Making Your Fortune from the “Third Industrial Revolution”

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

If you’re like me, you’re probably getting increasingly annoyed by the relentless drumbeat of negative news from the media. Negativism is everywhere. Even leading tech gurus like Peter Thiel — a successful founder of PayPal and early investor in Facebook — talks about the decline in the pace of technological change in the past 30 years. As Thiel snidely described the triviality of Twitter, “We wanted flying cars, instead we got 140 characters.”

“Better Than Twitter”

Considering he became a billionaire from his tech investments, Thiel’s pessimism is likely more a function of his PR instincts and contrarian bent than it is of his genuine conviction. But from his Internet-centered perch in Silicon Valley, perhaps Thiel genuinely fails to appreciate the less headline-grabbing, but more profound historical impact of what the Economist magazine has dubbed the “Third Industrial Revolution.” Reading the Economist’s special report on this topic last week reminded me that we are in the midst of a much more profound shift in our history than Twitter — or even George Jetson’s flying cars.

“The Third Industrial Revolution”

The first industrial revolution began in Britain in the late 1700s with the mechanization of the textile industry. The second began in the United States in the early 20th century with the assembly line and the era of mass production. Today, the Economist argues, we are in the midst of the third industrial revolution. Manufacturing is undergoing the same kind of disruptive digital revolution that forced music, movie, telecoms, photography and publishing businesses to transform in fundamental ways over the last decade. And for all the talk of the decline of the United States, and the rise of China, India and Brazil, much of the know-how behind this shift is coming from the world’s developed economies, with the United States far in the lead.

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Much of this historical shift is thanks to the rise of three dimensional (3D) printing. Although it’s hard to get your head around it, 3D printing is actually pretty much what it sounds like. Design a part on your computer using some type of three-dimensional software and the “printer” actually manufactures it for you right then and there. In many ways, 3D technologies are the closest things to Star Trek-like transporters you can have. Scan an object in Silicon Valley, and another machine in South Africa can build a copy.

3D printing provides for mass customization on an unimagined scale. And chances are it’s already part of your life. Your last customized dental crown or hearing aid was manufactured using this technology. Companies soon will be making customized drugs based on your own DNA sequence. I have no doubt that other 3D printers will one day be manufacturing customized hearts and livers from your body’s own cells.

The applications of 3D printing know no bounds. New 3D technologies are helping carbon fiber replace steel; breed viruses to make batteries; and help researchers at Cornell “print” cupcakes. 3D also helps manufacturing processes to accelerate at an exponential rate. While it took 3,000 hours to manufacture a carbon fiber Formula 1 race car in 1981, today it takes four.

Economic Implications of “The Third Industrial Revolution”

Today, there’s a lot if handwringing that the U.S. manufacturing sector has shrunk to the size of China’s. But this hides the remarkable progress made in the manufacturing sector over the past decade. Here’s why…

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First, the United States matches the value of China’s manufactured goods produced, but using only 10% of the workforce. And as the cost of labor as a proportion of the total cost of production of labor shrinks — as it does with 3D printing — companies are moving a lot of manufacturing work back to rich countries. The last decade’s rage was “off-shoring” to India and China. This decade’s theme may be “re-shoring.” That trend is set to be a huge boost to the U.S. economy.

Second, with labor costs skyrocketing in China and India, the newly emerging economic giants are much less attractive than they were a decade ago. Already, lower cost Vietnam — and not China — is Nike’s biggest producer of shoes. Meanwhile, many U.S. companies with intellectual property are finding that high-tech manufacturing is a better deal in Illinois than Shanghai. Not only is the workforce more reliable, competitors in the United States have a tougher time ripping off your high-value ideas with impunity.

But this also means that the United States needs to get a lot smarter. Tomorrow’s U.S. manufacturing worker is more “mechanical engineer” than “mill-hunky” — the term for Central European immigrants who worked in Andrew Carnegie’s steel mills. When I was a kid, my Dad used to drive by the (now long gone) steel mills in Pittsburgh, angrily pointing out that the unionized high school dropouts working there were making more than he was as a professor. Yet today, if that mill-hunky’s granddaughter wants to work for U.S. Steel, she’ll need to be a college-educated designer, IT specialist, accountant, or logistics expert to earn her high salary.

Making Your Fortune from “The Third Industrial Revolution”

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The big investment theme of the past decade has been “globalization” — the rise of the BRICs — Brazil, Russia, India, and China. But the honeymoon may be over, as each of these countries harbors huge risks that are only becoming apparent now. I recently spoke with a Stanford University classmate who runs an office of hundreds of programmers in India. His description of his experience: “the worst corruption you could ever imagine — only 100 times worse.”

As the memories of the embarrassing dot-com debacle fade, I am increasingly convinced that technology — driven by the emergence of 3D printing and the third industrial revolution — will emerge as the next great investment opportunity of the decade.

I have already begun to shift my investment recommendations in my own investment services toward technology-oriented themes. One of these is Minneapolis-based Stratasys, Inc. (SSYS), a former recommendation in my trading service, Bull Market Alert. Just last week, Stratasys popped, as it acquired Israeli-based competitor Objet. I’ve since identified a handful of other 3D investment-related opportunities, which I expect to recommend in Bull Market Alert for the future.

So take a step back, and look behind the gloom-and-doom headlines. You’ll see a world that is undergoing massive and profound changes. And I think there will be plenty of ways for you to profit from these changes in ways you cannot yet even imagine.

Sincerely,

Nicholas A. Vardy
Editor, The Global Guru

P.S. Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026655 or go to NicholasVardy.lasvegasmoneyshow.com. I also encourage you to sign up for my hedge fund seminar, Wednesday, May 16, 9 a.m. – 11 a.m.

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