In the latest installment of our occasional conversations with newsmakers, Haim Israel, global strategist and head of thematic investment research for Bank of America shares his perspectives on what he considers to be the next wave of paradigm shifts for society and the markets. Israel, who is based in Tel Aviv, was in Fort Worth to share his ideas with local leaders.
This conversation has been edited for length and clarity. For the unabridged version, please listen to the audio file attached to this article
Bob Francis: How did you get in this field?
Haim Israel: I’ve been head of thematics for, give or take, four years. I’ve been with the bank 18 years now. I joined in 2004. At the time I was the head of the Israeli research team. Starting from 2009, I started covering telecoms and emerging telecoms. And my previous position before heading thematics was the head of emerging TMT (telecom, media and technology) research team. Before that, I was in an Israeli local broker house, a small one, and then jumped to what used to be Merrill Lynch at the time.
Francis: If you’ve been covering technology, and this a few years before you joined, but the year 2000, there was a big drop off in technology stocks. Maybe it was ’99, 2000, somewhere in there.
Israel: What thematic is and what we do, and I really would like to draw the parallel to 2000, because that’s a great question. So what we do in thematics, we try to look at the future. You can look at it as the futuristic position of the bank. What our world is going to look like in 10, 15, 20 years from today? What are the big mega trends which can impact it, good and bad?. We’re not just talking about good things that might happen, but unfortunately some of the mega trends are not good at all.
So when we talk about those kinds of mega trends, there are three categories that we look at:
- Innovation. So technology, like big data, AI, robotics, cybersecurity, privacy, and so on and so on.
- The second category for us is people. Everything that has to do with demographics, Gen Z, millennials, inequality, aging, education. Everything that is really around how our society is going to look like.
- And the third one is Earth. Everything that is impacting our planet. So climate change, energy transition, climate wars as we call it, hydrogen, water waste, and so on and so on. All those, those are the things that we look at.
In 2000, there was a big bubble. And then, yes, it burst, and we saw a downturn in technology. But I didn’t see that as a bubble. I actually saw that as a natural evolution of what used to be a bubble before that. So many different companies raised, and had crazy valuations, and so on. But the companies that survived this crisis, actually became stronger, much stronger.
So from 2000, we got Google, and we got Apple, and Amazon, and we got PayPal, and got all the big companies of today.
So I think that, no, we are right now in a market downturn, and we are heading into our world of inflation, and high interest rates, and you see markets being very choppy. Companies that will survive this cycle I think will just come stronger. And so I really draw the parallel to 2000.
Francis: That’s interesting. Before 2000, Amazon was big, but it was nothing like it is now. And I would say the same thing for Apple, and they hadn’t yet introduced some of their big innovations.
Israel: Yes, 2000 gave it to them. So no, the technology, the internet, everything that… We need to remember that, yes, the bubble burst, but the internet stayed. And the internet, and digital, and online, all that stuff helped us hook up to the iPhone and all the revolutions of Amazon, and Facebook, and social media, and whatever, everything that happened, happened on the back of that.
Francis: What have you been talking to clients about now? What are the big ideas that you’re talking to them about in terms of change?
Israel: There are a couple of things that are really impacting our world right now. The first one is energy transition. We are heading into a world of energy transition partly because of the geopolitical events that we’re seeing right now, because of the war in Ukraine. One of the key themes that came from the war in Ukraine is energy independence, and self-reliance, and accelerating the process of de-globalization. That means we are heading into a world where every country has to look closely at their natural resources, and their relative advantages, and leverage them, and be less and less dependent on other countries. That, of course, leads to a process of de-globalization, getting access to resources, developing resources, bringing operations back home rather than just relying on other countries. Same time, it applies also to energy.
We need to remember that most of the world, close to 80% of the planet is importing oil, not exporting oil. So we are seeing countries moving very fast to alternative energy. Now alternative energy can be green energy, can be other forms of energy, can be developing of their own resources. Not necessarily renewable energy, but the process eventually will accelerate dramatically, investments in renewable energy, and decrease the prices and invest and increase investment in infrastructure.
And the interesting thing is that it’s less to do with the question of whether we do or do not have a climate change problem. That’s something irrelevant. This is happening because of the geopolitical landscape right now and the need to be less dependent on fossil fuels. Because renewable energy is cheaper, and getting cheaper with it when scalability is increasing.
Again, that is really dependent on different technologies and different regions and whatever. But we’re talking about 20 to 30% cheaper. And so countries have an interest to move there. It’s cheaper and it makes me independent. So that’s why we are heading into a world of energy transition. And eventually I think we’ll move closer to net zero. Not necessarily because of the debate, do we need to save our planet, yes or no?
Francis: That’s going to have some fallout consequences, obviously, as well, right?
Israel: Yes. It has consequences on oil. We believe that we are, long term, reaching peak oil. It might take a decade, it might take more, but the demand for oil will never, ever disappear. It’s very clear we need to understand that. We’ll always rely on oil and fossil fuels for a very long time, but the portion of oil will go down compared to other forms of energy.
And I think that it will probably peak this decade. Some estimates are already talking as soon as 2027, 2028. And the portion will start to go down. So of course it has huge implications for countries which are relying on fossil fuel as their source of export, Russia for example. And it has implications on the balance of power.
And the theme that we call, because of that, we call it climate wars. This is an important theme that we cover. What do we mean? Because of those trends that we’ve seen of just that countries are moving to other forms of energy, you’re starting to see that the big superpowers, meaning China, Europe, and the United States, are racing over to clean tech. Who will dominate clean technology? Because if you do dominate clean technology, you control the future. If oil eventually is peaking, I want to move to the next big thing. Now, let’s compare to like who decades and decades ago who controlled oil. World supremacy goes through dominance in clean energy and clean tech. And China is today leader by far, investing in all sorts of renewable energy, wind, solar, batteries, capacity, EVs, everything you can think of. Europe is not that far behind, and the U.S. has to close the gap, and is closing the gap. It’s starting to close the gap.
There are trillions of dollars on the line, there’s world supremacy on the line, and we see that accelerating all the time. So access to resources, no, you want renewable energy, you need batteries, you need lithium, you need nickel, you need all these stuff. So access to batteries, supply lines, technology, R&D. Everything around that they use, you see there’s a massive race to who will dominate it. Now that’s interesting because that’s actually a chicken and egg issue. Because the faster the superpowers are rushing to control clean tech, the faster peak oil is coming. And, again, the idea is a geopolitical fight over here, war over here. So again, there’s this climate war thing that I think is happening. So the war in Ukraine has accelerated that. That started before the war. But now that because countries are moving, rushing to diversify the energy sources, the dependency on whoever controls cleantech is increasing.
Francis: We’re talking about some minerals involved here, too, that are currently, I think, only produced primarily in China.
Israel: They’re mined in different places of the world. But you’re right, because the mines are controlled directly or indirectly by China. For example, cobalt is mined in the DRC (Democratic Republic of the Congo), but China has a lot of leverage on that cohort.
Same thing with lithium. There are two things that are happening. First of all, China today controls 40% of all rare earth metals directly. Indirectly, this number can reach as high as 80%. Second thing is the refining of this material. So it’s not just enough to mine lithium, you need to refine it. And 80% of all refineries are in China. Because those supply lines that are mining in Chile, refined in China, it’s completely inefficient. I don’t need to refine in China. And you know that when you buy an electric car, it doesn’t matter if it’s a Tesla or an EV or whatever, when you buy an electric car, the lithium in your battery has to travel 50,000 miles, up to 50,000 miles before you even start driving. It’s mined in Chile, refined in China, the cathodes are done in Japan, assembly is done in the United States, and then the selling is done in Europe. Completely, completely inefficient.
Francis: Sounds like it.
Israel: The idea is that, no, countries like the United States are waking up saying, “Why?” A) I don’t want to be reliant on China. B) I can decrease cost dramatically. So it’s mined in Chile. The mine is where the mine is, you can’t move it. But all the other processes, why not do it on U.S. soil or closer to home? And by cutting down dramatically the supply lines, and as a result, the cost as well. That could be a very deflationary process in the end, because this deglobalization trend that we are seeing right now is making every country examine supply lines, examine their advantages. They can’t bring everything back home. They’ll never bring everything back home. They can’t. But whatever they can makes economic sense – they’ll do it. That’s I think a very deflationary process we’re saying.
Francis: They just held their opening three months ago, a company, MP Material, they own a mine in California, and they’re making the magnets, going to make the magnets here in Fort Worth for the electric motors. And I realize that’s a small piece of the supply chain, but –
Israel: Yes, that is just one side of it, yes. I can’t remember the exact number. I think it’s like when you do that, there are 80 different processes on the way, done in different countries and different regions. I think it was 80, I’m not sure. But a lot of it was completely inefficient. Plus we are heading into an environment right now of slowdown, of slower economic activity. If I can bring an operation back home and support employment, I’ll do that. A lot of it’s been based on automation, it’s going to be based on new supply lines and new production facilities. So you always start to see that all over the world.
Francis: Sounds like you’re saying we need a Henry Ford of the electric car industry that will build something like he did, the Rouge plant where he built, made the steel and built the cars is all in one giant process.
Israel: Tesla was mumbling recently about building a lithium facility, I think it was in Louisiana or something. They said exactly this, “Why do I need to start buying lithium from other places? And the quality is very different, and then I’m relying on other countries and then I’m refining in other countries and there’s a lot of different elements in the production that I have no control over, if I can do it back home.” Because I need to think about them, they think about vertically. So the Henry Ford example is really good, because he thought vertically.
Francis: We’ve certainly seen issues with the supply chain around the world anyway in the past few years.
Israel: It started before Ukraine. Ukraine just accelerated this whole trend. Though again, we can’t de-globalize. We still live in one big world and know everyone is trading with everybody, but all supply lines will be examined, and viewed, and operations are going to be brought back home. And that’s the reassuring, bring back home. That’s one thing.
The other thing which we’re actually seeing, which is quite interesting, is not just reshoring, it’s what we call friendshoring. Because I can’t bring everything back home, but if I can start buying stuff from friends, countries that I trust, rather than countries I don’t trust, that’s another trend that we’re seeing right now. I know we spoke about batteries. You can rely on lithium, which as I said, a big part of the supply lines is all over the world and in different countries, in Russia and in China and whatever. Or maybe I can replace that with phosphates, which eventually I have at home or I have it in Canada. I trust Canada much more than I trust Russia, with all due respect.
Yeah, so that’s another trend that we’re seeing right now. But I think the broad line here is that this whole independence theme is getting a lot of momentum. The bottom line is, I think it’s going to create, it will change the supply line dramatically, composition, how we do things, and so on, and eventually economics.
Francis: And eventually there’ll be some companies rising up like Amazon, or Apple, or someone who will dominate this area, probably.
Israel: You see the big are getting bigger. And now you live in a world where cash is king. If I have cash, and a lot of cash, which I’ll deploy it or buy stuff, invest in stuff, yes. So yes, you will. You can see now the Google of lithium. I have no idea what’s going to be, but you’ll see that controlling the supply lines.
Francis: When do you see this happening? You mentioned the war in Ukraine, and right before that we had COVID which also accelerated some trends. Working at home, we’ve talked about it for years and then it became a reality. And the war in Ukraine, it really disrupted the supply lines to Europe in particular for energy. So some of these trends could accelerate, but you have a timeframe?
Israel: Usually we talk about between five to 10 years. But every time, you are so right, because every time we say 10 years, it happened before that. For example, I’ll give you now, when I started covering thematics, we thought that we’re going to get to 100% of new cars will be EVs by 2040. Now we are talking about 2030, 2028 so the timeline is getting shorter and shorter all the time. And what we call techceleration, the acceleration of trends because of technology. And now we have to also have geopolitics which accelerates right now.
And that’s why we say that the short term and the long term don’t exist anymore. Because think about it, you get, in the last two years, COVID, now we all stayed at home, Ukraine, inflation, everything happened in two years. No, the world has, every time something big, massive happens, those are defining moments.
Francis: Can I ask how you see the political reaction to these changes? Are you seeing changes in laws or in the government and in terms of that they recognize this is happening?
Israel: Definitely. A lot of the stuff we’ve seen recently in the United States, the Inflation Reduction Act is aimed for that. We saw before that the semiconductors act. I am not exporting semiconductors technology outside without supervision and so on. Plus I’m incentivizing the semiconductors industry to manufacture back in my country. We saw the Fit for 55 bill in Europe, that from here onwards, whatever’s been imported to Europe, has to go through a process of carbonization. And we have to see exactly what is the carbon footprint for each and everything and put carbon taxes on top of it. We saw the Versailles Declaration Committee in Europe, how do I increase dramatically different industries in Europe? Semiconductors technology, FinTech, healthcare. Countries are putting a lot of regulation out there right now to defend and to bring back operations back home and defend their technologies.
Francis: Is there a cybersecurity component to this as well?
Israel: Oh yes, big time. And we actually know, I’m so happy you’ve mentioned it, because for us this is probably one of the key themes out there when I look at the future, about cybersecurity. We call it actually the beast that cannot be controlled anymore.
The beast that cannot be controlled anymore. It’s become way too big to ignore.
Just let me give you the numbers. The numbers are, in 2014 there were 122,000 cyber attacks all over the world every week. In 2017, this number jumped to 17 million. 2023 100 million. And the initial number we calculated for 2021 was 1.8 billion cyber attacks every week all over the world and a detection rate of 0.05%. You will never know. Most chances, you will never know you’ve been hacked. So I always say that the world has been divided into two, people that got hacked and people that have no idea they got hacked. That’s as simple as it is.
And why now? And I’m so happy you raised that because what happened now is the war in Ukraine. Now it’s very clear, and I think that although it was before that, but now it’s so obvious that this is not just my problem or my organization’s problem, Bank of America problem. Now it’s a national security problem. And we’ve seen attacks on national critical infrastructure on a daily basis, everywhere and all over the world. This is how wars are being fought. We saw that happening in Ukraine, we saw hackers everywhere. We saw that on facilities in the United States. It’s huge. And it’s just becoming bigger and bigger.
And let me just give you one example, how much we’re not focusing on that. So if we take the total economic damage of extreme weather, of climate change in 2021, extreme weather, immigration, everything that happened because of climate change, $3 trillion, 2021. Cybersecurity has reached six. Two times, and growing two times faster. So no one’s really focusing on that. And the numbers are, as I said, the numbers are scary in terms of how much. 92% of all eCommerce traffic are hackers. 92%.
Francis: That’s like saying take the freeway, so you would have eight people who were actually going to work and 92 of them are thieves basically.
Israel: Trying to steal those 8%. Exactly, those eight cars.
Francis: I know a guy who owns a cybersecurity company and he said he doesn’t have to do any advertising. He just gets calls every day basically.
Israel: Yeah. It just comes. Now there’s a saying it’s very difficult for companies to invest in cybersecurity because it’s an intangible threat. It’s not like I’m going to get tomorrow, I don’t know what, flood and I have to defend on that. It’s an intangible threat. And unfortunately you don’t think about it, but it happens. It happens. So now finally there’s a big wake up call that we see in companies left and right defending themselves.
Francis: That’s quite a statistic.
Israel: We should talk about the moonshots, about the future technologies.
So for us, we define moonshots as technologies which are going to change the world but have not been commercialized yet, so they’re in their development stage.
So we’ve mapped 14 of these. Quantum computing is one of them. I personally think that quantum computing is a revolution that’s going to be bigger than fire and bigger than all the revolutions that humanity has seen. This is the machine that can change it all. Look at 2019. In 2019, Google announced quantum supremacy. Their announcement, and I’m not saying if they’re right or wrong, but their official announcement was that in 200 seconds their quantum computer made more calculations than the IBM supercomputer, the fastest computer on the planet today, will make in 10,000 years.
Israel: That’s their announcement. I’m not saying the right or wrong, but they officially announced it. That shows the power of the machine. So it can change everything from pharmaceuticals, developing drugs in seconds, and do calculations, very, very complicated calculations on everything, on genomics, on big data sets, on cybersecurity. That’s technically a machine that can hack everything. So it will change everything. We’re a big, big believer in that. That’s one moonshot.
Couple of other examples. The metaverse. And not necessarily what you’re picturing for gaming or socializing, but for us the cool applications are actually the industrial side of things. And we saw a lot of announcements done recently at Boeing that they’re going to develop the next plane on the metaverse of being a virtual marketplace where all the engineers will meet and exchange opinions and so on and have virtual models and so on. So they said the next plane, if it’s going to be developed like this, the costs are going to go down by 15%. That’s amazing.
And Ericsson, which is a telecom equipment company, tower company, announced that they’re going to develop their next generation of towers and network first of all in the metaverse before they will go test it live. And Dyson, the same thing, the vacuum cleaner company. Dyson, Hyundai have signed an agreement, I think it was with Roblox. Roblox will build their own metaverse for Hyundai, and Hyundai will build up the next generation of cars and future mobility on the metaverse first. So you see that the industrial segment actually took that as a great tool for efficiency, for development, for planning and so on, rather than just not what we picture as gaming, and socializing, and buying real estate with places, and I don’t know what. So this is what I think, it’s actually quite a fascinating theme.
The other one, nuclear fusion. Nuclear fusion. The first nuclear fusion for cities is about to be launched in 2025 in ITER. It’s called ITER in France. But what it means, it means that… First of all, what is nuclear fusion? Nuclear fusion is the holy grail of energy. It means that you have an unlimited amount of energy. The process that is being done basically in the sun. Unlimited amount of energy, all clean and never ending. The first plant is going to come in 2025, but it’s not going to be operational at least up until the middle of the next decade. It’s just going to start creating plasma. I don’t want to get into too many technicalities, but those plasma cannot be contained.
They’re expecting that by the middle of next decade it will be fully operational. And according to our calculations, they can power the world, or a nuclear fusion facility can power the world with the same amount of material, nuclear material, nuclear fuel that is equal to 11 barrels of oil. So that shows you how much energy can be created for this thing. It’s all clean. This is the holy grail, but we’ll see still.
Francis: And who is doing that?
Israel: ITER is a combination of all European countries. It’s not a private company. I don’t know even how many billions of dollars have been sucked into this project and keep delaying the timeline. But it’s fascinating if it’s going to work out. This is going to change-
Francis: I thought they had announced some sort of breakthrough recently.
Israel: Yeah, it’s on plasma, on plasma creation. But they can’t contain the plasma. They have no idea how to contain it. And that’s actually easy enough if you link it with quantum computing. That could be fascinating. Because the biggest problem in containing plasma is the amount of sheer calculation that you need to do. That’s where a lot of things are, so there’s been companies like Deep Mind which came up with an AI machine learning base that actually can think about how to contain this plasma. But if those two technologies are going to be parallelly commercialized, the possibilities are endless. That’s another one.
What else? We call it the nano satellites. It’s already happening. It’s not really a moonshot because this is actually a technology which we see as a technology which has already been commercialized. Starlink in Ukraine is a great example. So what we are talking about is satellites which are as big as the palm of your hand that can give you all the communication you need. And they’ve already been sent by the thousands into space and we’ve seen that they are already providing all your communication needs. Now, Ukraine was unfortunately a case study, but think about Africa, that you don’t need to deploy massive infrastructure, but that still can supply broadband to people everywhere. So it has a huge opportunity to change the world. So again, we’re a big believer, that’s actually a technology that’s already starting. Again, it’s not really a moonshot. So you see Starlink, you see how the companies already start to deploy those thousands of nano satellites in space.
Francis: And several companies are working on that?
Israel: There’s many, Starlink is just one. There are a few. 6G is another moonshot, we think. 6G is an interesting concept because 6G actually shows you how fast the world is progressing. So we believe that by 2028 5G is just not going to be enough. We are creating so much data that we are reaching full capacity of 5G. The amount of data that we’re creating every day is just humongous. The number is 2.5 quintillion bytes of data. Quintillion is a million trillion. And this number is multiplying itself every two years. So we are in a stage where we are seeing it developing, the sheer amount of data is developing so fast that 5G is just not going to be enough.
So actually 5G that we always thought that going to be technology that’s going to change it all and going to change everything, it’s probably going to be the shortest-lived G and will be replaced before it will be really fully globally deployed by 6G.
And 6G has, depends on how or who’s defining it, but anywhere between 100 to 1,000 more capacity than 5G. AI embedded capabilities in it, so they can do calculations. And then data trafficking, the network can do it alone, you don’t need human intervention. It can handle complex data. The complex data we defined as data that is being generated on other platforms would have to communicate. So for example, a connected car. The car generates a lot of data, but needs to communicate with all the traffic lights, and the other cars, and sensors, and whatever. And that’s what the concept we create, that we call the complex data. So 6G is one of those technologies.
I think those are the key ones that I would highlight.
Francis: Those are fascinating. And in a way it looks like we’re coming up with technologies to solve problems. You mentioned the amount of data that we manufacture, it looks like we’re looking for ways to take that data and actually put it to use in some ways.
Israel: Yeah, and that’s really interesting, Bob, because right now we are generating 2.5 quintillion bytes of data. You know how much we’re using out of those 2.5?
Francis: Probably a minuscule amount.
Israel: 1%. We are throwing away 99% of global data. We are not using it. So all those technologies can start using more than 1%. So think about the world that global data is multiplying faster and faster. In 2000, it was every 15 years it was doubling. In 2010 every six years. Now we are talking about every two years. Plus we are going to use 2%, 3%, 4%. So the rate of acceleration, we’re just starting it. We didn’t see anything yet. That’s the beauty of it. So I’m really excited about it.
Bob Francis is business editor for the Fort Worth Report. Contact him at email@example.com. At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.