Monday, February 12, 2018

The Future is Small. Really, REALLY small

While I see many challenges facing society in the automated world of tomorrow, some of the changes are going to be amazing.

If I were starting out as a youngster today and I had any inclination toward engineering, I'd focus on nanoscale projects because that is going to be a booming field in the future, in my opinion.

Consider this article which highlights one companies efforts to keep surfaces clean through the use of an electric signal or as they spell out in plain English, "resonance enhanced microscopic (di)electric coupling of polar mesogens to the electric field."

This might seem like a silly pursuit until you consider that as the world moves toward solar power keep all of those panels working at peak efficiency will be a key to their success.  Dust has been shown to reduce a solar panel's efficiency by up to 50%, so utilizing technology like this to "auto clean" panels could be very valuable.  

While we've had "robots you could swallow" for some time, this new nanobot really opens up an entirely new world to remote therapies.

The key to this innovation though lies in the fact that "it's a flexible, fabric-like robot that can walk, swim, and even carry cargo, despite having no mechanical elements or batteries.

Watch this video and try not to be impressed.

So while some want to stick their head in the sand and hope for better days down the road, I'm happy to know that someone is working hard in a lab to make tomorrow better for us all.


Weekend Reads

Quiz time!

If you remember, way, way back to the days just prior to the Great Recession, you'll recall that the global boom in housing was a primary driver of global debt growth.

In 2007, global debt (households, corporations and governments) totaled $142 trillion.  Ten years later, now that we've learned the error of our ways, where do you think global debt stands today?

A) $127 trillion
B) $150 trillion
C) $165 trillion
D) $217 trillion

The answer at the end of the post.

Things played out about as expected last week - a bounce then a swoon and some wild Friday trading to close out the week.  What concerns me is that the markets started their move higher Friday on the assumption that the central banks were going to step-in over the weekend.  While the Chinese basically said that selling is frowned upon there was very little chatter from the Fed and ECB.  My suspicion is that stocks are likely to get whipped around more here in the near-term.  Up and down 200 points on the Dow used to be a real move, but today that happens in 3 minutes (for example, the Dow was up almost 400 points when I started this post and it's now up just 200 in the blink of an eye).  I'm not offering any advice and I think we will see a number of 5-10% up and down moves in the market in the coming weeks.  Beyond that, the outlook is more muddy because interest rates remain an issue that the market is going to have to contend with soon.

I think it is incredibly foolish to make predictions on 10 year budgets for the Federal Government because so many of the inputs can change dramatically in a very short period of time.  Remember in the 1990's when we were forecasting budget surpluses for a decade?  Well, then 9/11 happened, we entered two decades of war, 2 recessions and poof we're $20 trillion in the hole.

Having said that, there are some things that are not subject to economic variances - these include changes to the tax law that was enacted last year.  I appreciate this article from the Wall Street Journal that highlights what the tax law means for the Federal Government based solely on the law.

One of the big flaws with this type of analysis is that it assumes companies maintain the status quo.  For example, if a company is structured like this and we make these changes to the law, their taxes go up or down.  However, companies are already scurrying like mad to reverse anything in their structure that will make their taxes go up and they have a lot more avenues for lowering their taxes, so you can guess how this will end up.

Okay, so there are a lot of flaws with this chart (namely, the focus on the Dow) but let's ignore that for a moment, because it raises a really important question --- What if the 40 year era of lower and lower interest rates in the US is finally coming to an end?  What does that mean for an economy built on low interest rates?  My biggest concern for some time is that we may enter a period where the Fed is unable to control interest rates as the bond market pushes them higher.

Answer to the previous question re: Global Debt - $217 trillion as of Jan 2017 (we should get an updated number for 2018 soon).  The bulk of the debt growth occurred in Governments and Corporations.  Importantly what did all that $75 trillion of extra debt buy us over the past 10 years?  Just a measly $18 trillion of GDP ($57 trillion to $75 trillion) because as I've pointed out before, this latest round of debt growth has done little to enhance the long-term operating outlook for the globe.


Wednesday, February 07, 2018

Data is beautiful

I like to call this chart, The Product of A/C Proliferation....

This shows the population ranks of various states over the past 117 years.  Note the sudden uptick of various states that were previously almost uninhabitable (Nevada, Arizona) as retirees discovered the beauty of central air conditioning.

Okay, so I'm already bending the rules of the blog where I hope to focus on "Uplifting posts" by including this article, but it's my blog and I'll post if I want to.

Chinese transit police are using "google glasses-like" sunglasses to scan the crowd for criminals or people using false id's. While, I generally applaud the advances in technology like google glass (or their Chinese knockoffs), but this seems to be crossing a line of privacy that could get blurry very quickly.  China is moving incredibly fast on technology issues like AI/facial recognition because they are not burdened by having to follow privacy laws that we hold dear (or at least, we used to hold dear).  I worry that without proper checks in place this could go down a dark path very quickly. 

Exactly how?  I'm glad you asked.

Imagine a day in 2038 when you are unfortunately diagnosed with lung cancer despite being a non-smoker who has lived in a radon-free & smoke-free home.  Your insurer searches the database for your work travel and finds that you spent on average 30 days per year in Beijing for work which was previously undisclosed.  Your insurer views that as non-disclosure of a material risk and they deny coverage of your treatment.

Yeah, big data!

On a more positive note - Chocolate Beer is here.  As @Eric_VPSales will remember, I was the first proponent of this trend way back in the fall of 1992 on West 4th Street in NYC in a hole in the wall bar called "Down the Hatch".


Happy Days are Here Again (until those short vol trades unwind)

As I expected there was some follow through in the markets overnight yesterday, only to be completely erased by the morning in NY.  In case, I haven't mentioned it recently, the stock market is no longer a mechanism through which we value companies.  The stock market is a game simulation run on thousands of competing supercomputers and humans are just along for the ride.

Ignore those pictures on your evening newscast of guys in funny jackets looking up at a screen - this is what the stock market really looks like.....

Yesterday, in the morning there were cries from various pundits that the "Markets are broken, we can't let the machines kill our precious markets!!"

However, these same voices have been silent as the markets we all grew up trading have been transformed from actual platforms for investment into useful tools of those with the fastest quantum computers.  Most of Wall Street it when stocks move up every day because it validates their positions and makes them look smart.  I prefer to focus on real reason why you should invest in Company X vs. Company Y or why the global economy is growing or contracting.  These are antiquated ideas in today's world, I know.

Today there are more Exchange Traded Funds than there are public stocks available to go into those funds.  That's like saying you walk into a grocery store with 100,000 products for sale, but they have 200,000 carts sitting outside for you to use.  What's more valuable, the goods inside the store or the 200,000 carts sitting outside?  Well, for the past 10 years the markets have fallen in love with the carts because they are uniform, easy to trade, easy to manipulate and very easy to fit within an program trade.  Earlier this week one very popular trade, the short volatility trade (basically betting on calm markets) which had climbed in value of $10 to $144 in six years, went to $0 basically overnight.

This is just one small example of a greater problem with our markets, the speed of trading and the automated trading rules in place have created a market that acts like an escalator on the way up (climbing neatly 0.25% every day) but one that can fall like a broken elevator overnight.

No one has any clue what the next step for the machines will be (I suspect we bounce around quite a bit from here - maybe up 1-2% before down another 5% this week or next). However, I do believe two things remain a distinct possibility in 2018 -

1) another meaningful flash crash of 10% or more


2) The possibility that this kicks off the next move toward accurate valuations for stocks as a variety of overly complex financial products unwind.  This would imply that the market could fall as much as 40-50% from these levels because we have a toxic soup in the markets today - excessive valuations like in 1929, 2000 and 2008, mixed with exotic products like in 1987 and 2007.

* None of this is investment advice.  These are my own observations and opinions.

US Budget deficits heading back over $1 Trillion in 2019?

If you recall, after the great recession the Federal government took on a number of extraordinary measures to try to prevent a global economic meltdown.  I believe these measures were excessive and will ultimately lead to more pain in the future for our economy as our debt burden ballooned to $20 trillion, but hey, what do I know. 

Well, the combination of more spending by the government and declining tax revenues is projected to lead to trillion dollar deficits again in next six months.

"The Committee for a Responsible Federal Budget, a Washington fiscal watchdog, said the red ink may rise in fiscal 2019 to $1.12 trillion. If current policies continue, it said, the deficit could top a record-setting $2 trillion by 2027."

Washington addiction to overspending remains as strong today as it's ever been.


Monday, February 05, 2018

New Direction

One of the things I've struggled with a great deal over the past decade has been our cultural descent into the anti-knowledge abyss. What was once a nation that surged to the forefront of innovation by pushing boundaries and remaining forever curious has become a nation that is, at least partially, hostile to facts and intellectual curiosity.

While in the middle of a 10 mile run through the snow yesterday (BTW, thanks to the many who gave me space on the side of the road so I didn't have to run through 2" of slushy water) I heard a chorus that figuratively struck a chord with me:

"Don't be silent.
Stand up, speak out."

No, this is not a political rant but rather a pro-science, pro-innovation rave.  The US still has the greatest network of higher education in the world, but we managed to fall outside of the top 10 on the list of innovative countries for the first time in 2017.  If we don't turn the tide soon, it may be too late.

So, to that end, I am going to try to highlight positive & amazing breakthroughs that I read about every day.  Yes, I'll still talk about the economy and the markets when appropriate, but I think we all need a little good news in our lives and reminder that many people are working incredibly hard to make our lives and the lives of others around the world better.

I hope you enjoy these stories as much as I do!

Today's topic: Auto-correct

In much the same way that we have all forgotten how to spell as a result of the pervasive nature of auto-correct in our lives, scientists seem to be working on ways to make a wide variety of items in nature "auto-correct" in an effort to save time, money and improve the lives of those living outside of the first world.

1) Scientists are working on SELF-HEALING teeth!  By stimulating stem cells in teeth with certain drugs known to enhance molecule to molecule communication the researchers were able to coax teeth to regenerate completely in mice. Imagine the day in 2030 when you tell you grandchildren that the dentist used to fix cavities with a drill instead of telling you just chew a gummy vitamin.

2) Killing them (mosquitoes) softly.  Researchers identified a bacteria, which when present in male mosquitoes, makes the resulting eggs of the female die.  Thus, communities could reduce the population of mosquitoes carrying potentially dangerous diseases without the use of potentially harmful pesticides. 

3) Kids will never have to worry about breaking their mother's back - This research out of Binghamton University (Go NYS Public Education!) is really mind-boggling.  Researchers discovered a fungus which when mixed with concrete lies dormant.  However, when a crack appears in the concrete, water and air enter the crack and the fungus springs to life where it produces a byproduct - calcium carbonate - which is sufficient to fill in cracks.  It's very early stage, but the implications for the construction industry are tremendous!

Yeah science!

Kudos to those who see the status quo and ask how they can make the world a better place.


Welcome Back!

It's been nearly a year since my last post but frankly there was very little to talk about.  However, I got an alert from the host of the blog today that traffic was spiking despite the fact that I hadn't posted anything so I thought I should touch base.

Obviously, the markets are unraveling a bit so let's talk about what's going on.  First, despite all of the headlines screaming about the WORST POINT DROP IN HISTORY.... The reality is that this is only like the 100th worst day in the markets on a percentage basis.  Yes, when stocks have gone straight up for a year it can feel weird to have a couple of down days, but ignore that clickbait on you Facebook feed.

Since November 2016, the markets have been a one way street of buy everything and never sell.  So every day for the past year the markets became more and more boring, buy at 3am, sell at 4pm and try to avoid all of the nonsense talk about cryptocurrencies on the financial networks. 

However, 2 weeks ago I was struck by the increasing interest of "casual market observers" suddenly reaching out to me.

* "I keep hearing about the stock market, should I buy something?"
* "Can you believe this market?"

These are just anecdotes, but when a collection of these items hit my phone at the same time it's usually a sign that the last retail investors are finally getting ready to take the leap into stocks.  For reference the last time this happened was 2008 and before that is 1999-2000.

Around this same time, the bond market started to make some unprecedented moves (well, unprecedented relative to recent past).  I won't go through all of the machinations here, but suffice to say that the bond market is really the one to watch.  Combine spiking interest rates with a collapsing US dollar, a leveraged US consumer and corporate balance sheets flooded with debt and you have some very ominous signals hitting the market all at once.

Well, you might be saying, that's great to know now, but where were you last week to tell us this?  True, but we've had warning signals like this in the past (2011, 2013 and 2015 to be precise) and every time the Fed has stepped in to stop things from getting out of hand.  However, this time it feels different because it feels like the Fed is really boxed in a corner now.

The Fed has stated that they are beginning to unwind their balance sheet and attempting to tighten monetary conditions.  However, rates are rising and the US Dollar has fallen sharply this year which puts the Fed in a tough position -

1) Reverse their stated goals for 2018 and attempt to stop the rise of interest rates by buying bonds
and potentially throwing the US dollar into a real currency crisis or

2) Stick with the plan, allow rates to rise, the dollar to fall, and put the stock market at risk (where risk is a 30%+ decline, 50% decline if we enter recession). 

In the near-term, I suspect we'll get some dip buying in the markets, but beware, the fundamental analysts have left the building.  This is a market for the chart readers, of the chart readers and by the chart readers.  If you are not a skilled technician you may get run over in this market.  The after market trades look very ugly right now but that could just be a thin market. 

Try not to get too caught up in the day to day swings, but watch out for longer trends in the dollar, bonds and the stock market because together they tell a better story.