NOWHERE MAN


 

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I’ve been of the view that the world economy looks the way it does because of three long driving forces – globalization, debt and the tech revolution.

Simplify Globalization as code for labour arbitrage.  It’s a win for the planet to have had freer trade and invite hundreds of millions of people from the developing world into the world economy.   To urbanize.  It’s pretty cool to know that someone’s first home with running water could have no land line but a cell signal instead.  But some of that progress comes at a cost to labour in the developed world.

Debt has simply been growing at a faster pace than growth.  Math says such compounding is unsustainable.  For decades the central bank illuminati have chosen to deal with every slowdown and credit event with cheaper money, in fact even creating deeper crisis.  Their experiments and market machinations have had questionable efficacy but the grown debt levels now cage these bankers into their ways.  Debt used for consumption today is a drag on consumption tomorrow.  So are interest rates that will eventually rise from these generational lows.  QE have proven to increase income inequality.

The tech revolution is just that, disruptively feeding on itself in changing the way things are done at a pace most, meaning politicians and business leaders, can’t keep up with.  There is no doubt it has generated productivity gains but at the social and economic cost of replacing the old ways of doing things with fewer people.

Shaken together, this long mix has produced a cocktail policy makers can’t handle.  Jobs flow to cheaper destinations.  Robots await.  Easy money policy has only accelerated these global and tech trends, oddly adding to some of the deflationary pressure central bankers desperately aim to print away.  The cocktail has created an augmented reality of bubbly asset prices, huge debts and income inequality destined for upheaval.

 

Nowhere Man, knows not where he’s going to

 

Nowhere Man, trying to get his work done, stuck in nowhere land, is a usable metaphor.

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I was struck by this from 13D Research  (h/t  @WhatILearnedTW)  in that in encapsulates where we may be in this big picture in the shorter term.  Feeling nowhere in his plight, the voting man on the street seems increasingly less confused on where and why he’s voting.  Other than those striving to tap into this voice, the status quo policy makers and politicians are nowhere in knowing what to do.

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Post Brexit and Trump, 2017 brings a list of EU elections and tests of populism.

And while President Trump may boast about auto jobs he threatens to force back, I assure you taxing imports won’t change the increasing number of robots that the industry will collectively use.  In fact, given that a robot should cost the same in the US as it would elsewhere, the case to be made if you want jobs to return to the US may not be in protectionism but with incentives to invest in this manufacturing inevitability domestically.

From BloombergGadfly’s The Robot Rampage  (www.bloomberg.com/gadfly/)…the robots  are here and are a poster metaphor for technology’s eating into man’s workweek.  Even the developing world with the cheapest of labour needs to be afraid.

 

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There is an interesting TedTalk by economist Robert Gordon that puts forth the idea that the US will struggle to grow over much of this century, that innovation and disruption will struggle to overcome his four chosen headwinds of demographics, education, debt and inequality.

 

TedTalk also suggests a countering view, provided by Erik Brynjolfsson, a researcher and author, arguing that the machine age and machine learning represent opportunity to partner  with the worker.  Outside of his optimism towards productivity gains, he doesn’t really address any of Gordon’s specific headwinds.

 

Nowhere Man making all his plans for nobody

So how does the world play out?  The Fed’s army of PhD’s can’t forecast the next few quarters let alone decades.  The above portrayal is of some kind of bifurcated world.  Tech’s wonder brings understandable optimism and opportunity.  But similar to the big picture headwinds, tech’s advances are also cannibalizing existing work opportunities.  Last week Amazon announced cashier-less stores while Macys announced closures.  The world’s largest car ride company, Uber, owns no cars.  The world’s largest accomodation provider, Airbnb, owns no real estate.  The world’s largest streamers, Netflix and Spotify, make little money but still reshape their industries.  The number of farmers/acre continues to fall.  Machines can diagnose as well or better than very well-paid and trained radiologists.  An insurance company in Japan just announced replacing laid off employees with  with an artificial intelligence system that can calculate payouts to policyholders.  If the list of disruptions isn’t endless, it will be.

As I said in Revolution, employment and income disparity are driving new political demands.  Central bankers may have enabled politicians to kick the can for too long.  With the sense this time they bought has been for naught,  it’s still early inning populism.

As income growth levels struggle, for the first time in my career we read about central banks debating banning cash and economists pondering  “universal basic incomes”  provided by government.  Not your father’s free market capitalism.  While communist China has been morphing into some form of a planned open market economy, so is the western world?

What this populism and bifurcation means to the investment world is still hard to know.  Probably more volatility.  In the shorter term,  most asset prices seem ridiculously elevated relative to a low growth outlook, even if we get a few quarters of bounce.  We will have a major market correction one day, maybe soon.  But this bifurcation means there will be bigger winners, and losers, in this bigger picture long term predictable disruption of labour.  Increasingly,  the longer term investment view might need to identify and focus on big themes and deeper explore their related implications – as much for management of risk as for opportunity.  In the coming years, thematic investing may become the new big thing.  Think I’ll write about that next.

 

 

 

 

 

Nowhere Man    Lennon/McCartney

He’s a real nowhere man,  Sitting in his nowhere land
Making all his nowhere plans for nobody
Doesn’t have a point of view,  Knows not where he’s going to
Isn’t he a bit like you and me?
Nowhere Man, please listen,  You don’t know what you’re missing
Nowhere Man, the world is at your commandHe’s as blind as he can be,  Just sees what he wants to see
Nowhere Man can you see me at all?

Nowhere Man, don’t worry,  Take your time, don’t hurry
Leave it all till somebody else lends you a hand

Doesn’t have a point of view,  Knows not where he’s going to
Isn’t he a bit like you and me?

Nowhere Man, please listen,  You don’t know what you’re missing
Nowhere Man, the world is at your command

He’s a real Nowhere Man,  Sitting in his nowhere land
Making all his nowhere plans for nobody