Six Mega Trends – 2018

“If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people.” – Confucius Charting global mega-trends is perhaps a fool’s errand, but there is order in the fractal universe – if you know where to look. Certain historical currents run strongly and are perhaps not immediately apparent, but nevertheless their impact will be felt in 2018 and beyond. 1. Insurance and Climate Change Zillow recently reported that $400 billion in Florida real estate values could be at risk from climate change by 2100. Property insurers will not be willing to insure real estate unless rates are substantially raised. Homeowners will naturally lower coverages to fit their budgets. Many will move away. Behaviors will change. Meanwhile many homeowners whose homes were flooded by Hurricane Harvey have no flood insurance – they cannot afford it. But a wealthy owner of a $2 million home on Bird Key in Florida gladly pays $25,000 a year for that same flood insurance. That owner knows their claim will likely be in the hundreds of thousands, so the federal flood ‘insurance’ subsidy is a bargain. Right now insurance rates are set on arbitrary vectors, such as zip codes. But risk analysis and big data will fine tune these methodologies and homeowners at the greatest risk from climate change will face enormous insurance rates – many will move. These mismatches in insurance coverage and uneven federal flood insurance subsidies will ultimately be reflected at the ballot box, changing political behavior in favor of working to control and plan for climate...

Giants

Alfred Stieglitz posing in front of a painting by Georgia O’Keeffe, as taken by Ansel Adams, New York City, 1939, as photographed at the Booth Western Art Museum in Cartersville, Georgia,...

Spooky Action at a Distance

By Richard L. Wottrich, CEO and Senior Consultant, International Services, July 29, 2017, Atlanta USA  Code Talkers When the U.S. entered World War I, encryption of Allied communications was a major problem, as their codes were generally based on either European languages or mathematical progressions. The Germans routinely broke their codes. Sending out runners proved ineffective, since about one in four runners were captured or killed. Other methods, such as carrier pigeons, or signal rockets, were slow and unreliable. During the war, over ten thousand Native Americans enlisted in the U.S. armed forces to fight the Central Powers, even though America had not yet granted them citizenship. Near the end of the war, on October 26, 1918, members of the Choctaw tribe were put to use for the first time using their native language as a code. They played a major role in an attack on a strongly fortified German position, Forest Ferme. “The enemy’s complete surprise is evidence that he could not decipher the messages,” Colonel A.W. Bloor later wrote in an official report. These so-called “code talkers” were utilized to even greater effect in World War II, when the U.S. government specifically recruited Chippewa-Oneida, Comanche, Hopi, Meskwaki, and Navajo tribal members. The Navajo code talkers developed the most complex code, with over 600 adapted Navajo terms, for use in the Pacific Theater. The Germans did not decipher a single code talker message in either world war. The encryption key (their language) was known to all tribal code talkers, but completely unknowable to the Germans. Today with Big Data, super computers and complex algorithms, codes can be broken through...

DEFCON 5: Opioid Abuse Disorder

DSI White Paper – By Richard Wottrich, CEO & Senior Consultant June 30, 2017, Atlanta USA Summary Over 80% of illicit drug demand in the Americas comes from the United States. Today’s surge in illicit drug traffic at America’s southern border is driven by drug cartel violence in Central America. GlaxoSmithKline and Johnson & Johnson legally grow opium poppies in Tasmania. The United States accounts for three-quarters of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales. Global Traffic in Illicit Drugs Attempting to estimate the global GDP of illicit drugs is akin to getting an accurate vote count in an American presidential election – it brings to mind the uncertainty principal. The United Nations has estimated it as follows, “the global drug trade generated an estimated US $321.6 billion in 2003.” In 2016 perhaps one percent of global GDP is in illicit drugs – roughly $790 billion a year and growing – fast. Drugs in the Americas Drug cartels are integrated into Mexico’s economy and government. The major drug cartels operate throughout Mexico and employ over 500,000 people and indirectly support an additional 3.5 million people. Estimated profits for the combined cartels are $25-$35 billion a year. These profits fuel corruption and graft on an international scale. Over 80% of illicit drug demand in the Americas emanates from the United States. The history of drugs and violence in Central American dates to the 1980s, when civil wars in El Salvador and Nicaragua sent thousands of people north in search of safety. This illegal...

Amazon’s Rounding Error

Amazon announced the acquisition of Whole Foods this week, the organic grocery food chain, for $13.7 billion. In Amazon’s world, with a market capitalization of $460 billion and a P/E ratio of 185, this amounts to a rounding error. But Amazon’s annual revenues of $136 billion pale beside Walmart’s $486 billion in global sales. Walmart accounts for 25 percent of total U.S. grocery sales. Average sales per U.S. Walmart store, of which there are 4,692, are $66.7 million. Whole Foods by contrast had 2016 annual sales of roughly $15.72 billion, just 2.3 percent U.S. grocery sales. Whole Foods’s average sales per store, of which there are 430, are $36.6 million. Amazon already has roughly $15 billion in on-line food and beverage sales, so the purchase of Whole Foods could take Amazon grocery revenues over $30 billion, which puts them in the top five of the fragmented U.S. grocery market. But at what cost? Amazon’s primary focus is the Whole Foods chain of 430 stores, which brings an established grocery distribution network to the Amazon on-line juggernaut. Whole Foods stores are in upscale demographics that match many of Amazon’s targeted demographics. From this perspective, Amazon is plugging the Whole Foods bricks and mortar stores, plus its database of customer preferences, into Amazon’s well-established on-line empire to gain market share in the grocery industry. Using the Whole Foods distribution network in conjunction with Amazon’s on-line scale should drive costs and price points down and capture market share. Is this a smart Amazon acquisition from that vantage point? The average cost to open a new Whole Foods store is roughly $7.5 million. Amazon’s purchase price works out to...

A Moveable Feast #DSIGlobal

“I do not know what I thought Paris would be like, but it was not that way. It rained nearly every day.” Hemingway, from private papers in the collection of the John F. Kennedy Library The result of the May 7 presidential election in France was the victory of the centrist liberal Emmanuel Macron. He was employed from 2008 to 2012, by the Rothschild & Co. investment bank, which is the equivalent of Goldman Sachs in elitist circles absent a family heritage stretching back centuries. Macron was known there as a rainmaker – nicknamed a “Mozart of finance.” His primary skill lay in reaching out to potential clients within his own elevated circle.  Which is to say that absolutely nothing will change in France over the next five years that threatens that elite circle in any fundamental way. Which is to say that the European Union will continue on its present track, enabling Germany to dominate the entirety of Europe. “If you are lucky enough to have lived in [the French elite] as a young man, then wherever you go for the rest of your life, it stays with you, for [the French elite are] a moveable feast.” Ernest Hemingway  www.dsiglobalview.com...