Four macro economic trends you should watch

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The Milken Institute Global Conference is a gathering of several thousand leaders across a broad spectrum of the finance industry; they say a trillion dollars is represented in those rooms. Over the last few years, more representatives of the government and the nonprofit world have been participating as it becomes clear that the points of finance and these other influence points are intersecting.

Several big themes emerged at the event:

1) There is a new world order.

The United States is still important, but will share its dominance. In the post-Berlin Wall, post-Cold War world, the United States was the sole superpower, both economic and militarily. That's changed.

The U.S. is moving from 60 percent of total global equities value to now about 35 percent, reflecting the growth of other economies.

It's different this time. Three emerging economies represent about 50 percent of global population.

Jeff Immelt, chairman and CEO of GE, was asked about his company's revenue picture over the next decade. He answered, "Just do the country splits of overall infrastructure investments over that period, we'll map our revenues roughly to that direction."

This shift will cause a change in our American psyche. I think of it as searching for our next Manifest Destiny.

2) Stability is elusive.

Almost every major institutional investor commented on the increased global volatility. The cash that's on the sidelines is looking for a greater yield after 3 years of 25 basis point, but where does it go? And how does one manage what appears to be increasing global shock waves?

The effects of weather, man-made disasters, war and too-big-to-fail economic structures are even more concentrated today than in 2008. There are imbalances in emerging vs. developed economies causing odd behaviors and loss of control. Euro banking and sovereign debt instability is getting worse.

Chief Investment Officers are asking if they have gone far enough in diversifying risk and in redefining portfolio risk management models.

3) Agriculture and food: It's a Maslow's Hierarchy basic need.

A growing middle class in developing nations is measured in the hundreds of millions. At the same time agriculture productivity is flattening: 90 percent of usable land is in use already. Ag-products-as-fuel is competing with food — some 40 percent of U.S. corn is going to biofuel.

Is the current commodity increase the start of a "super cycle" or a reflection of speculation?

A couple billion folks are moving to a "meat based diet." This is a megatrend on resource constraints.

At the same time, two new factors are causing structural change in the agriculture economy: Biofuel's competition for the land and for feedstock and some $400 billion in new capital from hedge funds is getting involved in commodities. The combination really causes a distortion in food prices.

And consider another structural issue: In the United States, food is 10 percent of our income. In the emerging worlds it can be 50 percent or more of income and a doubling of food prices has a very significant impact on the family. The potential for unrest makes food prices a highly political issue.

Agriculture is a nexus point of water, energy, land and climate change. Here's an example: China has 7 percent of the usable agriculture land, and 25 percent of the consumption. The United States produces 50 million head of hogs, while China produces 460 million. China is spiking five times in its soybean consumption as soybeans are used as hog feed. We are starting to see the first signs of water costs being factored into ag prices as some of the big aquifers are waning. Brazil and the U.S. have the greatest "supply" of fresh water. China has the least.

Most say food-pricing changes are rooted in supply and demand. Today, supply and demand are roughly in line. The issue is getting the food to the right places in the right form. However, given all the trends above, demand is steadily increasing — and the gap is growing.

4) Brazil: out of sight, out of mind.

I'll leave it to you to Google the stats on Brazil. It's a superpower of agriculture, minerals, rainforests (and therefore carbon), a leader in biofuels use, chemistry and production — not to mention a great soccer team.

Watch out. It's not just China and India.

In these challenges and disruptions, we see opportunity, new markets and new models. At Equilibrium Capital, we see our investment themes woven throughout these macro trends from the Milken Institute Global Conference:

1) Sustainability is about shifts in economics and risk — in other words, this isn't a soft issue.

2) Sustainability trends will drive winners and losers.

3) There are tremendous hidden alpha in these trends.

Dave Chen is the founding principal at Equilibrium Capital Group of Portland.