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1.28.2015 Financial Intelligence Report Bookmark

Technology Take Over…


Sometimes it is hard for me to keep my head buried in the place it is supposed to be, that being this thing we call economics and the financial structure. Why? Because each moment that passes is a new milestone for us. In other words, today we know more than we did yesterday. Tomorrow we will know more than we did today. Each day that goes on brings us new intelligence, new questions, new experiences. Sometimes the changes that are brought by these new events leads us to tremendous investing opportunities.  Who wouldn't have wanted to be on the ground floor when Polaroid camera debuted its new technology? Who wouldn't have wanted to be an "Angel" investor in Johnson and Johnson back in 1885 when they were creating the first "ready to use" bandages? Who wouldn't have wanted to be the first investors in this new upstart called "MicroSoft" so many years ago?  
Technology Take Over…


Sometimes it is hard for me to keep my head buried in the place it is supposed to be, that being this thing we call economics and the financial structure. Why? Because each moment that passes is a new milestone for us. In other words, today we know more than we did yesterday. Tomorrow we will know more than we did today. Each day that goes on brings us new intelligence, new questions, new experiences. Sometimes the changes that are brought by these new events leads us to tremendous investing opportunities.  Who wouldn't have wanted to be on the ground floor when Polaroid camera debuted its new technology? Who wouldn't have wanted to be an "Angel" investor in Johnson and Johnson back in 1885 when they were creating the first "ready to use" bandages? Who wouldn't have wanted to be the first investors in this new upstart called "MicroSoft" so many years ago?  

Something that bears close inspection however is that the speed of our innovation has not just doubled or tripled in the last hundred years, it has gone parabolic. Consider this deeply for a moment. For virtually thousands of years folks lived almost "the same". They had a little house with a firepit, maybe some form of window, they got their water from a creek or a cistern well, they walked or rode a horse/carriage, etc etc. Then from about 1890 to today, the world "exploded" with invention and innovation. My Great Great Grandmother was alive until I was about 20 years old. Here was a woman that lived in Cental New Jersey and went from living in a wood shack with a horse and buggy and no plumbing... to seeing men land on the moon in one lifetime!  Jet airliners, the beginning of computers, specialized medicines, the birth of the telephone, the birth of television, instant photography, electric lights, auto's etc etc. The rapidity of the amount and the various types of discoveries was breathtaking. She lived to see it all.

Well, it still is breathtaking. Each day we hear of a new "App" for our smart phones that allows us to do amazing things. We see "miracles" in the medical community almost daily. Can you imagine a renowned surgeon sitting in Boston, doing intricate invasive surgery on a patient in Dallas via robots and the Internet? Who could have even dreamed of such a thing just ONE lifetime passed? Not many. Yet here it is, in full bloom and growing daily.  Every day we take for granted the "stuff" in a local Best Buy, that just 100 years ago would have been absolutely unimaginable for folks to comprehend.

But as is the case with all things, there's two sides to the coin. Sometimes the things they dream up are not good and do more harm. Consider nuclear for a moment. Because we aren't technologically evolved enough to know all the answers of how to use it properly, we have done just what exactly? On one hand we've made the most destructive bombs ever seen on the planet. On the other hand we've created power with it, but with a huge cost... tons and tons of toxic waste that we really have no "good way" to dispose of. So, some innovation sure comes with a price.

One of those prices we’re going to have to deal with in the not too distant future is a disturbing fact…robots are taking over the world. Now I’m not trying to be funny in a “terminator” type way,  but I’m being quite serious. At first it was just robotics that were doing the really dangerous things in industry. Then they got better and better to where robots could weld faster and some think “better” than humans. From there we saw them dominate major areas of industrial productions, especially in automotive.

But recently we’ve been seeing robotics that are being designed that will indeed replace the low skilled, entry level jobs. For many millions of people, their first job was at the local McDonalds, or Burger King. Hey, there’s no shame in that at all, it’s your first peek into the work environment. ( In fact I know a gent in NJ that started in High school at MCD, stayed there, worked up through management and now owns 3 of his own franchises. He’s done quite well for himself, thank you)

Last week I saw a demonstration of a burger  “order taking, cooking, assembling, bagging and delivering” robot for the fast food industry.  While not all the bugs were worked out yet, it was remarkably efficient, doesn’t call in sick, can’t get the flu, and produces more burgers of better quality than teenage handlers. Once the initial cost is overcome, there’s no wages to be paid. No FICA, no taxes, no medical, nothing but a few bucks worth of electricity.

We do need to ask the question folks. What the heck do people do as more and more robots take over more and more jobs?  When ( not if) they get this automated process down pat, what happens if McDonalds or Burker King or any of the other fast food joints decide to implement these things instead of hiring kids? What’s that single mom raising a child do when her “second job” is replaced by a robot?

In Orlando Florida recently they held a conference and at that conference the Gartner group said the following…” “Gartner predicts one in three jobs will be converted to software, robots and smart machines by 2025,” said Gartner research director Peter Sondergaard. “New digital businesses require less labor; machines will make sense of data faster than humans can.”  Read that again folks. 1 in 3 jobs within the next ten years. I don’t think that’s an over estimate.

A recent Oxford study suggested that in the US, 47% of our jobs will be replaced by robots of some form. While many might think that’s a big number, just consider what we’ve seen already. EZY pass took the toll collectors away. Self checkout is replacing cahsiers. Xrays are being read by software.  

Recently there’s been a big push for Robotic “autonomous” vehicles. Cars that drive themselves. Once again the technology isn’t quite there yet. But you can see the writing on the wall. What happens to the trucking industry when long haul drivers are replaced by GPS and sensors?  Will we really need train conductors?

For thousands of years most folks lived fairly alike. When the steam engine made its first debut so long ago, it changed the entire civilization, and spawned the industrial revolution. That gave birth to the technology revolution we’re currently in. For the most part we’ve been able to live besides our robotic helpers and survive quite well.
The farmer that was displaced by better machines, at least had a factory to go to. The guy who rented and sold carriages could rent and sell automobiles. We always had some “other opportunity”.

 But in this new generation of technology, the humans that are being replaced, don’t have anywhere else to go. The idea was that if a robot replaced you, you’d up the education level and become a robot designer or manufacturer. But the numbers don’t work. It might only take 10 people to create the robots that remove 1000 jobs.  Or you move from one displaced job to another, only to see automation take over that job too.

I referenced that Oxford study earlier and my initial suspicions were fairly correct. I’ve been on record saying that “hands on, trade type jobs will be the last ones standing.”  I have oft times mentioned plumbers and AC/Heat technicians. High end auto techs. Physical therapists, electrical engineers. Robot repairmen.  Dentists, surgeons, etc.

If I hadn’t seen the burger making machine with my own eyes, I don’t think I’d have really grasped the enormity of what is taking place out there. But now there’s no question in my mind…the machines are taking over. How does society as a whole deal with this in the future?  Frankly I’m not terribly sure. It was bad enough keeping folks employed when they shipped our jobs to Asia and Mexico. It “feels” even worse when we consider humanoid receptionists, burger flippers and truck drivers in our own backyards.

This one’s going to take some serious pondering  because it isn’t a science fiction story, it isn’t some whacked out view of the future. It is here, it is happening daily. What do we do with a workforce cut by 1/3 because of robots in just the next 10 – 15 years? I have no answer for you. But we’d best look for one.

The Market…

Tuesday looked like it was going to be ugly and it was. The futures heading into the opening bell were down 300 points and the exchange implemented  “rule 48” which simply allows market makers to hide their pre-market prices, so as not to freak people out. When we opened we did indeed drop over 300.

The day was soggy from the get-go. There were a few feeble attempts to get us higher, and at one point we were down just 140, but it faded away and we ended the session down 291 DOW points.  The “excuse” for the big plunge was a series of high level earnings misses from the likes of UTX, MSFT, CAT, etc. All the multi nationals that have to sell their wares in nations trying desperately to cut the value of their currency are cyring the blues.

But there was a shimmer of hope. They knew that the Fed’s were holding their two day policy meeting and they hoped that when the statement would be released, the Fed would include language saying they’re in no big hurry to hike interest rates. In fact the CEO of Caterpillar “begged and pleaded” on CNBC that the Fed’s don’t hike rates. Hey, he should look for help. They’ve had like 25 quarters of falling sales. He needs all the help he can get.

So at 2 pm we got the Fed’s statement. In months gone by you could always expect a wicked jump or crash depending on what they had to say. But this time there was an eerie quiet to the market. They simply didn’t know what to make of it. Why? Well they wanted assurances that the Fed’s were not going to hike rates this year. Instead what they got was a statement that was very bullish on the US economy.

They said that the economy had gone from solid to strong. Jobs had gone from solid to strong. They removed the language concerning a “considerable time” and replaced it with “we can be patient”. But there was more…. The vote was unanimous.

Now here’s why I think that’s important. Yes theyw ere unanimous in suggesting they could be patient. But they are also unanimous in saying they think the economy is really strong, and jobs are really growing. Well, if things are so great, why would you need zero interest rates??? Good question.

So after a quick pop higher, the market came back to “unchanged”. Then it sat there. The algo-bots that scan the reports, didn’t see the language they were programmed to find. The considerable time was missing. The unanimous vote about a stronger economy had them all confused. Even 45 minutes later, we had the DOW up 1, the S&P down 3.  

But then it happened. The bond market went nuts out of the clear blue, driving rates loweer quickly. The stock market still didn’t know what it wanted to do, but soon we started falling.45 minutes later we had the DOW down 195. They hated the report and didn’t understand the bond market’s reaction.


So, we ended the day considerably lower than most would have imagined as we shut down the session 190 points lower.  That puts the market in a VERY dangerous place folks. The DOW has already lost the lows set back on January 16 at 17,243. The S&P lost yesterday’s lows and is just 10 points or so from those January lows. If it punches through those, our next logical stop would be the December lows at 1972. (which just happens to also be the 200 day moving average!)

If the S&P were to close under 1972, it would take out a market low and the 200 day. That’s about as ugly as it gets and from there all hell could break loose. So in the next few days job one will be trying to defend the January 16 lows at 1989. If that fails, then it “HAS” to defend the 200 day. Or….. look out below.

I told you all in the beginning of the year that 2015 has the ability to be a game changing year. We could see everything from a war breaking out in Ukraine, to China being included into the SDR basket, to the BRICS splintering completely away from the US, to the Euro-zone dissolving to you name it. The market chop we see lately is telling us that they don’t know what to do. Earnings for the most part STINK. The economy isn’t very strong but the Fed’s are sticking to their mantra that it’s smoking hot. Interest rates are approaching unbelievable levels. Confusion reigns.

IF we bust down below that December low ( and 200 day) I will yank the money out of our 401K and leave it only in cash and the bond fund we’ve been in for the last 4 years. We’ll have to see what they do.

This is the biggest test we’ve had in a long time. Yes they can pull a rabbit out of the hat and hold us here and try and work us higher. But it doesn’t look likely right now. The best course of action right now is defensive. If you’re sitting with a big portfolio of stock and you simply won’t sell it you should consider buying puts against your holdings for protection.

Be careful folks. I’ll see you all on Sunday.










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