Because commission-based salesmen are typically not reliable sources of good information, I seldom study any analysis by stockbrokers.  However, Merrill Lynch has just released an interesting analysis, entitled A Transforming World.  Instead of focusing on what the economy and the stock market will do next year, it focuses on three major transformations in the world economy and stock markets over the next few decades.

“First, amid rapid strides toward energy self-sufficiency, we’re seeing a surge in U.S. business and technological innovation that has the potential to revitalize the economy and spark another long-lived bull market.”  This paper discusses the impact of “fracking,” the reduced cost of labor in the U.S. (minimizing outsourcing), the long-term housing recovery, and increased spending on R&D.  The U.S. is 75% of global venture capital!

“Second, far-reaching shifts in the financial markets are presenting investors with unprecedented opportunities – as well as unanticipted risks.”  It points out that the flow of funds into mutual funds has shifted from bond funds into stock funds, probably beginning a “Great Rotation” into stocks, which is great for the stock market.  Both interest rates and inflation remain relatively low.  Minor increases are easily manageable.  While investing globally is finally getting the respect it deserves, “values-based investing” (VBI) is also becoming more practical.

“At the same time, a massive rebalancing of the world’s economic, political, and social power is under way.”  This paper emphasizes the impact of doubling the global middle class over the next twenty years, which will produce more consumer economies and fewer export economies.  The increased burden of aged populations in developed countries, like the U.S., will shift huge advantages to the developing world or emerging markets.  “By 2020, the U.S. is expected to have twice as many workers over age 55 than those 24 and under.”  (This worries me . . . a lot!)  The demand for natural resources, such as water, will increase to a dangerous point.  Lastly, due to the limitations of democracy and the impotency of central governments, economic power has shifted to central banks, like the Federal Reserve.

While this was an excellent analysis and should be “required reading,” it is primarily geared toward the “buy and hold” investor, who has a high tolerance for the inevitable bear markets that will occur.  And, I don’t know many of those.  Of course, this report is what one would expect from “the thundering herd.”

After all, everything is an opportunity, isn’t it?