This Week in Barrons –
2-5-2017:
“One of the penalties for
refusing to participate in politics is that you end up being governed by your
inferiors.”…Plato
Thoughts:
I think that the real threat
to American jobs is NOT trade and outsourcing, but rather the accelerating pace
of technological disruption. We are on
the cusp of seeing entire jobs not simply move offshore, but rather vanish
completely due to rapid advances in artificial intelligence, robotics,
automation, cloud computing, and other emerging technologies. At the most recent World Economic Forum in Davos,
it was estimated that 5m jobs in the world’s leading economies would disappear
over the next five years. An example of
this is the 4m Americans who make their living behind the wheel of a moving
vehicle. With rapid advances in
self-driving vehicle technology, their future is now under a dark cloud.
Most feel that the 1.7m long-haul truck drivers are especially vulnerable,
given that they spend most of their time on a highway where human intervention
is needed sparingly. Couple that with
the tremendous financial incentive – where over 1/3 of the $700 billion
trucking industry goes toward driver compensation. The temptation among trucking companies to
cut those costs, and gain a competitive advantage will be irresistible.
Similarly, the
potential widespread adoption of block chain technology could lay waste to
millions of jobs in the financial services industry. Block chain technology is now used to record
and store Bitcoin payments. Startups and
large banks are exploring ways to save billions by using this to improve a
variety of their other services and compliance tasks.
Clearly, automation is
nothing new, but the pace of automation’s march into areas beyond the assembly
line is hard to overstate. Consider the
new restaurant that just opened in San Francisco that is capable (via machine)
of making a fresh, made-to-order, gourmet hamburger every 10 seconds.
If Trump is committed to
massive and sustained job growth, he will need to confront the inevitable,
relentless advance of disruptive new technologies. This time it IS different – because we are
decoupling productivity from job growth.
After World War II, job growth and productivity rose in near lockstep. But beginning in 2000, productivity quickly
out-paced job growth. Trump’s promise to reduce bureaucracy and roll back
regulations will certainly fuel the growth of these new technologies, and lead
to more rapid displacement of workers than ever before.
You see, new technology only
creates jobs for skilled workers capable of taking advantage of them. Unfortunately truck drivers, and others
facing disruptive technologies will see their very livelihoods threatened
because most can NOT become software programmers for self-driving vehicles or
drone-repairmen.
Moreover, the pace of
technology-driven disruption is accelerating as new technologies combine in
often unexpected ways. Consider
autonomous vehicles using block chain technology for paying transactions. This will quickly signal the demise of taxi
drivers and bank employees. Commercial drones
combined with cloud stored data analytics will mean less delivery personnel and
supply chain managers.
Like most elected officials,
Trump has been silent on this key issue – ignoring it at his own political
peril. To make good on his campaign promises,
his administration will want to focus on training displaced workers for these
new emerging jobs, many of which will require programming, engineering, or
similar skill sets.
Trump clearly knows a thing
or two about disruption – his upset victory in November is proof of that. But will he be able to get out ahead of the
coming wave of low-skilled job losses arising from these disruptive
technologies? Doing so would help him
address what threatens to be a growing source of economic anxiety among American
workers. The only protection for the American worker that I see is to build
a skill set that focuses on the ability to invent, evaluate, build human trust
(sell), interact socially (make deals), and/or program machines on how to do
other people’s jobs.
The Markets:
Thanks to CW at Rockhaven
Capital for the following:
“Inflation is as violent as a mugger, as frightening
as an armed robber, and as deadly as a hit man.”…Ronald Reagan
Inflation and protectionism
are two words that the average American has never experienced:
-
They amplify the effects of a currency war. After all, a strengthening U.S. dollar
dampens the FED’s hopes for rate increases and fuels ‘stagflation’.
-
They allow bond yields to move higher, and could (among other things)
put a ‘crimp’ on stock buy-backs going forward.
-
They cause trade wars and increase military tensions – which can
trickle down to a contraction in P/E ratios and stock prices.
-
They limit revenue, earnings, and GDP growth.
-
They also modify investor psychology – which is what drives P/E ratios.
A couple simple rules of
investing are:
-
Raise some cash
when times are good, and deploy that cash when times are bad – otherwise known
as: Buy low and Sell high.
-
When the odds
are in your favor you get more aggressive, and when the odds are against you
get more defensive. Currently the odds
are against you because (as the chart shows) – this market is the second most
overvalued market since 1970. But as
Alan Greenspan said: “Markets can remain irrational longer than you can remain
solvent.”
-
Warren Buffett
says: "Learn to be fearful when others are greedy, and greedy when
others are fearful."
-
And Paul Tudor Jones believes: “If investors just learn to sell
anything that falls below its 200-day moving average, they will greatly improve
their chances of survival.”
And finally, let’s not
forget how much the market loved last Friday’s jobs report. The DOW gained 186 points, the S&P picked
up 16, and we are sitting just a handful of points below the all-time
highs. I suspect next week we will punch through those highs and get our
‘last hurrah’ run higher. But Friday was
also about Trump trying to roll back the financial regulations that were put in
place after the 2008 melt down. Since 2008 the banks have been moaning
that they are being forced to pay more to comply with the rules – than they are
making on the loans. The truth is that
banks need the regulations to be removed in order to do more financial
engineering and to keep the markets moving higher.
Remember, Central Banksters
printed money is what keeps this economy inching forward. Institutional banks use that printed money to
buy stocks, and then use those stocks as collateral to take on more debt. It's a vicious cycle, and if it ever ends
there will be ‘heck’ to pay. For example, consider auto loans. With over 17 million vehicles being sold last
year, 6 million auto borrowers with shoddy credit scores are over 90 days late
on making their car payments (according to the New York Federal Reserve’s
latest figures). The percentage of
delinquent subprime auto loans is at its highest level since 2010. With all of the regulations in place, banks
can't create any more subprime auto loans, and therefore auto factories will be
forced to cut production. So, it’s no
surprise that Trump plans to on cut the financial regulations in order to give
more people with lousy credit the ability to buy another car. Doesn’t this sound all too familiar?
This coming week we should
see the markets push into ‘blue sky’ territory.
It should be the one last powerful run prior to a hefty pull down. Just know that this run is engineered and not
based upon fundamentals. After all, remember Friday’s jobs report that
proclaimed 246,000 jobs were created?
The ‘Employment per Thousand’ survey is saying that only 30,000 jobs
were created. I wonder which one is
right?
Tips:
“Investing does not give out Participation
Trophies.”…Chris Wiles @ Rockhaven
Capital
People always ask me what
chart indicators I use? Of the countless
indicators out there such as: Acceleration bands, ADX crossovers, CCI,
Bollinger bands, Fibonacci calcs., Relative Strength indicators, DMI
oscillators, Linear Regression, VWAP, MACD, RSI, etc. – allow me to outline a
couple key indicators that might help you determine if you should be in a
trade.
-
The first are
the ‘stochastics’. According to George
C. Lane (the inventor) “the Stochastic Oscillator is a momentum indicator that
doesn't follow price, volume, or anything like that. It follows the speed or the momentum of
price, because the momentum changes direction before price." Therefore, bullish and bearish divergences in
the Stochastic Oscillator can be used to foreshadow reversals. The chart will show you a couple of lines,
and in the most general of terms you want to consider buying a stock when those
two lines are beginning to cross and are below 20. Also (in general
terms), you should consider it a sign that a stock is pulling back when the
lines are crossing and are over 80.
-
The 2nd
necessary indicator is the MACD – the Moving Average Convergence/Divergence
Oscillator. It was developed by Gerald
Appel in the late seventies, and is one of the simplest and most effective
momentum indicators available. The MACD
turns two trend-following (moving average) indicators, into a trend and
momentum following indicator by subtracting the longer moving average from the
shorter one. As a result, the MACD
fluctuates above and below the zero line as the moving averages converge,
cross, and diverge.
-
The good news is
that you can find volume, stochastics, and MACD on virtually every trading
platform. In fact, you can go to stockcharts.com, and see all of this for
free. The more indicators that line up
in the direction you're expecting the move to take – then the more times that
direction will become a reality.
-
In a perfect
world, with a volume indicator and these two charts you could begin to make
more informed investing decisions. But
make sure that the general market is moving in your direction – as 85% of all
stocks move WITH the general market.
Next week I’m watching
earnings from:
-
Archer-Daniels-Midland
(ADM) – a grain distribution company who’s stock regularly goes UP into
earnings. Right now, analysts' estimates
are at $0.82 per share, and I expect ADM to meet or beat expectations.
-
General Motors
(GM) – an auto manufacturer is estimating $1.13 per share, but I expect more
due to the increase in consumer confidence and high seasonal auto sales.
-
CVS (CVS) – is a
drug store chain that has ‘taken it on the chin’ due to store closures and
revenue disappointments. Earnings estimates
are $1.62 per share – but it’s the future that is scaring investors.
-
The Dun &
Bradstreet Corporation (DNB) – is an information services company that helps
customers reduce credit risk. The stock
has been trading sideways this year, and analysts are estimating earnings of
$3.02 per share, but I expect the stock to drop ahead of earnings.
-
The Mosaic
Company (MOS) – that is the world's largest producer of phosphate and potash
crop nutrients. Analysts have pegged
earnings estimates at $0.14 per share, but as the strength of the U.S. dollar
has actually hurt their revenues, I suspect their earnings will fall short as
well.
To follow me on Twitter.com
and on StockTwits.com to get my
daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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