Just own the damn
robots.
If you spend any time watching
CNBC, you know who “Downtown Josh Brown” is. He is a thoughtful analyst on the
markets and someone I consider a friend. He writes a blog called The Reformed
Broker that I think can properly be characterized as irreverent.
His latest letter is an Outside the Box way of
thinking about the current bull market. I’m not sure whether he is offering
this tongue in cheek or not, but he is speaking to the same thing that I’ve
been talking about for quite some time: the growing gap between the Protected
and the Unprotected. It’s about the angst of the middle class and all those who
feel that the future is changing too fast and in ways that are hurtful to them
personally. And frankly, many of the protected class recognize that they are
increasingly vulnerable, too. For instance, it is clear that various aspects of
legal work and medicine will be automated within the next few years. It’s not
just self-driving cars that are threatening Jobs.
I’m taking a morning flight back to
Dallas from San Francisco, where I have spent the last two days immersed in all
matters biotech and antiaging. The Buck Institute is at the center of the antiaging
efforts, and they assembled a tour de force lineup of scientists to discuss the
latest in research to not only turn back the clock on our aging bodies but also
to figure out ways to heal the diseases of aging. Being around such creative
and entrepreneurially driven people has been exhilarating.
And then I got to top it off with
dinner with Mike West of BioTime, where we discussed his spinoff of AgeX. Mike
is on the verge of actually doing something called induced tissue regeneration,
which has a whole host of amazing implications. Curing diseases, replacing
damaged body parts, and yes, even reversing the effects of old age.
I think I got Mike West close to
swearing a blood oath to go with Patrick Cox and me to the Cleveland Clinic and
run through Dr. Mike Roizen’s executive health program. Mike West is one of
those doctors who doesn’t take care of himself or do the checkups that he would
tell everybody else to do, and I think Patrick and I are just going to have to
pick him up and march him over to Cleveland to make sure everything is okay.
From my point of view, the work that he is doing and its potential for success
make him the most important man in the world. And I’ve gotten him to agree to
come to my conference along with Aubrey Du Grey, the antiaging maven, and Eric
Verdin, the head of the Buck Institute. Patrick Cox will moderate that panel,
and it should be absolutely fascinating.
And speaking of panels, I have
finalized one session that I want to do on Bitcoin and other cryptocurrencies.
Three experts (two extraordinarily successful hedge fund managers and George
Gilder, who is of course writing another book on the whole subject), and I have
my favorite skeptic in mind to moderate the panel. As the song goes, “There’s
something happening here, and what it is ain’t exactly clear.” This year’s
conference is shaping up nicely. I know, we’ve been reminding you to reserve
the dates March 6-9 next year for San Diego, but you really do want to be in
the room. It is going to be our most exciting conference yet.
And now it is time to hit the send
button. Emails to answer; papers, books, and essays to read; and somewhere here
I’ve got to start thinking about this week’s letter. Retirement? I don’t need
no stinking retirement. You have a great week.
Your planning to live a long time
analyst,
John Mauldin, Editor
Just own the damn
robots.
By Joshua Brown
…five ranks of ten
machines each, swept their tools in unison across steel bars, kicked out
finished shafts onto continuous belts…
Paul unlocked the
box containing the tape recording that controlled them all. The tape was a
small loop that fed continuously between magnetic pickups. On it were recorded
the movements of a master machinist turning out a shaft for a fractional
horsepower motor. He’d been in on the making of the tape, the master from which
this one had been made.
He had been sent
to one of the machine shops to make the recording. The foreman had pointed out
the best man – what was his name? – and, joking with the puzzled machinist, had
been hooked up to the recording apparatus. Hertz! That had been the machinist’s
name – Rudy Hertz, an old timer, who had been about ready to retire.
And here, now,
this little loop in the box before Paul, here was Rudy as Rudy had been to his
machine that afternoon – Rudy, the turner-on of power, the setter of speeds,
the controller of the cutting tool. This was the essence of Rudy as far as his
machine was concerned.
Now, by switching
in lathes on a master panel and feeding them signals from the tape, Paul could
make the essence of Rudy Hertz produce one, ten, a hundred, or a thousand of
the shafts.
There’s something insidious going
on in the psyche of investors that deserves a lot of the credit for today’s
bull market, and almost no one is talking about it. But I will.
The first American retirement
system – available only for gun fighters – a colonist in Massachusetts picks up
his arms and goes off to defend his settlement against the Indians. They chop
off his arm, rendering him unable to participate in the only form of labor that
existed in those days (manual). He can’t build shelters anymore, raise animals
or till the soil. So the colony takes up a collection, in the form of taxes,
which enables the wounded fighter to retire and continue to support himself and
his family.
You know who collected these taxes
from the colonists? Usually the guy himself. True story.
The concept of retirement evolved
from there. For most of the 1800’s, you basically worked on a farm til you
died. Retirement took place in a graveyard. Until 1875, when the American
Express railroad company established the first private pension fund in America,
followed by many other companies shortly after. It was no big deal, given that
the average person wasn’t expected to make it long past their 50th birthday.
The US government created a public version of this – the Social Security system
– in the 1930’s when it became apparent that not everyone was going to have a
job long enough (or secure enough) to earn these pensions.
And then that went on into the
1970’s, whereupon the personalization of retirement funding began, with 401(k)’s
and IRA’s and the like. Pensions became replaced with investment accounts owned
and managed by each worker, which is where we are now. So the concept of
retirement as we know it is essentially just fifty years old. It’s what the
majority of investors have been doing in the markets in the first place –
deferring spending today so that they’d be able to have enough money to spend
later on.
But something else is going on
right now. There is a sense of desperation underlying the way in which
we’re investing.
***
Why won’t people panic!?!
Trump! Kim-Jong-Un! Nukes! Border
walls! Race riots! Trade agreement demolition! Impeachment proceedings! Sell,
goddamn you!
But they won’t sell. Stocks
make new highs, volatility completely disappears. Every week a fresh reason to
freak out. No reaction from the investor class whatsoever, other than in short,
sharp bursts that dissipate within hours.
Why?
Well, if you think Donald Trump’s
mentally ill outbursts on Twitter should be scaring investors, then perhaps you
failed to consider the possibility that there is something even scarier out
there.
A 45 year old married father of two
with a mortgage and a pair of college educations to fund. The remote yet
persistent threat of a nuclear war is not what keeps him up at night. In fact,
he might almost see it as a
relief should it come. He is a bundle of raw nerves, and each day
brings even more dread and foreboding than the day before. What’s frying his
nerves and impinging on his amygdala all day long is something far scarier, after
all. He, like everyone else, is afraid that he doesn’t have a future.
He is petrified by the idea that
the skills he’s managed to build throughout the course of his life are already
obsolete.
***
In Kurt Vonnegut’s 1952 novel, Player Piano,
we are introduced to a future in which only engineers and managers have gainful
employment and meaningful lives. If you’re not one of the engineers and
managers, then you’re in the army of nameless people fixing roads and bridges.
You live in Homestead, far from the machines that do everything, and are treated
throughout your life like a helpless baby. The world no longer has a use for
you. Anything you can do a machine can do better, and you are reminded of this
all day, every day by society and the single omnipotent industrial corporation
that oversees it all.
He wrote this 65 years ago. It
couldn’t have been more apropos to what we’re witnessing now than if had he
written it this morning, right down to the nostalgia-selling demagogue who
seizes the opportunity to foment rebellion amongst the displaced and
disgruntled. When millions of people start seeing their purpose begin
to erode and their dignity being stolen from them, the idea that there’s
nothing left to lose starts to creep in.
In the book, the result is a
violent rebellion against the machines. In the real world, we’ve resigned
ourselves to investing in them instead.
We could be in the midst of
the first fear-based investment bubble in American history, with the masses
buying in not out of avarice, but from a mentality of abject
terror. Robots, software and automation, owned by Capital, are notching new
victories over Labor at an ever accelerating rate. It’s gone parabolic
in recent years – every industry, every region of the country, and all
over the world. It’s thrilling to be a part of if you’re an owner of the
robots, the software and the automation. If you’re a part of the capital side
of that equation.
If you’re on the other side,
however – the losing
side – it’s a horror movie in slow motion.
The only way out? Invest in your
own destruction. In this context, the FANG stocks are not a gimmick or a fad,
they’re a f***ing life raft. Market commentators rhetorically ask aloud what
multiple should investors pay to own the technology giants. That’s the wrong
question when people feel like they’re drowning.
What multiple would you pay to
survive? Grab a raft.
Here’s the “Robotics and Automation
ETF” over the last two years:
There’s panic in this chart. A
much more sustained kind of panic than can be sown by the pronouncements of
Trump or the bellicosity of North Korea.
***
There’s a great joke about an
automated car plant in Japan, where the machines work in the dark (no need
for light, they don’t have eyes) and there are only two living things
authorized to be on the factory floor – a man and a dog.
What’s the man there for?
His job is to feed the dog.
What’s the dog for?
The dog keeps the man from
touching any of the machines.
Matt Levine at Bloomberg View has an interesting way of
thinking about Bridgewater, a gigantic hedge fund overseeing almost $200
billion in assets:
If you had to
describe in two words what Bridgewater’s 1,500 employees do, “not investing”
would be a pretty good fit. They have a computer to do the investing!
Bridgewater runs on algorithms, and famously few of its employees
have much visibility into how the algorithms actually work. They instead spend
their time marketing the firm, doing investor relations, and — crucially —
evaluating and critiquing one another. I once explained my theory of Bridgewater: “One stylized model for thinking
about Bridgewater is that it is run by the computer with absolute logic
and efficiency; in this model, the computer’s main problem is keeping the
1,500 human employees busy so that they don’t interfere with its perfect
rationality.”
This heuristic – a room full of
geniuses playing mind games with each other while computers keep the profits
rolling in – is definitely silly, but Vonnegut would have loved it. And it
works really well symbolically, even if it’s a distortion. You don’t get a
better educated, more highly pedigreed workforce than the folks at Bridgewater.
So the image of them looking for ways to fill their days – even though
untrue – could only increase the dread of people working in
firms further down in the Knowledge Economy food chain.
***
“Specialize” the displaced workers
are being told. “Up your eduction and increase your skills! Move to a different
city! Find a niche where technology can’t replace you! Learn to code!” They’re
trying, but this doesn’t seem to be a long-term solution. We’re in an age where
we’re being told AI is about to start writing its own software. Machines are
going to be trying legal cases and diagnosing illnesses, writing songs and
architecting buildings, giving financial advice and driving our vehicles. Every
day more articles about this or that breakthrough. There are no limits, there
are no protections. It’s bordering on lawlessness.
No one is immune. Not even the
creatives. Netflix users have spent 500 million hours watching Adam
Sandler content, so it isn’t far-fetched to imagine its programming algorithm devising an art house film starring
Sandler. Why do we need producers? Why is a monster like Harvey Weinstein
even necessary in a near future where software determines what we want to watch
and automagically gives us more of it? What would be Weinstein’s role in that,
besides grabbing people and running up massive legal and travel bills for the
studio?
People have never felt more ill at
ease about their own reason for existing. This is manifesting itself in the
trillions of dollars being thrown at Facebook, Google, Uber, Nvidia, Apple,
Amazon, Alibaba. Yes, these companies create jobs, but they are different jobs that the
people being displaced mostly can’t get. When 10,000 sweater-folding department
store workers are laid off in fifty different cities on a Friday, it’s not like
they can all relocate to Seattle and begin building mobile user interfaces for
Amazon the next Monday morning.
***
Professor Scott Galloway, an expert
on the technology giants that now dominate every facet of the economy and our
lives:
Uber only has a
few thousand employees, and they’re very technically literate. Uber has figured
out a way to isolate the lords (4,000 employees) from the serfs (2 million
drivers), who average $7.75/hour, so its 4,000 employees can carve up $70
billion vs 2 million on an hourly wage. So, Uber has said to the global
workforce, in hushed but clear tones: “Thanks, and f*** you.”
Michael Batnick frames this as the price of progress, which is becoming a full blown
crisis. We have no answers for this yet. He is hopeful that we come up with
some. It’s happening a lot faster than we can adjust to it, even if it’s all eventually for our benefit
(and what sort of capitalist would be caught dead arguing otherwise?).
The anarchists in Vonnegut’s book
have paid the price of progress. They worry about their sons committing suicide
when their IQ test results sort them out for a lifetime of roadwork rather than
an invitation into the upper echelon of managers and engineers. They write a
letter explaining the destruction they’re about to unleash as payback for all
of the “progress” that’s been inflicted on them…
I deny that there
is any natural or divine law requiring that machines, efficiency, and
organization should forever increase in scope, power, and complexity. I see
these now, rather, as the result of a dangerous lack of law. The time has come
to stop the lawlessness.
Without regard for
the wishes of men, any machines or techniques or forms of organization that can
economically replace men do replace men. Replacement is not necessarily bad,
but to do it without regard for the wishes of men is lawlessness.
Without regard for
the changes in human life patterns that may result, new machines, new forms of
organization, new ways of increasing efficiency, are constantly being
introduced. To do this without regard for the effects on life patterns is
lawlessness.
Men, by their
nature, seemingly, cannot be happy unless engaged in enterprises that make them
feel useful. They must, therefore, be returned to participation in such
enterprises.
***
The disruptor’s credo, say it with
me: Your profit margin is my
opportunity. Put another way: Your profitable small business is basically a market
failure. But only for now, because we’ve got investors, motherf***er.
Friend of a friend owns a small
chain of grocery stores in New Jersey. A few years ago, when Amazon got into
groceries, he changed his mind about investing in the growth of his own
business. He started buying Amazon shares with his investment capital instead.
He saw what happened to Circuit City and Tower Records, Borders and Barnes
& Noble. So he bought some Amazon and then he bought some more.
This wasn’t retirement investing.
This was something else. What should we call it? Disruption Insurance?
I don’t know. Anyway, long story
short, Amazon is up over a thousand percent over the last ten years, and
<jersey accent>he don’t need the stores no more.</jersey accent>
***
Of the people actively looking for
jobs right now, 96% of them are currently employed, as of the
latest labor report. This, of course, excludes tens of millions of working
age folks who have stopped looking, are working off the books or who have
otherwise just given up. A great deal of them come from industries or vocations
that no longer exist. This is not a new phenomenon, it’s been going on since
the beginning of time.
What is undeniable, however, is
that the pace of this process has increased to breakneck speed. It
also seems to be perennially advantaging those for whom advantage has already
accrued. Winners keep winning. A momentum strategy, but for people. You would
expect the folks on Wall Street to be celebrating all time record highs
for asset prices. It’s the opposite – it’s making them miserable. Head counts
and fund closures are this bull market’s accoutrements, not lavish parties and
cocaine. It’s never been like this before.
For the last fifty years, we’ve
invested for retirement. For the last two or three years, we might be investing
for a whole other reason. What price is too high to pay for a company’s stock
if the company spends every waking minute trying to replace you?
So what else is left to do? Just
own the damn robots.
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