Author's note:  This forecast was originally published at the turn of the 21st century, before Bush and Gore were nominated if I recall correctly.  As I review it on Halloween of 2005, I'm leaving it unchanged.  I predicted a Dow devaluation from 11,500 to 5000 (actually it went down to just over 7000.)  The overall annual rate of return was warned to be less than 5% this decade; so far it is just a bit over 0%, factoring in dividends.  My prediction of an above-average president is quite debatable:  the debate mainly depends on whether Bush is capable of fostering a decent semblance of democracy and freedom in the Middle East.  I mentioned terrorism and a Middle Eastern war as serious possibilities (they occurred, but were more serious than I forecast); but I correctly (so far) estimated that America could forestall "concerted" attacks in this first decade.  Overall it was a pretty good forecast although I would certainly make some minor adjustments:  I would darken my predictions regarding terrorism and America's deteriorating politics and economics (could the second decade resemble the 1940s more than the 1960s?)  I would talk about how the real solution for humankind is to love each other and get closer to God (balanced by skepticism of religious dogma.)  And lastly, I would try to make a few pennies by adding some advertising... --David Snell, 10Money.com Editor


Most people focus their investing efforts on short-term speculation that can make a quick buck, or mid-term investments that will make money over the next 5-7 years.  Yet, some investments are necessarily long-term: homes, for instance, often are financed with a fixed 30-year mortgage.  And building a business is a long-term proposition, one that we hope will benefit our kids and grandchildren.

Here are the main points to consider:

1. Socio-Economic Trends:  A prime reason for the economic success of America in the 1990s is the maturation of the baby-boom generation.  As they entered their thirties and forties, they attained their highest productivity.  Since the baby-boomers are such a large demographic segment, this had a supercharging  effect on the American economy.  Many of them outgrew their jobs, and became more interested in starting and/or managing businesses.
   
   The new businesses had to compete for employees, many of whom were tech-savvy X-geners who installed new high-tech programs that could make businesses run more efficiently.  All this had the happy effect of raising wages, maximizing employment, and enriching America.
   
   This trend of increasing productivity will continue for approximately ten years.  Around 2010, the retirement of baby boomers will create a downward pressure on America's economy: they will exit the workforce, and the increased cost of providing medical care to this large demographic segment will probably drain financial resources from other sectors of the economy.  Americans have less than 2 children per family on average, and that worsens this problem.  Another problem may be increased cost of imports, when foreign wage rates rise as third-world countries industrialize.
   
   The downside is that we may have a "bubble market", meaning that stocks are overpriced and this bubble may burst at some point.  The real value of stocks can more realistically support a Dow of 5,000, about half its value in 2000.  Some smart investors are simply selling every last stock they hold, and waiting for the Dow to crash so they can go bargain-hunting for attractive stocks again.  Investors don't seem to care much about price-to-earnings ratios anymore, and often don't even consider the tight labor market or rising interest rates in their purchases.  Many of them seem to be looking at the future through rose-colored lenses.
   
   The overall rate of return from the stock market for this decade may not exceed 5%.  If you want a safe place to park your cash and still earn decent interest, look to Certificates of Deposit, federally insured money market accounts, and government I-bonds.
   
   
   
2. Technological Trends:  Another prime reason for America's economic explosion in the nineties has been the information-technology boom.  It has made the world economy much more efficient and dynamic, and will continue to have a very positive effect over the next 5-10 years.  Around 2007, Internet technology will have matured, and can not be counted upon to continue to grow the economy.
   
   One technological "wild card" is molecular engineering.  In the next decade, we will develop scientific methods to manipulate our own genetic makeup.  For example, we may be able to grow "replacement organs" for the parts of our body that are starting to fail.  This might reduce medical costs if it can be done cheaply enough; alternatively, medical costs may go through the roof.  In perhaps 15 years, scientists will be able to build machines at the molecular level: for example, a microscopic seed implanted in a mass of silicon could literally grow itself  into a computer.  The implications boggle the mind!  I cannot predict the consequences at this time, so I can only advise that you keep an eye on these new technologies.
   
   
3. Political Trends:  Political influences on the economy are less important that politicians would like us to believe.  However, I do give credit to both parties where it is due.  Clinton should be credited with competent economic management.  The Republican victory in the 1994 elections bolstered business confidence, and stock values have tripled since that time.
   
   The election of an incompetent or aggressive president could seriously harm America's future.  That happened in 1965 when President Johnson maneuvered America into the Vietnam war, while erecting a bloated and inefficient welfare state.  However, it seems likely that America is likely to have a somewhat above-average president through 2008.
   
   
4. Moral Trends:  America is like two trains going in opposite directions.  On the one hand, many people are becoming more conscientious: crime and divorce are down, while church attendance is growing.  On the other hand, the popular culture is coarsening: our educational system is mediocre, and pornography and other vices seem to be on the rise.  Media airwaves are filled with scandal-mongering and vulgar programming.
   
   For at least the next ten years, it seems that these two trains will be content to allow each other to pass in the night.  America is a tolerant and forgiving country.
   
   However, I must observe that weakening societies tend to go through some type of scourge, whether it be war, plague or famine.  Our memory of destructive wars gives us the wisdom to avoid major conflicts, and America's military forces are probably strong enough to deter the enemies of democracy.  Medical science remains strong enough to cure almost any infectious disease, and food supplies are plentiful in America.
   
   For the next 10-15 years, I see no scourge that will plunge America into a major disaster.  If and when such a scourge does erupt, those people who have preserved their health (physically, emotionally, socially and financially), will be the ones who come out of it unscathed.
   
   
5. International Trends:  America has exported much of its industrial base to foreign countries, where labor is cheap.  For this and many other reasons, the global economy is becoming much more interdependent.  Widespread disruptions in foreign countries (political and/or military) would have a significant impact on the American economy.  These disruptions may occur in or near countries governed by self-aggrandizing autocrats.  However, financiers seldom invest money in countries with unstable political systems.
   
   America relies heavily on imports of crude oil, and to a lesser extent, other imported natural resources.  Oil is in such high demand that a small decrease in the oil supply could lead to skyrocketing prices and prolonged economic instability.  The Middle East is perpetually unstable, and is a major supplier of much-needed crude oil.  However, American power should continue to limit this politically weak region to petty bickering, and perhaps a minor war or two.  A meltdown of the Chinese economic and political system is unlikely, because their government has a tight grip on a traditionally peaceful populace.  An invasion of Taiwan by mainland China would be a desperate gamble, unlikely to either occur or succeed.
   
   The extent to which democracy prevails in this world depends largely on America: our country must deal with tyrants sternly enough to minimize their predatory actions, while encouraging free-market reforms that may ultimately lead to more democratic freedom.
   
   
6. Military Trends:  America stands virtually unchallenged as the world's supreme military power.  Russia is a military and economic basket case.  China is upgrading their armament, but its pace of development is not fast enough to challenge America for at least 10-15 years.  Military funding is likely to increase for the year 2000 and beyond, so the military situation can be expected to improve.  However, if America becomes more complacent about its military situation and economic structure, foreign aggression becomes an ever-greater possibility.
   
   Nuclear proliferation will spread small numbers of nuclear weapons to a few dozen countries.  Nuclear or biochemical terrorism against America is a possiblility, but concerted terrorist attacks are unlikely because no other nation is likely to conclude that America can be defeated by terrorism.
   
   

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   These projections lead me to estimate that peaceful and prosperous conditions will generally prevail for the next ten years.  After that time, our prosperity will depend on how well we can meld revolutionary new technologies with humane values, and apply that towards the overall well-being of humankind.  The decade between 2010 and 2020 will probably be the most fascinating and troubled decade since the 1960's.
   

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