If one were to mindlessly extrapolate the present to the future, to say 2015, oil would go from $120 to $500 a barrel, corn would be at $15 a bushel and Dubai and Des Moines would be the two most powerful places in the world.

The Euro, which hit a record high last week at $1.60 to the dollar, would be the global currency and the Dali Lama would be at the center of all earthly and heavenly controversies.

Oil prices and food prices are now linked more than ever due to the cost to transport, the biofuel boom accelerated by attractive switching cost, and the growing demands for food and fuel in rapidly growing economies such as China and India. High corn prices results in farmers switching their feed stock to other alternatives such as wheat with the spillover affecting to many other commodities. The result is that in the past 18 months, dairy prices were up 80%, cooking oil up 50%, and soybeans up 40%. This provides the answer for the mystery of how fertilizer companies became hot growth stocks!

The good news is that the past is rarely prologue to the future – things change.
We have faith in Adam Smith's "invisible hand" to create solutions to today's problems, prick bubbles and provide incentives for innovation – but it takes time. Soaring oil prices create outsized incentives for the scientist and engineers at MIT to find greentech solutions and now agritech!

This said, to have a perspective on where the future is headed, it's critical to have an appreciation of the past. In 1780 when the United States was formed, we had an agrarian economy in which 90% of all jobs were related to farming. By 1850, 49% of all jobs were in farming as the industrial revolution began to have its impact. By 1900, only 39% of jobs were in farming, just 3% of the adult population in the United States had a college degree, and only 15% had a high school degree. Today, less than 2% of US labor is in farming, 24% of the US population has a college degree, and 85% has a high school degree.

During the industrial revolution, the labor force was already equipped with the skills to enter into manufacturing sector employment, where the assembly line merely required the theory of work organization to be put into practice. Workers were required to do no more than perform specific tasks, and later operate specialized machinery that performed the actual work. Nonetheless, the changes that this innovation brought were enormous. By 1950, 40% of the American workforce was employed in the manufacturing sector and from this increased productivity fifty-fold. Workers accrued the majority of the benefits—half, in the form of sharply reduced working hours, and the other half in a twenty-five-fold increase in real wages.

The rise of knowledge workers, those succeeding industrial workers, began fifty years ago with roots in the GI Bill, the “Management Revolution”, and the rise of the services sector. Since 1950, employment in the manufacturing sector has fallen from nearly 40% of total employment to less than 10% currently, while service sector employment has risen from less than 14% to more than 76% - essentially flip-flopping from where it had been in 1950. During this period, demands for an educated workforce grew. Increased competition from abroad, and particularly emerging economic regions, has resulted in continued substitution in the manufacturing sector away from workers and toward technology, increasing the productivity of the remaining workers. Domestically, the service sector has attracted the more highly skilled workers away from the manufacturing sector. Lower skilled factory jobs have been absorbed by less developed countries.

Just as gains in manufacturing productivity, greater access to higher education and an affluent middle-class fueled the transition from a manufacturing to a services-based economy, the extensive adoption of information technology is now creating the need for a highly skilled knowledge-based economy. While service sector job growth has been increasing overall, the more technically intensive industries have experienced the most rapid growth. Knowledge jobs such as IT services, health and business services, on the other hand, are growing 3-6 times as fast as economy-wide job growth.

Understanding how a company fits into the knowledge economy and what it’s doing to obtain, train and retain the smartest people in the marketplace is critical for investing in future stars.

This week, showed how things do change with the once mighty Microsoft (NASDAQ: MSFT, $29.83), missing numbers and Starbucks (NASDAQ: SBUX, $15.86) outlining its continued issues. The good news is that stocks continued to act well last week, led by NASDAQ-100 up 1%, NASDAQ up 0.8%, the S&P 500 advancing 0.5% and the Dow up 0.3%.

Most encouraging was that many of the premier growth companies showed market leadership. Also positive last week from our China theme was the Shanghai moving up 15% following the governments slashing the tax on share trading.

We remain bullish on growth stocks due to positive fundamentals, low valuation and relative attractiveness in slow growth economy.