INVESTMENT OUTLOOK : ESSAY : The 1990s: A Global Focus Aided by Technology

The question is ambitious: How should you invest for the 1990s?

The answers are modest. Understand your environment, which is the global economy, watch for a few trends and be aware of your limitations--most people can’t predict the next two weeks, much less the next 10 years.

The articles on these pages are markers at the edge of the forest, not a road map through it.

The 1990s will be perhaps the first decade in which investors small and large will truly know that they live in a global economy. In a way, it’s about time: Despite the $500 billion a day in currency transactions that now rocket around the globe--affecting everything from mortgages to retirement savings--U.S. pension funds have less than 10% of their money invested internationally, and individuals have almost nothing.

That will change in the ‘90s. As U.S. investing soared in the 1950s, when the New York Stock Exchange urged people to “own your own share of American business,” so world investing should soar in the next decade through mutual funds, and new and different instruments linked to global money flows.

Here at home, things could be tighter: The foreign money that supported our life style in the 1980s may not be there, as Europe invests in Eastern Europe and Japan invests in Japan and elsewhere. Meanwhile, the world will be awash in merchandise, and it’s a very good bet there will be world peace. But it won’t be a Yuppie decade in the United States; the search for values will replace the search for the perfect pasta. Social observers expect a political decade--”like the 1940s and ‘50s,” says one historian.

It already is a Yuppie decade in Japan, where young people recently paid hundreds of dollars to drink the season’s first Beaujolais. But watch for young Japanese to revert to tradition, in reaction to their country becoming more international.

Techno-trends? Sometime in the coming decade you’ll be talking to the wall--the way Buck Rogers and Flash Gordon used to do on TV--as interactive video communication goes commercial. The home computer will come into its own, and there will be big developments in biogenetic medicine and the reform of education.

Or something else will happen. Predictions should be taken playfully, not seriously. A decade ago, forecasters said the price of oil would continue rising, and the 1980s would be bad for New England, good for Texas, bad for Japan, good for Mexico.

The decade turned out exactly opposite. Inflation declined--one of the most important factors for investments, yet few predicted it. For that matter, who predicted Reaganomics, leveraged buyouts, VCRs and Gorbachev?

You could have made a lot of money in the ‘80s investing in personal computer makers, Japanese companies, the comebacks of Ford and Chrysler and in movie studios. But they headed no lists of hot tickets in 1979.

Now they’re old news. In 1989, the thinking is that Chrysler will have to seek an international merger partner; Japanese companies seem overpriced; almost all the movie studios have been bought out, and the personal computer industry is going through a volcanic eruption of new technology. Securities analysts say the computer industry is “maturing,” to which a top chief executive remarks “Yeah, it’s maturing--like the East German political system is maturing.”

So in the decade ahead, what should you look for?

In the United States think about having almost all the 76 million Americans born from 1946 to 1964--the baby boomers--in their 40s and working. The productive potential of the U.S. economy will be tremendous.

As it will need to be. The United States in the coming decade will have to work and export to pay down the debts incurred in the ‘80s. Like an irresolute heir to a fortune, the nation has been living off capital and faces debts to other countries--notably Japan--of more than $750 billion.

Already, we are like the family in the big house on the hill who pretends not to see that the silver candelabrum have been pawned, the paintings have been sold. But the rest of the world sees a family selling assets to maintain a life style that it can no longer afford, and wonders how long it can go on.

The reckoning will come in the ‘90s and could determine the course of the world economy for the decade.

That’s not an overstatement. The relationship of the United States and Japan, the two largest economies on Earth, is in transition. If the change goes badly, the consequences could be devastating. Frustratingly, it’s the kind of thing you can’t predict, but only watch. World markets will be volatile until the outcome is known.

The outlook is cloudy. Asia scholars fear a rupture in U.S.-Japan relations--beginning with restrictions on Japanese imports or capital, followed by a precipitous fall in the dollar--followed by a lot of trouble for the world.

But if the two nations can make the transition without rupture, then the ‘90s may be the best decade of the century.

And why not be hopeful? After all, the two largest military powers were successfully managing a transition as the ‘80s ended, promising not only peace in the ‘90s but the opening of one of the last great growth markets on Earth in the Soviet Union and Eastern Europe.

With the Soviet Bloc integrating with the world economy, production of goods and services, and growth in world trade will be headlong in the coming decade. Indeed, if the world is threatened, it is not by starvation from too little production but by the environmental consequences of too much.

So if you’re investing , don’t buy inflation hedges. It will be a competitive decade, but not an inflationary one. As to the environment, look beyond the problem and invest in ideas that will be part of the solution.

Finally, think originally. Try to anticipate the home computer coming into its own in the 1990s. But don’t think of a machine--think of the power that home computers and fiber optic telephone lines will bring to individuals.

Steve Jobs, who founded Apple, always said the computer would enhance mental capabilities as the bicycle expanded physical range. And Henry Ford, a long time before Jobs, said the motor car was more social revolution than machine. “People no longer lived and died without ever having been 50 miles from home,” said Ford. “They got used to machinery and power and moving about with some freedom.”

In more ways than one, freedom is in the air as the new decade begins.

Editor: Ron Iori

News Editor: Linda Finestone

Art Director: Matt Moody