E.M. Kerschner, LLC
The Thematic
Research Group

E.M. Kerschner, LLC is a strategic consultancy that publishes research and speaks at executive briefings and conferences, bringing new ideas, perspectives and thinking on demographic, technological and political trends. 

Our focus is how thematics can be profitably utilized by investors, corporate managers and government leaders.

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Four Decades of Thematic Analysis

Gorillas: Why Big Is Better (January 2013)

• Gorillas — US large capitalization multinational companies — have offered superior risk adjusted returns, are attractively valued today, and they should continue to benefit from:
  1) economies of scale and scope driving innovation and productivity;
  2) global reach leading to: exposure to emerging markets demand, lower input costs, the ability to shift production and source materials overseas and tax advantages;
  3) financial flexibility;
  4) political influence; and
  5) managerial experience and expertise.
• US multinational companies (companies headquartered in the United States holding at least a 10 percent equity interest in foreign affiliates) comprised 2,270 companies contribute disproportionately to the US economy. While less than 1% of all US companies, since 1990: their share of private sector employment growth is 11%; their share of growth in real private sector GDP is 31%; their share of gains in labor sector productivity is 41%; and their share of private sector R&D spending is 74%.

Power Brands: Winning the Global Battle for Consumers’ Spending (May 2012)

• It is increasingly difficult to reach consumers due to greater media fragmentation. The birth of the internet, and recently social networking, is providing challenges and opportunities unknown just a few years ago.  And the number of brands is proliferating.  30,000 new consumer products are launched each year – although between 60% and 90% of them fail.  A company’s potential to produce a power brand today likely will depend on its ability to adapt to two main trends driving brand success: globalization and technological innovation.
• Research has found that brand-centered companies outperform both the stock market indexes and competitors.  We discuss brand-building strategies that can create competitive advantages.

Asian Affluence: The Emerging 21^st Century Middle Class (June 2011)

• In Asia, young populations, combined with rising productivity, fueling a growing labor force with rising incomes will drive strong growth in consumer spending.  This is juxtaposed against developed markets’ relatively older populations, limited productivity gains against already high levels, underpinning tepid income gains with slow growth in consumer spending.  Consequentially the global middle class will move east. Forecast: Asian (ex-Japan) middle class spending passing that of the US, EU and Japan combined in 2022; China alone will pass the US in 2020, and pass the 27 country EU in 2027.  India will pass the US in 2021 and the EU in 2026; India will pass China in 2023.
• As income rises, there is more spending on discretionary and luxury items.  The share of total spending that goes toward food, clothing and other necessities declines.  But, while basics decline as a share of spending, in absolute terms they continue to grow as the overall incomes rise.  Robust growth is projected in healthcare, education, recreation (e.g., travel, casinos), communications (e.g., internet, mobile phones, PCs), transportation (e.g., autos) , personal products (e.g., hair and skin care) and services (e.g., financial services). And while food will see only modest growth, it will continue to represent the largest share of total spend, with changing contours benefitting areas such as packaged foods, supermarkets and fast food restaurants.

Peak Water: The Preeminent 21st Century Commodity Story (November, 2011) The “Perfect Storm” (June 2010) 

• Water may well turn out to be the biggest commodity story of the twenty-first century, as declining supply and rising demand combine to risk creating the “perfect storm.”
• Solutions include:
  Efficient irrigation—the most effective long-term solution will be creating and enhancing agricultural technologies to produce more “crop per drop.”
  Agri-biotechnology—crops tolerant to drought as well as heat will be in demand for a world that is generally hotter and drier.
  Desalination—success in lowering costs in both thermal desalination (from economies of scale) and membranes (using cheaper yet more efficient membranes).
  Waste water treatment—treated wastewater costs about a third less than desal. UV gaining popularity as cost-effective and superior alternative to chlorine.
  Virtual water—one-fifth of global water related to export (largely agricultural) vs. domestic consumption; save water importing water-intensive products.

Global Infrastructure: Disrupted by Economic Downturn, Capex will Bounce Back (March 3, 2010)

• The biggest increase in capex in coming years is likely to be in areas benefiting from secular trends.  This includes investment in (i) Asian infrastructure; (ii) infrastructure in the Middle-East and North Africa; (iii) developed market telecom equipment; (iv) European utilities; and (v) social infrastructure in China.

Global Consumerism at the Crossroads (March 2009)

• In developedcountries, at the same time that the "new social etiquette" is making conspicuous consumption less acceptable, the new economic realities are changing consumers' focus.  It's likely that the consumers' future will be more about thrift than frugality.  "Frugality" means "cheap" and "less."  "Thrift" suggests a more shrewd approach to consumption.
• In many developing economies, the mid-tier of consumers is forecast to enjoy relatively fast growth: from 56% of the global middle class in 2000 to 93% by 2030 — largely concentrated in East Asia.  Look for: changing diets, the growth of modern retailing, the emergence of new status symbols, "trading up," more active lifestyles, including travel, and greater health consciousness.

Water Worries: The Rising Risk of “Water Bankruptcy” (January 2008, May 2009)

• Precipitation patterns are changing; drought is increasing; snow cover decreasing; pollution rising; and supply-demand imbalance growing.
• Global water usage is unsustainable. While the scarcity of freshwater is felt most acutely in Africa and West Asia, water scarcity has become an economic constraint in major growth markets such as China, India and Indonesia, as well as commercial centers in Australia and the western U.S. In addition to burgeoning demand, climate change is another factor that threatens some countries with “water bankruptcy.”
• Given the water intensive nature of irrigation, agriculture currently accounts for about 70% of total water withdrawals.  Cutting the sector’s demand for water is possible by (i) more efficient irrigation techniques, and/or (ii) the introduction of drought-resistant crops.

The Big Fix: Necessary and Sufficient (October 2008)

• The experiences of the U.S. in the 1830s and 1930s, and Japan in the 1990s, reveal three separate steps necessary for recovery:
       1. A functioning banking system.
       2. Appropriate monetary policy.
       3. Fiscal stimulus.
• Today, in the wake of the international rescue packages for financial institutions, restoring long-term financial stability will require changes to financial markets: compensation, insurance, regulation and trading.

The Storm after the Calm (September 2007)

• After an extended period of complacency — characterized by a decline in financial market volatility, rapid growth in corporate profits and cash flows, a decline in the cost of capital, an increase in leverage, and seemingly unlimited amounts of financial liquidity, quite simply, risk is being re-priced: It seems that markets are in the midst of reassessing credit risk, counter-party risk, liquidity risk, leverage risk, political risk, and risk of global economic growth.
• In reality, these risks are not new — it’s not as if such risks did not exist prior to this summer’s credit squeeze and liquidity crisis. It’s the market’s perceptions of these risks that have changed. It is likely that this process of “normalization” will require investors to realistically assess risk and return expectations, as well as balance wealth preservation goals with objectives for investment income and capital appreciation.

Left Turn? Post-modern “American Populism” (August 2007, February 2008, July 2008, November 2008, January 2009)

• While it’s still unclear who the Republican and Democratic Presidential candidates would be in the 2008 election, the poor standing of Republicans would seem to bode well for Democrats in their pursuit of the Presidency, as well as the House and the Senate. Key Issues for Democrats — Taxes and fiscal policy; healthcare; globalization and protectionism; climate change and the environment; Iraq.
• The presumptive candidates were tapping into a secular shift in opinion about the desired level of government involvement in the economy. In recent years, there has been a steady increase in the percentage of Americans saying “government should do more.”

Climatic Consequences: Investment Implications of a Changing Climate (January 2007, 2007, June 2007, January 2008, June 2008, May 2009)

• For investors, the issue is not whether climate change is occurring. Today a variety of entities (governments, regulators, corporations, and individuals) are reacting to the perceived climate change threat, creating a number of near-term opportunities.

Brand Behemoths: Executing Brand Leadership on a Global Basis (March 2006, September 2006, March 2007, September 2007)

• Examining more than 3,500 consumer nondurable brands, we identify ten brand behemoths for 2010.

Techno Savvy: Profiting from Adapting, Exploiting, and Innovating Technologies (April 2005)

• Tech Adapters:A significant competitive advantage can be gained by adapting existing technologies.
• Tech Exploiters:Identifying the optimal application of a relatively new technology is often as important as the technology itself.
• Tech Innovators: By contrast, tech innovators actually create something new, often by taking science from the laboratory to the marketplace.

The Next American Dream: Healthy, Wealthy, and Active: The Baby Boomer in 2010 (April 2004, January 2005, November 2005, October 2006)

• We examine baby boomers and how we expect 1) the normal process of aging, 2) the changing economic landscape, and 3) shared life experiences to drive their behavior.  With the mindset and attitudes of boomers changing, so, too, is the contour of the American Dream.  The next American Dream is to be healthy, wealthy, and active.  However, a gap between these aspirations and reality should be a key factor driving the behavior of baby boomers.

Asian Affluence (June 2003)

• The fastest growing age group in Asia over the next decade is people aged 35-59.  These generally tend to be high earning, high spending years.  Moreover, the incomes of Asian consumers should continue to grow rapidly, thanks to a number of powerful forces.  They include a shift from rural to urban areas, a concomitant shift of jobs into higher value added industries, and a growing number of working women.

The New European Consumer (July 2002)

• As “Europe United” becomes, increasingly, a reality, European attitudes are changing. Europeans are less dependent on the state, more entrepreneurial and more financially sophisticated.

GiganTechs: Leaders in the New Information Age (September 2001)

• Massive consolidation in the tech sector will lead to the emergence of a small number of “GiganTechs” over the next five to ten years.

Transformers: Changing Business Structures in the Information Age (November 2000, June 2001)

• Three potent forces — technology, deregulation and globalization — are creating a flexible economy, where prices are transparent, competition is intense and margins are under unrelenting pressure.  Success will be determined by “structure” as much as macro factors.  The survivors in this environment — the transformers — are moving from bureaucratic, vertically integrated organizations to flexible firms where decisions are driven by market forces.

New Economy: Yes; New Metrics: No (March 2000, April 2000, May 2000, June 2000)

• New metrics are not new — just foolish.  Today’s mania for high-tech Nasdaq stocks (many valued on a price-to-sales basis) is reminiscent of 1960s conglomerates mania (1+1 = 3), 1980s LBO mania (private market value exceeds public market value).

The American Age of Affluence (November 1999)

• Thanks to a Muted Business Cycle, Benign Deflation and the Consumer Comeback, Americans are more affluent than ever

Information Revolution Wars (May 1999)

• Major technological revolutions are always bigger than anyone ever thinks.  The First and Second Industrial Revolutions were violent upheavals marked by many simultaneous “wars” between competing interests, technologies and business models.  So, too, will the Information Revolution witness many wars in which some firms perish while others flourish.

The New Millennium American (September 1998)

• Driven by “shared life experiences,” the attitudes of baby boomers about everything from consumption to leisure to health care have changed dramatically as this generation has aged.  With most of their material needs satisfied, boomers today place more value on experiences than on tangibles.

Power Grab: Late in a long economic cycle, M&A activity really heats up (January 1998)

• M&A activity, already strong, is likely to accelerate in 1998. With pricing power minimal, firms have both the need to do deals to generate revenue growth and the ability to do deals: After six years of uninterrupted profit expansion, cash flow is strong, dividend hikes are modest and balance sheets are strong.

Converging Technologies (September 1997)

• The relentless advance of semiconductor technology converging with the emergence of an installed PC base in the office and home, as well as the shift to inter-networking have laid the groundwork for the Information Age in which the creation, distribution and manipulation of information is the central wealth-creating activity.

Gorillas (January 1996)

• The challenge facing investors at the time was finding growth stocks that really delivered earnings in a decelerating economy.  Microeconomic patterns/themes give certain firms a competitive edge in the battles for market share that are being waged throughout the global economy.

Consumer Comeback: The consumer sector drives the U.S. economy in the coming decade (September 1995, November 1995, April 1996, August 1996, November 1996, July 1997, November 1997, July 1998)

• The role of “driver” of the U.S. economy over the last 50 years has rotated among the corporate, government and consumer sectors.  The consumer sector should be the driver in the coming decade.  Key reason: “Anorexic” corporations can’t get much leaner; politics argues against rebirth of “Big Government.”  After more than 20 years of stagnation, real wages should climb.

Strategic Action (December 1993, February 1994, June 1994)

• Late in 1993, we argued that the concept of “destructuring” would broaden to include making shrewd acquisitions and that “takeovers would take center stage as market leaders in 1994.”  Subsequently, Merger and Acquisition (M&A) activity in 1994 jumped to levels not seen since the merger-mania years of the 1980s.  The New York Times (July 17, 1994) identified Ed Kerschner as “the strategist who last year correctly called the takeover trend” that led the market in 1994.

Destructuring (January 1993, June 1993)

• The prevailing wisdom was that American industry was fat and bloated, unable, and probably never again able to compete in the world markets.  We argued that, in this time of weak corporate profitability, companies would be “viewed as portfolios of businesses that should be actively destructured — disassembled and restructured — in order to maximize shareholder values.”  And by that year’s end, the leadership of the DJIA had been delineated not by classic market sectors such as “growth” or “cyclical” but by destructuring stories.

New Frontiers (November 1991)

• One key trend of the decade, this report concluded, would be microprocessor proliferation, and one of the best ways for investors to exploit this trend was to buy stocks benefiting form explosive growth in the production and distribution of digital information.

The Big Shift (September 1991)

• The 1990s would bring about a shift in the capital markets, which would be no less powerful than the institutionalization of the markets in the 1960s, the acceleration of inflation in the 1970s, or the takeover mania of the 1980s.  The individual consumer was to become the individual investor.

The Ozzie & Harriet Market (March 1992)

• In expanding our earlier report, “The Big Shift,” 1991, we argued that, driven by long-term education and retirement needs as well as a continued low inflation and interest rate environment, individual investors in the 1990s would be big buyers of stocks, just as they were in the 1950s.  Consequently, over time, the percentage of household assets in stocks could rise from the 15% level of the early 1990s back to the 20%+ levels of the 1960s.

The Big Shift: Barely Begun (February 1998)

• Deposits at banks today account for just 12% of household financial assets, down from a peak of 25% in 1978 and 18% in 1991.
• Equities’ share of household financial assets is now 43%, surpassing the prior 1968 peak of 39%, and should go higher.

6 in ’96 (April 1991)

• With the 30-year bond yielding 8.25%, we forecast that the long bond yield would fall to 6% by 1996.  That forecast was three months too soon — in the following months, interest rates rose, touching 8.5% by July; then began a steady decline, ultimately reaching 6% in September 1993.
• Subsequent reports included “5 at the Turn” (March 1993) and “Fours Before Long” (February 1996).

Ruler Stocks (April 1989)

• After seven quarters of hefty double-digit S&P earnings gains, cyclical stocks had delivered strong stock market performance.  But with our expectation that earnings growth would slow, we forecast that “investors will increasingly look to stocks whose earnings growth is as straight as a ruler, i.e., those historically not prone to earnings disappointments — stable growth stocks.”  Here, the call was a few months early, but relative to the S&P, growth stocks (as measured by our “high growth” index of companies with expected secular earnings growth rates greater than the S&P 500) began a period of meaningful outperformance in the fall of 1989, with that outperformance continuing for more than two years.

The Beauty of Bonds (September 1988)

• When the 30-year Treasury Bond yielded 9.3% in the fall of 1988, our Asset Allocation Model gauged that bonds offered compelling value.  We noted that “the long-term nominal and real returns from bonds are not to be scoffed at.”  As it turned out, that call was made at the time of the highest bond yields in the last 20 years, with interest rates declining steadily from that peak.