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Blockchains, Spaceflight And College Tuition - Goldman Sachs Ponders Trends To Watch

Tom Burroughes, Group Editor , 5 January 2016

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The banking and investment firm pinpoints seven big ideas it thinks are worth keeping in mind for next year and further ahead.

It can be fun to try and guess the future, however foolish some people might regard such efforts. Throwing out guesses about the future allows us to at least stand back from some immediate concerns and try and gain a bit of perspective. In a tumultuous world such as ours, that’s no bad thing. 

Over at Goldman Sachs, a number of the analysts and economists at the US-listed financial powerhouse have come up with seven subjects/themes they think will matter, not just for the coming 12 months, but further out. These thoughts are so striking that I thought it worth highlighting each one of them. Here goes:

1. The Blockchain. Ok, what is it? Goldman Sachs defines it thus: “In its purest form the Blockchain is a digital platform that records and verifies transactions in a tamper- and revision-proof way that is public to all. Levering the same peer-to-peer technology first developed in a dorm room at Northeastern University with Napster (and subsequently built upon by folks like Skype and Spotify) the tool was first born out of a need to track and create Bitcoin.” Bitcoin, as readers will know, is a form of digital money based on a peer-to-peer platform that, depending on one’s viewpoint, is a dramatic challenge to existing, state-run fiat currencies, or is a conduit for illicit financial activity. But leaving aside Bitcoin specifically, the technology around Bitcoin, and particularly the Blockchain platform, is mightily powerful and is now drawing in serious money and brainpower in Wall Street, London and elsewhere.

Goldman Sachs says: “This decentralised, cryptography-based solution cuts out the middle man. It has the potential to redefine transactions and the back office of a multitude of different industries. From banking and payments to notaries to voting systems to vehicle registrations to wire fees to gun checks to academic records to trade settlement to cataloguing ownership of works of art, a distributed shared ledger has the potential to make interactions quicker, less-expensive and safer. By removing the need for a middle man one lowers potential security concerns from hacking to corruption as well as speeding up manual processes that are antiquated and can take too long. Your counterparty risk, if processing times improve, can be near instantaneous, allowing accurate, in real-time, feedback on risks and exposures. In the world of the author, think of it from the banking side. In the face of increased capital and regulatory costs, any incremental technology that improves ROI drops to the profit line. Supervisory and technology resources as a result, could be cut.”

It throws in some words of caution: “Like any new technology, the hype cycle is building with no real, at this point in time, legislative or regulatory framework. Opensource has a history of both successes and failures, thus begging the question of how open or controlled Blockchains will be. That’s not to say private Blockchains can’t work but fragmentation may slow adoption.”

2. Space is again the “new frontier”.
As a recent SpaceX flight shows (the rocket fired up into space and descended back to Earth, intact), spaceflight has got interesting again, after what has appeared a hiatus. Goldman Sachs sees a rich area for private investment. “The space race is reigniting and we see investment opportunities. As the barrier and costs to deploying space technologies are lowered, we believe A&D companies will see accelerated growth in their space business lines, while commercial satellite operators may be disrupted by lower-cost alternatives.” Among the eye-popping statistics that the bank lays out, it says that space launches now cost 11 times less than they did five years ago – this is the sort of dramatic shift that one might associate with rising computer power and cost ratios. One consequence of this is that spaceflight and associated firms will outperform their peers.

3. The cost of college may no longer be worth the trouble.
In what might be one of the most controversial arguments in the document, the US firm notes that the average return on attending college is falling. For example, it says for the typical student the number of years to break even on college has expanded from eight years in 2010 to nine years now. Extrapolating on present trends, students enrolling in college in 2030/2050 will have to wait 11 to 15 years to break even. Looking more closely at specific figures, the bank said that graduates studying lower paying majors such as arts, education and psychology face the highest risk of negative returns, which means college may be decreasingly attractive.

In asking why this matters, Goldman Sachs says: “The choice of college and major are more important than ever to students given the changing return profile. (US student debt is now more than $1 trillion). The still high levels of skilled vacancies… despite record numbers of undergraduates points to a demand and supply mismatch (linked to this is the shortages in trade jobs; skilled trade vacancies screened as the most difficult job to fill in Manpower’s annual survey for the sixth consecutive year in 2015). Corporates may have to do more themselves and develop their own talent identification systems. New entrants and business models are emerging to meet some of these challenges.”

In considering the specific effects of change, it writes: “Two things in particular stand out as potentially disruptive to universities. First if employers changed their attitude toward non-traditional sources of degree awards. Massive open online courses (MOOCs) are the most obvious threat (30 per cent of undergraduates already take some classes online), but it could also be companies creating their own de facto degrees. Udacity for example offers nanodegree programmes where curricula are designed in partnership with companies like Google, AT&T, Facebook, Salesforce and Cloudera. Second, for a broader new system of signalling and talent identification, look again to the tech sector; an increasing numbers of companies are using GitHub (a software development tool used for writing, storing and collaborating on code) to view coders’ portfolios of work as a better talent indicator than their academic resume. Consulting firms EY and PWC have both said they will use their own testing systems for recruitment rather than relying on academic grades.”

4. “Generation Z” will be larger and more influential than the Millennials.
“America’s youngest generation, 'Gen-Z' or those born after 1998, are now entering their formative years and rising in influence. At nearly 70 million in size and growing, the eldest of which are now entering college and/or the workforce, this cohort will soon outnumber their Millennial predecessors. Raised by Gen-X parents during a time marred by economic stress, rising student debt burdens, socio-economic tensions and war overseas, these youths carry a less idealistic, more pragmatic perspective on the world. Born device in-hand, Gen-Z is America’s first generation of true `digital-natives’ and they will be America’s most diverse to-date (first to be majority non-white). Over the past several years, educators, employers, researchers, retailers and the like have spent significant time and resources dissecting the Millennial mindset. But the time has already come to focus to Gen-Z, which promises to be just as, if not more, influential.”

5. 24 August will not be the last “flash crash”. The bank notes how equity markets went “haywire” on that date; some have accused the exchange traded funds market for making volatility worse, but Goldman Sachs rejects this. It argues that new rules and processes, coupled with lack of common standards across markets, created the conditions for this event. 

6. Lithium is the new gasoline. The firm argues that its properties of lightness and high energy, and abundant supply, put it in an ideal position for portable energy storage. Electric cars and other electric vehicles are “critically important to the growth in lithium demand”, the bank says.

7. “The Cloud can help cure cancer”. In its final, seventh prediction, Goldman Sachs says that rapid cuts in cloud storage costs and DNA sequencing technology will “merge with proliferation of electronic medical records to enable a new paradigm in cancer treatment”.

“Since cancer is a disease rooted in genetics, we believe physicians will find great utility in the ability to gather NGS data across large populations, analyse the data over time as the DNA mutates, and then compare it to a single patient to assess that person’s treatment options. At the same time, these data can be used by drug companies and scientists to develop better drugs faster and cheaper than ever before,” the bank says.

 

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