One Jump Ahead: Bank of America’s Global Strategist on the megatrends reshaping the world

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Spencer Levy 
While we like to focus on sectors or markets or to dig into the details and data in the commercial real estate business today, every so often we pull back the lens with a guest who can help us take a more forward-looking perspective. On this episode, a global strategist for one of the largest financial institutions on the planet helps turn our focus towards “megatrends” and the major economic and other forces that are shaping the future. 

Haim Israel
Everything is happening here and now, and I think that's probably one of the things that investors needs to understand – that when they are focusing on their daily lives, they are missing the big picture. 

Spencer Levy
That's Haim Israel, a Managing Director and Global Strategist at Bank of America. A native of Jerusalem, he joined the Bank of America organization roughly 18 years ago before the Great Financial Crisis. So he’s worked through a world-shaking event or two in his career. Today, he leads a thematic investing research team, keeping an eye on major trends and the future. Coming up, demographics and technology, ESG and the pandemic, the micro versus the macro and whether there is even a difference between short term and long term thinking anymore. Global Strategist Haim Israel with ideas to challenge your worldview. Megatrends! I'm Spencer Levy and that's right now on The Weekly Take. 

Spencer Levy
Welcome to The Weekly Take and this week we are delighted to have Haim Israel. Haim, welcome to the show. 

Haim Israel
Thank you very much. It's a pleasure to be here. 

Spencer Levy
We're delighted to have you here, Haim. So for the benefit of our listeners, please define what a global strategist is at Bank of America. 

Haim Israel
Global strategist is a position that tries to look at the world, tries to look at the big picture and see how the world's going to develop. My specific position in Bank of America, Head of Global Thematic Investing, is trying to look at the future and trying to identify and understand how our future is going to look like and how it's going to be shaped, what forces are really driving it – good or bad – and how it's eventually going to be shaped. We call these “megatrends” – what's really impacting our life, shaping our life and moving our life to the next level.

Spencer Levy
So Haim, you spend a lot of time talking about megatrends. There's a lot of them. But just for our audience, just list some of the megatrends that you follow and you think are most influential on your outlook. 

Haim Israel
Of course. So first of all, how do we define megatrends? We define megatrends as a trend that will change the world. Trends come and go. Technologies come and go. Sometimes they stick and they are getting their place in the world, but they are not changing our world. We're really looking to see what's about to change the world here. We are looking at three categories when we define megatrends. First category for us is innovation. So we've found megatrends like privacy, like cybersecurity, like automation, A.I. and so on. The second category for us is people, you know, we have to think about aging population. We have to think about Gen Z, that is entering into the picture and they are very different from anyone else. We think about inequality. We need to think about education. We need to think about the bottom billions. And the third category for us is Earth. Everything that is impacting our planet, we are running into water scarcity, it is not being discussed enough. We have a trash problem that's going to, about to change the world. Food scarcity and food crisis. Climate change – technologies around that. All those things are about to change the world. That's how we are thinking, good or bad, and that's very, very important. We are not focusing on only what's going to make the world a better place. We are looking at what is about to change the world, good or unfortunately bad. 

Spencer Levy
Well it can't be more important to think about the megatrends because so often our clients, Bank of America's clients, get focused on the day to day. They get focused on the micro; when the micro might matter in the short term, but in the long term it's really the macro. And so talking about that short term versus long view, that's one of the themes in some of the pieces that you put together, Haim. Tell us about that. 

Haim Israel
Our approach in Bank of America, my approach is that there's just no differentiation anymore and I think that's a mistake that a lot of investors are doing. They are trying to differentiate the short term and the long term. And I keep asking myself one question; when we are approaching thematic investing, when does the short term ends and the long term begins? We don't get it yet. Things are happening faster and faster. Megatrends and themes are realizing faster and faster and we live in what we call a “tech-celeration” era. Things are just moving faster and faster. So what's the differentiation between short term and long term? Week, month, year? Let's think about it. You know, two years ago, we've been all quarantined. The world stopped. Never, ever happened in history that 85% of the planet was shut down. Never. Not in pandemics, world wars, never. Two years ago, we can't even remember that. That shows you that just no short term and long term anymore. So, yes, my definition is more long term, but there's just no long term and short term anymore. Everything is happening here and now. And I think that's probably one of the things that investors need to understand, that when they are focusing on their daily lives, they are missing the big picture. 

Spencer Levy
CBRE is the largest real estate services company in the world and so I try to put everything eventually into a real estate box. And so the real estate box I might put the pandemic into is what's the implication for the long term demand for life sciences, research and real estate, right? That is a practical implication of it. And from our point of view, it's obviously accelerated. But my question would be do is there a risk of overplaying a megatrend like the pandemic, say, oh, now everything needs to be health care or life sciences or research related, rather than looking at a more of a distance view of saying, here's one megatrend, here's another one's demographics, here's another one that's technology, which is the one that's going to drive me. But just in that one micro context, Life Sciences, what's your point of view? 

Haim Israel
Of course. So I think when we're talking about those kind of things, to answer your question, what we need to understand that those big defining moments event like COVID that we had are not changing anything. What they are doing, they are accelerating a lot of the trend that we've been saying. So we've been talking about life sciences for a very long time, it’s a thing that we call the future human, the combination between men and the health care services and how are we going to live longer, better with the help of technology? What happened because of COVID, everything got accelerated, dramatically. The timeline got accelerated dramatically. This “tech-celeration” that I talked before that we are moving much more online. The work is hybrid, is changing and so on where we are, the timeline before COVID, what happened? Because COVID nothing have changed, but the timeline have been brought forward. So what we've seen is those defining moments are actually like tectonic shifts that accelerate a lot of the trends. They are not changing anything. They are actually reinforcing a lot of the stuff that we've said are going to happen. 

Spencer Levy
Let's go to another megatrend, probably the one I point to more than any other in my presentations, which is demographics and demographics has a lot of different components to it. We did have another guest on the show who you may know, Parag Khanna, who is a demographer. He's terrific and he talks about the shifts of people from continent to continent. I look at that, but I also look at people within continents of moving from the eastern and western states to Texas, southwestern Florida. But I also look at the aging demographic. I look at the world of getting older. Japan probably started the trend then Europe, now even China is showing that challenge, so are we. Demographics, how does that play into your analysis? 

Haim Israel
That's probably one of the most important megatrends that we are talking and speaking right now. What we're seeing in the world is completely unprecedented. No, I'll just give you one example, ever since the dawn of humanity, ever since fire, we've been living in a world where the number of people on the planet keeps increasing. In our lifetime, for the first time ever in history, we are about to get to what we call peak people. The number of people on the planet is about to plateau. We're seeing a plummet in birth rates. We saw -  on the other side of the equation that we're seeing an increase - it never happened so fast in aging. Life expectancy is increasing, so we have more elderly population. The number of 65 years and above is going up, while the number of five and below is going down. Actually today, right now in North America, there are more grandparents than kids. More 65 years and above than children under 15 right now as we speak. So think about the consequences. So the question is very simple. More 65, less children under 5; peak youth, peak labor, and eventually peak people. 

Spencer Levy
Parag Khanna uses the term peak humanity, but it's the same concept we're going to be in a world of declining population, which is the first time in human history. 

Haim Israel
Thirty years, give or take, the number of people on the planet is about to plateau, start coming down. Roughly around 10 billion people. We’re at eight, the first time ever in history. Think about the consequences. 

Spencer Levy
Well, I'll give you one consequence, and then I'd love to hear others go, I'm sure there's thousands, which is if you're dealing with a country that's trying to grow using GDP growth as their basic metric, growth has to do with two things: population growth and productivity. That's economics 101 for The Weekly Take listeners. But if we're missing population growth, what do we do to grow? How do we allocate resources is probably a better question because elderly folks need health care resources more than younger folks. 

Haim Israel
My point of view is that we have to start rethinking about all those models and probably the models that we've seen. But as you said and you’re completely right, gratuity plus population growth, we might need to rethink it. This future that we're seeing and accelerating all the time. Our key take is that all those doctrines, all those models that we been accustomed to, we learned in university, we learned in school, we have to start rethinking about them. That has huge consequences. To be completely right. I don't have all the answers - government don't have all the answers because I don't think they are thinking about right now. 50% of countries on the planet, their population is shrinking, their birth rates are below replacement rates. Productivity, because of that - eventually will calm down and it will be up to technology to bridge the gap. But we'll have to start thinking in very new terms in the future. Less working hands, pension deficit, which are going to go through the roof, the working market, and who's going to subsidize, and eventually jobs are going to have to be replaced, education system - so many things which will have to start rethinking the bottom. And this is the thing about systematic investing. We are quoting the trends and we are seeing the trends. It is going to be up for countries to understand what they are doing with this information and government to understand what they are doing with this information. Sometimes, as we see, governments are just missing it and not starting to do the work today. But if we are saying that in the next 10, 20, 30 years, we're going to get to the point that we're getting to peak people and peak youth and peak labor, government needs to start doing the work today. Look at Japan. Japan for the last, I don’t know, give or take on ten years, sold more adult diapers than baby diapers. Today, there are more pets in Taiwan than kids. Governments have to start doing the work today about how to adjust the economy, how to adjust growth rates, how to adjust the job market, the work market. There are certainly many challenges ahead. 

Spencer Levy
Well, I certainly hope governments tackle that, because I know that there are many people that are looking to abandon a growth standard. I've been on debates where people say, you know, GDP and growth is overrated. We should go for a quote, standard of living model. And they actually point to Japan. They say, well, Japan hasn't grown in 30 years, but they have the highest life expectancy. They have great infrastructure, they have great health care and their technology for certainly for elder care is among the best in the world. Do you see there is a risk of a global push towards standard of living as the model versus growth? 

Haim Israel
It could be. We can see that because eventually growth will have to come out from other sources. We keep saying that eventually technology is going to bridge the gap around growth and we're probably going to need to look at the model that we will work less. Life expectancy keeps increasing, but in turn we have the technologies today: automation, A.I., computers, to make our work much more efficient. Things that we've done in the past that took us weeks, days, whatever. We can do that now in hours or less, be even more productive than we’ve been. Leisure time probably might increase but we'll have to think how the economy is subsidizing and supporting all of this. We’ll be living in a model, for example, that we are retiring in our sixties? This is not a model that is right in this time. If we are the generation here today that lived to 100 years-old it’s not going to be abnormal. What it means that if we are, let's say, entering the job market in our early twenties, we can't retire in our mid sixties and then live 40 years. No economy, doesn't matter how will you look at it, what model will you which we embrace going forward, no marker support 40 years of pensions. No models. So either we have to think about expanding job market, the pension system, something has to change and the work has to be done today. You can't go out in one day thinking there's going to be a pension deficit that's going to kill everything. We actually quoted $400 trillion global deficits pension by the middle of this century. Remember, the global GDP is roughly around 80, 85. If you're not doing the work today, you probably are not going to be around tomorrow. It's a massive challenge. 

Spencer Levy
Well, there used to be an expression, a billion here, billion here, soon you're talking about real money. Now you're saying a trillion here, a trillion there. That's real money. 

Haim Israel
Trillion is the new billions, yeah. 

Spencer Levy
Wow, I better work harder. So we've been talking about how the aging demographic is going to change a lot of policies that we need to put into place for pensions, for retirement. But it's not without controversy. So megatrend, on the back of a notepad. We could agree on where we should go, but then the implementation of it. Do you think about that? 

Haim Israel
Yes, we do think about that. And when you look at history, the big changes happened when there were crises. And we're heading into a pension crisis. There's no doubt. There will be countries, there will be places that the pension deficit is going to be so big that people are not going to be paid. And when the reality, when people are going to wake up to reality, understanding that they are living longer and longer, something will have to change. So governments are doing the work. And you said – to give the example of France saying, you know what, we have to start thinking about our pension system. But the crisis did not happen yet. People are still not feeling it yet and people will. So it's going to be a massive challenge. It's a huge challenge for how I market it, how I package it, how I deliver the message. That's a massive challenge for governments. It's easier to do it when you have a crisis. I hope we're not going to get there. 

Spencer Levy
Let's go back to technology and this could be the whole show on technology. But one of my favorite books, and I'm not sure if you read it, was by Robert Gordon. It's called The Rise and Fall of American Worker Productivity. It's a big book. It's about 600 pages long. I give it to people as a doorstop or as a book, whichever they prefer. Great book but one of the main concepts in the book is that notwithstanding all of the great advances of technology. He said that the rate of productivity gains among the average American worker while going up is going up at a decreasing rate. So his basic thesis was that productivity is not going up fast enough, even with technology. How do you respond? 

Haim Israel
I think that it is going up. The way that we need to think about is how we measure it. I think this is some kind of a misunderstanding around productivity. We have more leisure time today in the Western world. I think that's a fact, everybody understands that. This model is about working 24/7, sleeping under our desks during the weekends, those are things that we're seeing less and less. We have more leisure time. Is leisure part of productivity? Yes or no? Which part of consumption trends? It's part of human health. It's part of a lot of other things which have not been measured up until now. The way that people have measured productivity up until now was how much output we are doing in work – how much input versus how much output, and we're doing the calculations saying this is a productivity. I think that's wrong in the new world. We have to start thinking about, okay, this is our leisure time. Family time is productivity. Yes or no? 

Spencer Levy
It's utility. 

Haim Israel
It's utility. Probably it’s utility. That's a great way to look at it. But I'm a big believer that it is part of being more productive. I think that no more leisure time and developing my own has huge psychological and health care consequences that eventually increase my own productivity. We have to start thinking in other terms, and that goes back to the beginning of our conversation about economics and about models. That has to start changing. Now the world have moved to five days a week now, only like it was 15/20 years ago. We worked six days a week. More discussions all over the world right now, moving to four days a week. Did productivity go down? If you think about it, we went down one day of work, which is if not, just do a very simple calculation like roughly by 15- 20% decrease in our work and productivity only went up. So now that there are discussions about going back to four day a week, I don't think the productivity is going to go down. I think the productivity will stay, give or take as it is. Plus, you mentioned technology. We practically have the tools to do our work so much more productive. The other thing which I keep asking myself about productivity is whether me, you, all of us, we are being measured in the right way, meaning our abilities. Are they productive enough? 

Spencer Levy
Well, let's bring it back once again to real estate. The return to office is still a question mark. And what you're suggesting, Haim, is that's not necessarily a bad thing. Certainly from a productivity perspective, I think there might be some that might differ with you and those that might differ with you - I'm aware that certain tech companies are saying that certain types of creative work have fallen off, certain types of innovation have fallen off because of that. What's your point of view? 

Haim Israel
I think we have to take it with a grain of salt. I think the model about going back fully full-time to the office, as we've done before, that is somewhat changing and we can allocate time to do stuff more efficiently in other ways. So the hybrid model is definitely taking off. I'm a big believer that you cannot just work from home. It's not working. You still need to have office space. You still need to be in the office at least part of the time. You need the communication with people. I think that’s increased productivity dramatically. Brainstorming with people, social skills, everything around that is extremely important for every job. However, when I'm going to work, I'm thinking about other stuff which were not that productive. My personal experience. I live in Israel. When I'm in Israel, of course, I go to the office. I spend an hour and a half to each direction, 3 hours a day, go back and forth to the office, 3 hours. This could change. You know, those 3 hours, even if I just allocate one hour to work all the two and the two other to consume, to be with my family, to develop my leisure time. That is massive productivity gains even for my work. No, I've just added one more hour of work. So I think that from a pure mathematical point of view, it does make sense. However, from a pure psychological point of view, brainstorming, social skills, whatever, you cannot give up on the office. You have to be in the office. So this hybrid model, what is the right measurement and what is the right, let's say, balance between work and home? That needs to be decided. And I think that over time we’ll know. 

Spencer Levy
Clearly one of the key megatrends out there is concerns about the climate, climate change, energy usage. Tell us a little bit about your thoughts on how you analyze the future use and creation of energy. 

Haim Israel
I'm a big believer in climate change and I think that we are right now in a position that to some extent we are moving to net zero, not because of climate change. And that's where all the progress that we're seeing right now - let me explain, what do I mean? For years and years – I was born into a world, I'm 50 years old, I was born into a world of discussions around climate change – global warming, how you call it was already happening, was already going on. So it's nothing new. It's been going on for decades and decades. We knew. But I'm asking myself. We've achieved more progress in the last – give or take or a year – than we did in 50 years. What changed? What happened? Actually, if you look at the last six months or eight months or so, we achieve more progress than we did in all this time plus. What have changed? What have changed is that it's no longer – the path to net zero – is no longer a purely environmental question. Environment is one aspect, but the bigger question we need to ask of right now is political, geopolitics, and most important is economics. And those three things are actually what's pushing us today to net zero or moving to energy alternatives right now. Let me explain. If we learned something in the war in Ukraine, everything is a weapon. Food is a weapon. Energy is a weapon. Supply lines are weapons. Everything could be weaponized. And if countries understand one thing is that I cannot be reliant on other sources of energy that cannot be self supplied. I need to be resilient. I need to supply my own resources. Remember one thing: more than 80% of the planet is importing fossil and not exporting fossil. So 80% of the planet, slightly more than 80% is actually at the mercy of other countries. So moving to alternative energy now is become a geopolitical and political interest. And alternative energy, I have to be - I have to be clear, alternative energy does not necessarily say it's going to be clean energy. It includes other forms of energy that can be self supplied. So if I can develop my own fossil resources, great. If I'm using, of course, renewable energy: wind, solar and so on, battery storage and so on. Another one, nuclear, hydrogen, whatever, I could be self supplied. So there's a geopolitical interest. And then we move into the second element, which is actually the economic interest. And what we don't get right now is that we live in a world of inflation. We live in a world that everything – price goes up and the era of zero inflation is behind us. Today, to produce energy with renewable sources is cheaper than fossil. It depends on the country. It depends – the technology depends on subsidies, depends on many, many things. But on average, we're speaking it's roughly up to 25% cheaper to produce a unit of energy with renewable sources. And if since the seventies, oil prices are up, give or take nine times, renewable energy prices, elements and technology went down 99.7% and now cheaper. So we have the economic interest to move to other forms of energy and countries which are struggling with the cost of living and range for other people, everything, have an interest to move to whatever makes it cheaper. So now you have a combination for the first time of a geopolitical interest, of an economic interest, plus an environmental interest to move to alternative energy. As long as the debate was purely environmental, then no, we worked and we progressed so slowly. Now you're seeing the big move to alternative energy that makes me much more optimistic that we are actually on the path to net zero because it is no longer an environmental question. 

Spencer Levy
You know, Haim, you said something a moment ago that I'll paraphrase, that we are no longer in a world of low inflation. Let's talk about that. I don't necessarily agree with you. Inflation may be higher than the zero that we had, I can agree with that. But are we in a world with excess inflation going forward? 

Haim Israel
Let me rephrase. We are back to an era of inflation because that's the normality. What we had in last ten years is not normal. Zero inflation, massive stimulation, no breach of all fiscal spending and of course negative interest rate. That was not their normality. We are back to normality. I do agree with you that overall, when I'm looking at the megatrends of the world, they are deflationary and not inflationary. But we have to look at timeline here and that's extremely important. The first stage, that's actually going to be inflationary because part of the reason that we spoke before that about climate and about investments and so on are very inflationary. We are seeing the world of countries starting to be more and more independent. The era of globalization is starting to shift. We are moving toward a de-globalized world, never going to go back to silos, of course, but the whole trend of globalization changing, and that requires massive, massive investments; investment in infrastructure, investment supply lines, investment in new resources, development, and that's inflationary. The second stage, once we're going to get past that, I agree with you, there are two elements here which are very deflationary. The first one is demographics. You mentioned that, although there's still a question mark about fiscal spending because of that. And the second one is technology. Technology is a very deflationary thing. Of course, there's always investments and in the first stage and we'll need, you know, infrastructure with datacenters and with telecom equipment and we need fiber and we need all this stuff. But overall, technology decrease cost over time. Let me give, you know, probably the simplest example about how technology decrease overall cost of living dramatically. No one is talking about that. When we're talking about semiconductors, we keep talking about how fast the processes are; getting stronger, faster, all the time. Actually, if you think about Apollo 11 moon landing mission, the processing power we have today are 1 trillion times faster and stronger than the one that used to - put the man on the moon. Actually, in the palm of your hand today, you have more processing power in your phone than the entire moon landing mission. So that goes up. But what people are not thinking about, that it's getting so much cheaper. Every four years, the cost per calculation goes down 90%. So if you practically do the equivalency since the Apollo 11 moon landing mission, it’s now 99.9999%, it's actually getting to the calculations for free and we're getting all those massive technologies for free. So that decreases the cost of living dramatically, people are still not talking about enough. And if I would do the equivalent of top oil prices before that, I would do the equivalent to oil prices. The equivalent will be that you are today fueling your car with $0.01 a gallon. That was the equivalent. So that is a mess. And everything has been technology. Everything is going online. We are getting more and more online all the time. That decreases inflation over time. 

Spencer Levy 
Well, before we get to some wrap up questions. You're the global strategist for Bank of America, any particular industries you might recommend to our listeners? Say gee, this is what we're recommending to our clients. 

Haim Israel
We live in a world of technology, so you can imagine that. We live in a world of everything that we set up until now and you can take eventually for the long term what should win here? We live in a world of higher health care expenditures. Health tech will provide the question. We live in a world where energy transition is happening faster and faster, so everything around that should benefit. We live in a world of more expenditures of infrastructure. So, know, everything that we spoke up until now, it's very obvious to see how the world is going to shape. 

Spencer Levy
But I think that even with that recommendation and I'm with you on basically everything, you could still see in many of these industries, like electric cars or certain types of green tech, there have been some companies that were super popular that crashed and burned. So it really doesn't come down to just the technology, just the megatrend comes down to the management acumen. You agree? 

Haim Israel
I agree. This short term and long term stuff that we spoke before that is critical, I think, for your questions about companies. That should be a key focus. If we lived in, I think it was 1965, the average life expectancy on the S&P 500, meaning the amount of years companies traded on the S&P 500 was 62 years. This is down to 12. Companies are disappearing very fast because they’re missing the big picture. They're missing technologies. They're missing the changes that we keep seeing right now. On the other side, we have mega companies that their market cap is bigger than countries today. We all know them, know the big tech companies and we know what's going on. Companies have to start focusing on the long term, understanding that the long term is the short term. CEOs on Wall Street spend most of their time on the coming quarter, not on everything else and I think that eventually that's a mistake. 

Spencer Levy
So final thoughts, Haim. If somebody is looking to analyze the megatrends, what do you read? What should they do to get anywhere close to understanding how the big picture really impacts them on the small picture? 

Haim Israel
Sure. So the way that we work is we talk to everybody. Never, ever limit your source of information. Talk to governments, talk to companies, read whatever you can. Don't think that media channels are biased one way or another just listen to everybody. The way that I do it is I try to speak to as many people as I can in many industries, in many companies, many clients, governments, academics, everything around that, the amount of knowledge that is being missed here, it is just overwhelming. If you really want to understand what's going on in the world. Never, ever limit yourself to one small channel of information. 

Spencer Levy
So let me dig into that. So back in the 1970s, there were three news channels and it was Walter Cronkite and a few other folks that gave you all your news. And the world was a better place in some people's opinion. So are we in a better place today than when people got their sources from the same place? 

Haim Israel
We have more. I think that, first of all, yes, we're in a better place. And I think that's probably one of the biggest mistakes that people are doing that they are biased to - know, to a source of information x versus source of information y. You need to listen - I'm a big believer, you need to listen to everybody because you don't understand which kind of information you're going to get from who and what. We live in a world of fake news. We live in a world that a lot of the data is manipulated. We understand that actually fake news has been tweeted five times more than real news and growing more than three times faster than real news. But if you are not listening to everything and trying to understand, then be very critical and ask questions. I'm a big believer that you’re never getting information as just as it is. You have to always be criticized about it. This is how you're getting your data. Maybe this is the way I've been raised and being isolated for so many years that, you know, everything has to be questioned again and again. But I find that if you're limiting yourself to one source of information, knowing some information is manipulated knowing some of this information could be wrong, you are missing so much value. 

Spencer Levy
So read and listen and talk to everybody. Don't put on your blinders, whatever they may be. So on behalf of The Weekly Take, I want to thank Haim Israel, global strategist for Bank of America, talking with us about the big picture, the mega trends. Haim, great job. 

Haim Israel
Thank you so much. It was a pleasure to be here. 

Spencer Levy
For more on our show, please visit our website, CBRE.com/TheWeeklyTake. And while we're thinking about the future, remember, you can reach out to us with the “Talk to Us” button on our home page and on a future episode, we might just follow up on your feedback. And don't forget to share the show as well as subscribe, rate, and review us wherever you listen. Our immediate future is filled with lots more informative, thought-provoking insights, including CBRE’s US Office Occupiers Sentiment Survey and other thought leadership from around the world. For now, thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.