his heart and tell him the reality, at least in the Boston area, is that it’s coming from some hydrocarbon-fueled power plant, which is not clear if it’s better.

The point of the story is that climate change can be seen as an opportunity or a threat, and there’s going to be different ways to interpret it, right? You could use it as an opportunity to, in the case of Tesla, I would argue, a marketing opportunity. The threat to the environment may still be there, but the hope is you can get people to tip, and there are probably ways to make money off them.

All right, here’s something that’s very disturbing, and I’m going to share it nonetheless because I want to give you this road map of what I think all of this means. The inequality, the unrest, etc. has a possibility of being very disruptive, and here’s why. [visual] If we played out the playbook that the person on the right here, that’s Karl Marx, suggested in “The Communist Manifesto,” it was that capitalism exploits its workers. The owners of the capital take more and more advantage of the workers, inequality rises, and, eventually, workers of the world unite, overthrow those in power, revolt, take from those who have, give to those who need, and restart, and therefore, capitalism will self-destruct.

That was the communist playbook. By the way, that’s exactly what’s happening in the world. Workers of the world are feeling exploited. The 1 percent is getting more and more money, and yet the workers are not participating. What do we see happening? Take from those who have and give to those who need? I think the actual quote in the Marx-Engels Reader is “From each according to his ability, to each according to his needs.”

Is that not just a redistribution pressure? You’ve made a lot of money. Thank you very much, let me take it. This person needs it.

On the left is a picture of ... I think she’s still a colleague of mine. [visual] I don’t know if she’s still at Harvard, but that’s Elizabeth Warren, a U.S. Senator from Massachusetts, who is proposing a wealth tax, among other things. What is a wealth tax? A wealth tax is take from those who have, give to those who need. It’s redistribution. You’d have to ask the question, Is this just a mere threat to anyone who’s in the financial advisory business or planning business? Is this a threat? Yeah, you could probably say it’s a threat. I would argue it’s an opportunity too, because this is an opportunity to plan and give around it.

I think this pressure will generate an exponential increase in charitable giving. I think this is going to provide more meaning to those with wealth because it’s going to spur an active thinking process about how to give it away earlier. Because if the government’s going to take it, I don’t want them to take it; I want to choose where it goes. This is what I’m finding is happening with the wealthy and the ultrawealthy whom I’ve advised.

I think this redistribution pressure is a very real, real, real situation on our hands right now. It is a big threat. I think it’s an opportunity, and I think you’re also starting to see corporate leaders take control and say, “Hey listen, we need to preserve the system.” Do we need to be a little more socialist to preserve capitalism? Sure, maybe. When you have higher minimum wages and you see companies that are paying double the mandated minimum wage as their internal minimum wage, that’s why.

Lastly, we have the millennial mindsets. This is a tough one for me. I work with lots of millennials. Actually, I’ll just share a story; maybe that’s the best way to describe what I think happens here. I used to teach at Yale University. I live in Boston, so that’s about a 125-mile drive. It takes me a little over two hours. I remember actually getting into the car. I have my consulting office, and some of my staff are up in the Boston area, and I have an analyst working there. He was 22, 23 years old at the time — it was a couple of years ago. He’s a millennial. I got in the car. I’m in New Haven. It’s about noon. I’m driving, and I said, “Oh, I’ve got some time. Let me talk to him.”

I’m dialing him, on speakerphone and being very safe. It’s ringing, and I look down, and my phone bleeps. There’s a message that came in, and the message is from him, while the phone’s still ringing. And the message says, “What’s up?” I see you guys have worked with millennials too, so you understand. All right, so this is the millennial. I was like, what do you mean? What’s up is you should pick up your phone. That’s why I called, right? But the millennials think differently. All right sorry, that’s my own little rant.

It turns out that millennials have this value-based logic to all their decision-making, right? They want their decisions to be expressions of their values. They want to buy goods and services from companies that embody those same values, that care about the environment, that care about workers who do these things, or what have you. They also want to work for companies that embody their values. Now, I say this could be a threat because you don’t know how to, but you could also view this as a big opportunity. Having a mission statement and a value-organized way to market could help you attract new clients. Having a mission statement that organizes around your values could help you attract new talent to work with you on your teams.

I think there’s some value on both sides of the equation here in terms of how you market as well as how you recruit, and taking into account these millennial mindsets. The point of what I just said here is that everything, all of these developments I just talked about, can be interpreted as either an opportunity or a threat. It’s a matter of perspective really, right? It’s your choice of how you think about it. What I want to suggest is that it’s time to think differently.

No one, especially given the global chaos we have today, would fault you for taking a threat-oriented perspective where you’re short of being defensively postured, you’re spending in more local dynamics, you’re paying attention to the vulnerabilities. The other way to think is to look at the world differently. Look globally and see how those dynamics are going to come home to roost here locally and see where the possibilities are and look through the noise. Because I do think, when you look through it all, there is an optimistic outlook, and there’s a lot of opportunity.

Audience: Emerging market equities have largely underperformed in the U.S. over the last several years. I wonder if you could comment on your perspective on investing in emerging markets over the next few years or maybe the next five to 10 years relative to the U.S.

Mansharamani: Yeah, I think it’s interesting, when I get asked investing questions, one of the things I always preface with is, I tend to look in the world of economics and the real economy there is in this world of finance and investing that takes place on top of the real economy. The delta between those two tends to be the way you connect the dynamics. There’s usually a valuation, right? Valuation is how the world is pricing the perception of what’s happening.

The reason I bring that up is when I look at that, I say, “OK, the U.S. feels fully priced because of the valuation as being high relative to where we are in the global economy and the trends I see. Likewise, on the emerging markets, I think they look cheaply priced relative to the dynamics of growth that I see forthcoming in the future and the consumption power, etc. I would suggest that in the longer run, valuation as a measure of opportunity and future return capability seems more promising to me in the long run in the emerging markets because those countries will grow more or they’ll have the middle-class boom, etc.

Now, with that said, you have to watch some of those risks I talked about, which is if technology races ahead and disrupts and there are no jobs in India, I don’t know how you can be excited about India if they can’t create the jobs. I do think the emerging markets as an asset class may be interesting as a whole, but within the emerging markets, there are probably countries that are going to be really poorly positioned for these dynamics and some that are really positively positioned for these dynamics. I want to be a little more nuanced than just emerging.

Audience : [inaudible]

Mansharamani: How do I reconcile those two? Yeah, that’s a good point. That’s what I started with. One of the things I think that is really critical to understand is I was talking about global dynamics, right? I don’t want to get too technical, but in econospeak, I’m talking about aggregate and global demand and aggregate global supply, so that gives me the global context. Then I did say, within different pockets, you’re going to find inflationary pressures for sure. Here in the United States today, we do have a tight labor market with low unemployment, and we are starting to see some signs. Some would argue you’re not really seeing the signs of wage inflation.

The interesting thing is central banks around the world. The one paranoia and nightmare that keeps every central banker up all night is wage prices going up. The reason for that is every central banker was trained in graduate school that you have to be worried about a wage-price spiral. So the worker gets more wages and goes and buys more goods. Those goods’ prices go up, whatever, rent, anything — all the services, goods and services that that worker’s buying. He or she turns around, goes back to his or her boss and says, “The prices went up. I need more wages. You’ve got to pay me more.” Then they go, and they do it. The same thing happens, and you get a wage-price spiral, and that creates inflation that’s really hard to stop. That’s the reason why central bankers are worried about wage-price pressure.

I would suggest that the U.S. may be anomalous today, but I would argue that it’s been done for a couple of reasons. Tax change in the U.S. that’s flowed through. The tariffs, protectionism is starting to really hurt the uncertain investors. The uncertainty and investment is slowing. I’m sorry, uncertainty is rising; investment is slowing in corporate boardrooms in America, and I can only imagine that unless that dissipates soon, the uncertainty, you will see a slowdown in earnings and growth going forward, which means that if you think of it as the rest of the world feeling this deflationary pressure, the U.S. feeling inflation, I think that the jaws are going to collapse. That may mean more inflation in the emerging or developing world and less inflationary pressure here. But I think there’s some crisscross.

Audience: I’m having trouble reconciling how you find an opportunity in the redistribution mentality of the Elizabeth Warrens of the world. I see that as a disruption to our industry in particular, but I’m trying to figure out where do you see the opportunity in that thinking?

Mansharamani: Yep. You are in the planning business, is that fair?

Audience: Yes.

Mansharamani: If you’re in the planning business and you have clients who have lots of money, that will be the subject of an Elizabeth Warren-esque targeting process. Let’s just say that. Is that not an opportunity for you to engage them on a means through which either increase their charitable giving, plan in different ways? I’m not in the planning business myself, but I have people who try to get me to plan, and someone saying, “Oh we’re going to have this irrevocable insurance trust. We’re going to have it so you ... That’s going to own the policy. It’s going to go there. That’s not going to be considered a part of your estate.” There’s a lot of planning that can be used to manage the risk of that dynamic happening.

I also think it creates opportunities for those wealthy individuals with assets to proactively think in a meaningful, useful, socially constructive way about charitable giving because I don’t think anyone here is going to go after charitable giving in this political dynamic. This political dynamic is not going to say, “Stop giving to people who need.” They’re not going to go there. I think that’s a tougher one.

It may mean there’s the creation of separate foundations, a family that’s very wealthy that never thought about having a foundation and maybe says, “Hey, we’re going to have a foundation. Help us plan that; help us think through that. Help us think through its giving, the governance, etc.” I think there are some opportunities for all of you in the business. I think it’s a tough headwind for those with a lot of wealth.

Audience: How do we position for deflation? I understand you’re advocating an inflationary environment, emerging markets, commodities, but what if we’re like Japan for the next 20 years?

Mansharamani: It’s interesting. The thing you would want to own in a deflationary environment is the longest duration, as close to risk-free, set of cash flows that’s available.

I mean today, at least, the world still seems to believe, despite debt loads that are getting high and astronomical issuance, and huge stock as well as flow of debt in America, that the U.S. Treasury is still deemed to be the closest thing to risk-free in the world, and it’s the longest duration. That’s it, right? What else can I offer you?

There’s a reason why those around the world who hate America still park their money here. We had in the past, the Libyan dictators, others, they’re all putting their money in U.S. Treasury bonds. Why? Well, they’re deep, they’re liquid, close to risk-free, property rights, protection. That’s one dynamic, I would say.

Speaking of Japan, I was asked by some of the wealthiest government institutions in Japan that have lots of cash, this was years ago, about how to manage their exposures. I said the same thing as I just said, “You want to own as close to risk-free, long duration, assets as possible.” They said, “OK, but we don’t like so many bonds.” I said, “Well, go buy stakes in companies that you believe are long-term cash generators regardless of business cycles.” That’s the other way to think about it. But cash flow becomes king.

Audience: I think with a growing global population and this protectionism and nationalism sentiment, what are your thoughts on what’s going to happen with immigration and how that is going to impact these aging large economies and growing younger economies?

Mansharamani: It’s a really good question. Let’s highlight a couple of different examples because I think there’s no one answer. A country like Japan with a demographic headwind really aging — oh my God, they really don’t like immigrants coming in. The Japanese are special. They don’t need to have immigrants. They’ve got a cohesive culture. Does that aging population result in the need for health care workers coming in, nurses, etc., from the Philippines, India or wherever? Does that increase or allow immigration to happen because of that? That’s one possibility.

The other possibility is they actually don’t have the social disruption and the social unrest risk of using robots. They can have robots and others come in to help with health care, and you’re not just replacing jobs because your labor pool is shrinking. This idea that a demographic dividend that a large population country like India has because they have all these workers coming is very different than a ... You think there’s a demographic bomb in a country like Japan. Actually, Japan may be really well-positioned because there’s no social disruption for the technological automation. They may allow immigration to come in to help, and there is no battle with that because there are jobs that need to be filled, no Japanese person around to do it, so it makes sense.

Now on the flip side is protectionism and nationalism in countries. Unfortunately, here in the United States, we’ve seen it rear its head, where it’s the tight labor market that should, in theory, loosen pressures, right? Tight labor, everyone’s got a job, everyone already has a job. So if there are more jobs that need to be filled, let’s let some immigrants in; they’ll fill the jobs. You haven’t had that as much. You’ve had more of a butting-heads logic here, in which case, that nationalism can combat that and prevent it.

My point is, it’s a political call. It’s a social dynamic call. It’s unclear how it will play out, but the one tidbit I’ll leave with you is there’s an academic analysis that took place that said if we removed borders, literally let every single person go to where the best opportunity was and let people migrate and they had none of this nationalism stuff, literally no borders, that global GDP, all else equal could double, and global GDP per capita could double.

The problem is, in countries like the United States, you’d see GDP per capita fall, and in the African nations, those individuals would see their GDP per capita rise dramatically. So people don’t want to let that happen because those with don’t want to let those without take their jobs. Anyway, I think it’s a good question, but there you go.

Vikram Mansharamani is a global equity investor with more than 20 years' experience investing in public and private markets. He served as managing director of SDK Capital and is currently a lecturer on ethics, politics and economics at Yale University. He is also a senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School. His current research interests include bubbles in both financial and non-financial markets, the unsustainable dynamics of food and fuel, and the relative value of experts vs. generalists in navigating complex uncertainties and risk.