A new decade stretches before us.”  Crosscurrents from the past decade have swept the unprepared away, so a review of the past decade’s challenges will help instruct future investment. Optimizing investment management will always require a deep understanding of markets, end-user needs, current fleet dynamics, and equipment designs. 

Boeing’s 737MAX, the Class One’s singular focus on reducing operating ratios (using Precision Scheduled Railroading), and Commercial Banks focus on earning asset growth (without the tools to fully understand and manage operating investment risk) are examples of mismanagement producing unexpected results. Over the past decade, low-interest rates, private equity, and banks in the operating leasing business have driven yields down. While politics and economics have dominated the news, the following major trends will continue to influence the next decade’s investment decisions.  

Technology will drive greater efficiencies and transform customer expectations. Cloud services, information management, data analysis, and the continuing impact of the internet will influence the process and means of global supply chain management.  Smartphones and email have created more frequent communication, increasing employee productivity, and making business operations easier.  As weather patterns change, reducing carbon emissions will continue to impact air, rail, and marine transportation equipment design decisions. The GE/Safran (CFM) LEAP 1-A and the Pratt & Whitney Pure Power 1100G, geared turbofan are examples of new aircraft engine designs engineered to be more fuel-efficient, quieter, and lower maintenance than current engine options.  

Energy.  The shale oil boom has sent shockwaves through the energy landscape.  Domestic energy sources (shale oil and natural gas) now promise abundant and inexpensive supply.  It’s turned coal car investment on its head.  But for the next decade, petroleum will remain the primary source of energy for transportation (aviation, diesel, and motor gasoline).  

Free markets, social stability, the rule of law, and continuity of effective cooperation drive economic growth.  Regardless of a phase one trade agreement, China’s Communist Party will continue to pursue a China first policy.  With low labor costs, forced transfer of technology, and intellectual property theft, U.S. policymakers have allowed China to become the world’s largest exporter of goods.  What was an attempt to open the Chinese markets to U.S. investment has instead led to the pain of disappearing U.S. manufacturing jobs, and Economic Nationalism.  

Government spending.  Fiscal policy, interest rates, financial markets, and future tax laws will be driven by the trillion-dollar deficits projected for each year beginning in 2022.  Demographic changes (resulting from lower birth rates and diversity caused by immigration) will impact our common social identity, driving populism and political polarization

Some things remain.  The benefits of leasing: lower capital cost, less maintenance, and human resource issues, equipment that is kept up to date, access to the latest design and management expertise.  Another constant? Individuals, businesses, and countries will continue to make choices based on maximizing self-interest (A rational analysis should not ignore that humans sometimes rely on emotions rather than facts).  We’re in a game with many innings yet to be played.  

Guard against groupthink.  Invest in assets that generate long term value.  Call RESIDCO

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