We?ve all heard this story before.

Malls are dying. Commerce is moving online at breakneck pace. Investing in retail is a death wish.

No less a figure than Bill Gates, Senior told me that in a decade malls would only be inhabited by climbing walls and paintball courses, and that was a decade ago.

Except it didn?t quite work out that way. Some malls are playing out Mr. Gates? dire forecast. But others are booming. It turns out that there are malls, and then there are malls.

There is one big kicker here that no one is noticing except me. If my prediction that this is not a low interest rate decade, but a low interest rate century turns out to be correct, then mall REIT?s with their high yields are the ?BUY? of the century.

Let me expand a bit on my thesis.

Technology is moving forward at an exponential rate. As a result, product performances are improving dramatically, while costs are falling. While commodity and energy prices are rising, they are but a tiny fraction of the cost of production.

In other words, DEFLATION IS HERE TO STAY!

The nearest hint of real inflation won?t arrive until the 2020?s when Millennials become big spenders, driving up the cost of everything.

We also have the most dovish Federal Reserve in history. Until my former economics professor Janet Yellen sees ?the whites of inflation?s eyes? she?ll limit interest rate hikes to a quarter point a year, if that. That?s until we go into the next recession, when US rates will go negative.

So with that issue decided, let's go back to the REIT thing. Real Estate Investment Trust?s are a creation of the Internal Revenue Code, which gives preferential tax treatment for investment in malls and other income generating properties.

There are 1,100 malls in the United States. Some 464 of these are rated as B+ or better and are concentrated in the biggest spending parts of the country (San Francisco, Beverly Hills, Greenwich, CT, etc).

Trading and investing for a half century, I have noticed that most mangers are backward looking, betting that existing trends will continue forever. As a result, their returns are mediocre at best and terrible at worst.

Truly brilliant managers make big bets on what is going to happen next. They are constantly on the lookout for trend reversals, new technologies, and epochal structural changes to our rapidly evolving modern economy.

I am one of those kinds of managers.

These are not your father?s malls. It turns out the best quality malls are booming, while second and third tier ones are dying the slow painful death that Mr. Gates outlined.

It is all a reflection of the ongoing American concentration of wealth at the top. If you are selling to the top 1% of wealth owners in the country, business is great. If fact, if you cater to the top 20%, things are pretty damn fine.

You can see this in the top income producing tenants in the ?class A? malls. In 2000, they comprised J.C. Penney, Sears, and Victoria?s Secret. Now Apple, L Brands, and Foot Locker are sought after renters. Put an Apple store in a mall, and it is golden.

And what about that online thing?

After 20 years of online commerce, the business has become so competitive that profit margins have been beaten to death. You can bleed yourself white watching Google Adwords empty out your bank account. I know, because I?ve tried it.

Many online only businesses are now losing money, desperately searching for that perfect algorithm that will bail them out, going head to head against the geniuses at Amazon.

I open my email account every morning and find hundreds of solicitations for everything from discount deals on 7 For All Mankind jeans, to the new hot day trading newsletter, to the latest male enhancement drug (although why they think I need the latter is beyond me).

Needless to say, it is tough to get noticed in such an environment.

It turns out that the most successful consumer products these days have a very attractive tactile and physical element to them. Look no further than Apple products, which are sleek, smooth, and have an almost sexual attraction to them.

I know Steve Jobs drove his team relentlessly to achieve exactly this effect. No surprise then that Apple is the most successful company in history, and can pay astronomical rents for the most prime of prime retail spaces.

It turns out that ?Clicks to Bricks? is becoming a dominant business strategy. A combination of the two is presently generating the highest returns on investment in retail today.

People start out by finding a product online, and then going to the local mall to try it on, touch it , and feel it.

Research shows that two thirds of Millennials prefer buying their clothes and shoes at malls. Once there, the probability of a serendipitous purchase is far great than online, anywhere from 20% to 60% of the time.

This explains why pure online businesses by the hundreds are rushing to get a foothold in the highest end malls.

Immediate contact with a physical customer give retailers a big advantage, gaining them the market intelligence they need to stay ahead of the pack. In ?fast fashion? retailers like H&M and Uniqlo, which turn over their inventories every two weeks, this is a really big deal.

There?s more to the story. Malls are not just shopping centers, they have become entertainment destinations. With an ever increasing share of the population chained to their computers all day, the demand for a full out-of-the-house shopping, dining, and entertainment family experience is rising.

Notice how Merry Go Rounds have started popping up at the best properties. Imax Theaters are spreading like wildfire. And yes, they have climbing walls too. I have not seen any paintball courses yet, but the guns and accessories are for sale.

This is why all of the highest rated malls in the country are effectively full. If you want space there you have to wait in line. REIT managers pray for tenant bankruptcies so they can jack up rents on the next incoming client, or pivot their strategy towards a new retail niche.

Malls are also in the sweet spot in the alternative energy game. Lots of floor space means plenty of roof space. That means they can cash in on the 30% federal investment tax credit for solar roof installations. Some malls in sunny states are net power generators, effectively turning them into mini local power utilities.

Fortunately for we investors, we are spoiled for choice in the number of securities we can consider. Many have a return on investment of 9-11%, a portion of which is passed on to the end investor.

There are now 25 REIT?s in the S&P 500. The sector has become so important that the ratings firm is about to create a separate REIT subsector within the index.

According to NAREIT.com (click here for the link at https://www.reit.com/nareit ), these are some of the largest mall related investment vehicles in the country:

Simon Growth Property (SPG) is the largest REIT in the country, with 241 million square feet in the US and Asia. It is a fully integrated real estate company which operates from five retail real estate platforms: regional malls, Premium Outlet Centers, The Mills, community/lifestyle centers and international properties. It pays a 3.17% dividend.

Macerich Co. (MAC) is a California based company that is the third largest REIT operator in the country. It has been growing though acquisitions for the past decade. It pays a 3.53% dividend.

Taubman Centers, Inc. (TCO) runs a national network of malls in some of the priciest zip code in the country. Properties include th
e Beverly Center in Los Angeles, Stamford Town Center in Stamford, CT, and the Fair Oaks mall in Fairfax, VA. It was established by the late Alfred Taubman of Sotheby?s fame. It pays a 3.41% dividend.

Mind you, REIT?s are not exactly risk free investments. To get the high returns you take on more risk. We remember how disastrously the sector did when the credit crunch hit during the 2009 financial crisis. Many went under, while others escaped by the skin of their teeth.

There are a few things that can go wrong with malls. Local economies can die, as exemplified by Detroit. Populations age, shifting them out of a big spending age group.

These are all highly leveraged companies, so any prolonged rise in interest rates could be damaging. But as I pointed out before, there is little chance of that in the near future.

The bottom line here is that we are seeing anything but the death of the mall. It just depends on the mall.

All in all, if you are looking for income and yield, which everyone on the planet is currently pursuing, then picking up some REIT?s could be one of your best calls of the year.

See You At the Mall

Circulating among Europe's top global strategists this spring, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years: The Second American Industrial Revolution.

It goes something like this.

You remember the first Industrial Revolution, don't you? I remember it like it was yesterday.

It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine.? Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton's first commercially successful steamship, the Clermont, up the Hudson River.

The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet's population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.

The Second Industrial Revolution is centering on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start up.

The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbo charging the rate of technological advancement.

Successes go public rapidly and rake in billions of dollars for the founders overnight.? Thirty-year-old billionaires are becoming commonplace.

However, unlike with past winners, these newly minted titans of industry don?t lock their wealth up in mega mansions, private jets, or the Treasury bond market.

They buy a Tesla Model S-1 (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.

Many do it.

Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.

Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3-D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk's Space X is already making rocket engine parts on such machines.

Drones came out of nowhere, and are now popping up everywhere.

And don?t get me started on virtual reality. Ever wanted to date Cybil Shepherd or Nicole Kidman? How about both, at the same time? The possibilities boggle the mind.

It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as ?big data? are being created.

Unheard of new means of social organization are appearing at breakneck speed, leading to a sharing economy. Much of the new economy is not about invention, but organization.

The Uber taxi service has created $65 billion in market capitalization in only five years, and is poised to replace UPS, FedEx, and the US Postal Service with ?same hour? intracity deliveries.?Now they are offering ?Uber Eats? in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!?

Airbnb is arranging accommodation for 1 million guests a month, including 120,000 in Brazil for last year?s World Cup. They even had 189 German guests staying with Brazilians. I bet those were interesting living rooms on the final day! (Germany won).

As for me, I am planning my own all Airbnb trip to Europe next summer. It should be interesting.

And you are going to spend a lot of Saturday nights at home alone if you haven?t heard of Match.com, eHarmony.com, or Badoo.com.

Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.

The payoff will be the cure of every major disease, like cancer, Parkinson?s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA at will.

The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.

Energy is the third leg of the innovation powerhouse. Into this basket you can throw in solar, wind, batteries, biodiesel, and even ?new? nuclear.? The new Tesla home battery will be a game changer. Visionary, Elon Musk, is ramping up to to make tens of millions of these things.

The message to big oil is that Elon sold 400,000 of his new Tesla 3?s in just two weeks, and that is for a car that won?t be delivered for two more years.

Use of existing carbon based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies at costs that are falling at an incredible rate.

Welcome to ?Saudi America.?

The government has ordered Detroit to boost vehicle mileages to an average 55 miles per gallon by 2025. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.

Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today?s levels, further boosting corporate profits.

If you thought the Internet was big, free energy will have a far greater impact on the global economy.

Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world when all of the costs are factored in.

Seven years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech, where I have a background).

My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that?s why they work for Google (GOOGL).

The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential.

It took 32 years to make the leap from steam engine powered pumps to ships, and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.

Such a generational change is likely to occur in 32 minutes in today?s hyper connected world, and much shorter if you work on antivirus software (or write the viruses themselves!).

The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That?s when the population starts producing more big spending Gen Xer?s and fewer oversaving and underproducing baby boomers. This alone should add at least 1-2% a year to GDP growth.

China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.

With an ?onshoring? trend now in full swing, the jobs ledger has swung into America?s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China?s problem, not ours.

The consequences for the financial markets will be nothing less than mind boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon.? Multiples blast off through the top end of historic ranges. The US returns to a steady 4% a year GDP growth in the 2020's.

What am I bid for the Dow Average (INDU), (SPY), (QQQ) in 2030? Did I hear 300,000, a 17-fold pop from today?s level? Or more?

Don?t think I have been smoking the local agricultural products in arriving at these numbers. That is exactly the gain that I saw during 1982 to 2000, when the stock average also appreciated 17 fold, from 600 to 10,000.

Th
ey?re playing the same movie all over again. Except this time, it?s on triple fast forward.

There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent on increasing their holdings to western levels.

I tell my kids to save their money, not to fritter it away day trading now, because anything they buy in 2020 will increase in value tenfold by 2030. They?ll all look like geniuses, like I did during the eighties.

After that, I will be 78, and it will be up to them to figure out what is going to happen next.

What are my strategists friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and energy (XLE).

That?s why the market bounced back so hard from the 10% correct in Q1.

This could go on for decades.

Just thought you?d like to know.

It?s Amazing What You Pick Up on These Things!