Posts Tagged Economics
TODAY, BITCOINS SEEM TO BE ALL THE RAGE TO SOME “INVESTORS” WHO THINK THAT THEY ARE ON TO SOMETHING NEW. INSTEAD, PERHAPS THEY ARE REALLY ON TO SOMETHING OLD…VERY, VERY OLD!
Tulips were first introduced to the Dutch, when they were brought from Turkey in 1593. The varied colors and heartiness truly appealed to the people as they became somewhat ubiquitous throughout the land.
During the 1630s, Dutch citizens, even those who did not normally invest, began trading Tulip Bulbs. It was difficult to price the bulbs, however, as there was no exchange from which to price them. Accordingly, the price was set at whatever the buyer was willing to pay. That meant, however, that the market “value” moved in one direction only…UP, and the value only changed when the next bulbs were sold.
What is Money anyway? According to the traditional definitions of money, there are three: 1. A store of value; 2. A means of exchange; or 3. A standard of value.
Tulip bulbs fail on all three definitions:
1. Although tulips are supposedly perennials, most of the flower
lovers just assumed them to be annuals, and planted new ones each year.
2. I doubt that tulip bulbs were used for anything other than trading. It would be difficult to expect a general store or local hunter to accept tulip bulbs in exchange for supplies or game for the dinner table.
3. How can anything become a standard of value if it is unvalued until it is traded, and then, only to the people involved in that particular trade.
So, how does the Dutch Tulip Bulb Bubble of the 1630s—call it what it was—differ from the Bitcoin Craze of today? Not a bit, at all! Now, let’s consider, once again, the three traditional definitions of money:
1. At what value do you regard an “asset” that hit a new all-time value of $14,000 one day last week, $16,000 the next, and $18,000 the following? But, what if some sellers decided to withdraw their money a few days later, and the price dropped to $11,000? Then, what’s the market value?
2. There have been a few Bitcoin traders who have accepted them as a means of paying rent; however, that has been very, very limited. Mall retail stores, restaurants, your CPA, hair dresser, etc. an airplane vacation trip to London? Better bring cash!
3. Lastly, if the market value is ambiguous, there is no possible way to considering it as a lasting standard value. Also, bubbles can be quite volatile; but, especially on the downside if many traders all wish to sell at the same time, and that can attract even more investors not to be left behind–as the market value plummets.
Bitcoins, like the Dutch Tulip Bulbs of four hundred years ago, are a Market Bubble, plain and simple! Only other traders of the Bitcoins or Tulip Bubbles might wish to argue the point, and only those other participants in the bubble might even wish to join-in the discussion.
As the old saying goes: Caveat emptor!
About ten years ago, Wall Street laid-off 100,000 highly compensated securities professionals; because, their jobs were being performed by computer-based algorithm-reading machines. (An algorithm is just a complex set of mathematical rules and formulas.) Eventually, many local retail brokers might very well suffer the same fate, especially as brokers voluntarily send accounts to be similarly managed by computers.
When I retired as a financial advisor six years ago, there were three basic types of brokerage accounts. The securities firms, however, were encouraging their brokers to use mostly one type, rather than the other two.
Our Regional Manager suggested that the brokers could work more efficiently—and earn greater commissions—by just packaging the paperwork, and shipping the accounts off to the home office. The various investment portfolios would supposedly be managed by a team of analysts at that point.
Personally, I wonder if that “team” really meant the same type of algorithm-reading machines. Perhaps, I could be wrong; however, why couldn’t a similar computer program be managing retail client portfolios, just as it has been managing institutional accounts on Wall Street? With such accounts, the clients have no no one-to-one contact with any person who is involved with the management of their accounts.
Also, the securities brokers have no chance to add personal value to the situation, which is an important quality for individuals to establish in order for them to prevent the automation of their jobs. The firms suggest that the brokers can generate greater commissions; because, they spend less time on each account, as they pass them up-the line. But, there is little chance to add anything to the relationships as the brokers act somewhat like a worker on an assembly line.
The old traditional commission-based accounts have long since fallen by the wayside as they are felt to offer few chances to generate commissions. Additionally, once the accounts are initially invested, many lie unchanged for years to come–earning nothing for the brokers.
The third type of account is a fee-based one, like the first; however, with these, the broker manages the various portfolios in consultation with the clients. Sure, they consumed more time, and reduce potential revenues; however, these accounts enabled brokers to work with their clients and their portfolios. Additionally, why would a securities professional want to get involved in the securities markets if it were not to spend their time helping clients understand and invest in those very same markets?
In essence, brokers who just send the accounts to the “home office” become a paper-pushers, and they remove themselves from the real business at hand? And at some point, the firms will begin to reduce commissions, and eliminate some brokers, since fewer can push more paper than before.
I’ll take dealing with clients and stocks, bonds and mutual funds, any old day. Lastly, my value-added will protect me somewhat from such computer-generated automation!
When I began this blog, in February of 2012, I had expected it to focus mostly on financial topics, following my 39 year career in the securities markets. For a secondary theme; however, some of life’s journeys—describing my retirement, the need for young new parents to have a will and life insurance so they could choose suitable custodians for the infant, in the event they cannot, etc.—should also be included.
I have personally encountered some health issues recently, which is why I have only written a few posts over the past several months; but, this one is really one for my family who might ask “Why not an American bond fund?” Michael Haasenstab, of Franklin Templeton, is a Fixed Income Manager whom I had been placing clients with his several mutual funds, when I was working, for two different reasons.
Now, why am I describing the great qualities of who I believe is the absolute BEST? Eight months before I retired, I invested 25% of our total portfolio in the Templeton Global Reserve Fund, one of several he manages. During that six years, however, it now represents 23%. That’s not bad in the current low interest rate environment, specially when stocks are charging ahead!
Dr. Haasenstan can trade any bonds, and had even owned U. S. Tax-free municipals when that market had been nearly frozen shut-in 2008. That lack of restrictions allows him to invest in any country, and in any type of bond that he chooses. Currently, he believes that U. S. Bond rates will rise, which would cause market values to drop proportionately. I certainly agree, especial with the Republican Pray in charge of both Congress and the White House. Bond prices and yields, incidentally, usually move in opposite directions.
Lately, he wishes to buy an attractive bond, but he doesn’t like the underlying currency, such as the Euro, Haasenstab can buy the bond, but “short” the currency. (Shorting a currency simply means borrowing something you doubt the value (or merit) of, and which you intend to sell later, when you wish.)
I am an aggressive investor, had remained fully invested during The Great Recession, and we came out in quite good shape. In a recent post, I described how I came to realize that most securities firms were too focused on keeping client portfolios quite close to the current industrial breakdown of the Standard and Poor’s. In essence, maintaining the status quo.
So, I broke away, focusing more on Technology, and increasing the weighting in Health Care slightly. Since early in the year, this strategy has worked really, really well. Obviously, no one knows what the future holds. Those two related posts are linked, as follows: Part One and Part Two.
As I mentioned at the beginning, this post is mostly intended to explain to my family why I have used just one bond fund—a global one—to anchor our joint portfolio. Initially, it accounted for 25% of the portfolio and, frankly, I never worried about it’s performance, as long as I didn’t invest it in stocks. During that six years, however, it now represents 23%. That’s not bad in the current low interest rate environment, specially when stocks are charging ahead!
I do have a couple more posts in mind; however, I am currently preparing an investment plan—a few Tech stocks, ETFs and the one bond fund for when my wife and daughter will have when they have to take over the management of our investment portfolio. Obviously, I surely will never know if they did, in fact, follow the plan or, perhaps, contact the financial advisor that my brother uses. As I wrote earlier, this is just another one of life’s adventures.
NOTE: Two topics that I hope to write posts about when, and if, possible are:
!. How many financial advisors are automating themselves out of their current jobs.
2. The horrible MISTAKE that was Vietnam actually began over a millennia ago.
LAST WEEK WAS A REALLY DOWN ONE FOR THE STOCK MARKET, ESPECIALLY TECHNOLOGY. TIME TO SELL? PANIC? NO WAY!
The market doesn’t ever go straight up, nor does it go straight down! Besides, investing should always be considered a long-term vehicle for building you resources to fund education, the new house, retirement, etc. And certainly, it should not be engaged in for a mere one-to-three years.
The current upward climb in stocks is just a continuation of the sustained economic rally that started during President Obama’s Firm Term. If the numbers look bigger, keep in mind that, let’s say, a one percent rally, or decline, with the Dow Jones Industrial Average at today’s 23,000, will be significantly more than the Dow declining toward 6,500, which George W. Bush let for Barack Obama.
Lately however, many investors’ euphoria has been based on the assumption that the GOP Tax Scam would jumpstart the market run-up even more. That sort of thinking should have been quickly dismissed by anyone who looked back at the Republican Party’s recent inability to “Repeal and Replace” Obamacare. In essence, after ten months, the Trump Regime has produced no meaningful legislation: just photo-ops!
When you see a market decline, there are several key points to consider: Does it effect the overall stock market? Just one industrial sector (health care, financials, tech, etc.)? Or, is it limited to just a few stocks? And then, try to find out what happened, and does it look temporary, or might the problem(s) be permanent in nature?
Those who jump, either to buy or to sell, without knowing what is going on, and why, often find themselves regretting their quick trigger soon afterward. And many astute investors often find value when particular stocks or sectors have become oversold!
Over the past decade, several economists have won Nobel Prizes for their research, proving that the markets are irrational. Before you consider making any changes in your investment portfolio, just think: are acting rationally—or irrationally?
There have been various calls, from different quarters, to break Amazon up. Those have been mostly due to the Seattle behemoth’s eating into the retail business of many others—big box stores, stand-alone businesses and even mall stores, such such as venerable Macy’s. In essence, however, Amazon is just doing what Wal-Mart, and other big boxes, did to smaller retailers, years before.
Amazon doesn’t have a monopoly on the retail sector; rather, it had just anticipated that Americans, as well as overseas customers, were ready for a new way of shopping—On-Line. Most of the other stores in the sector; however, can certainly invest in similar advanced systems, but they haven’t. Wal-Mart, for instance, would cause massive layoffs in the various job occupations from which it draws its customer base. And, the mall stores and stand-alone retailers mostly have long-term store leases at their current locations.
My suggestion that Amazon split into two separate corporations—let’s say Amazon and Amazon Web Services—is due to, what I believe are, significant operational differences between the two business segments. As shown on the chart below, Amazon has two different sectors. Most Americans are well aware of Amazon’s retail business; but, few know how active, and expanding, it is in technology—Amazon Web Services.
Amazon is the largest provider of cloud computing, has its own robotics company—which has improved its own logistics systems, as well as provides robotics to other companies globally. It has also been been expanding its Artificial Intelligence operations. To me, the retail and AWS segments should be totally split into two different corporations, with Amazon shareholders receiving their proportion number of shares in each.
First off, the mindset for managing retail is quite different from that of the AWS segment. So would the occupational skills of both the employees and management of the two. The chart below shows the differences between retail and AWS, regarding Revenue and Operating Profit.
Revenue, between North America and its International operations was $123, 768 million in 2016. AWS, on the other hand, was a mere $12,219 million—or just 10.0% of Amazon’s Total Revenue. Operating Profit was even more revealing. AWS had $3,108, as compared to the net combined retail profit of just $1,100 million.Lastly, AWS had a Profit Margin—operating income divided by net sales or revenue—of 25.4%, while that of Retail was only 1.03%.
I am an Amazon shareholder; however, I still believe that the break-up, between the two dissimilar business segments, would make good sense. There are so many dissimilarities between retail and AWS, that the split is certainly called for, in order to improve the overall Amazon operation.
Currently, AWS distracts from the retail operations and, I believe that retail also holds AWS back. In summary, this is truly a case where the two halves would be more effective—and more valuable—than the total!
Over the past 50 years, automation and the machines (robots, machine-reading, big data, artificial intelligence, etc.) have been creeping into our workplace, replacing workers in performing various routine job functions. And, unlike other historical labor disruptions, the advance of machines—performing the tasks they have been programmed to do—is being felt throughout the entire industrialized world.
To better understand the advance of the machines, both in memory and speed, let’s review “Moore’s Law”. Gordon Moore, before he co-founded Intel, 50 years ago remarked that the capacity and speed of silicon chips will double every two years, over the next ten. Well, fifty years later, that hypothesis is still on target, and it is often used to describe the exponential advances of computers as their capabilities accelerate over time.
For instance, the computer that took the astronauts to the Moon in 1969 was merely comparable to the Nintendo of that era. The capacity of today’s iPhone, however, is considerably faster, and can perform more functions, than the fastest super computers of even 30 years ago. So, how are schools preparing our children for the labor market of the future?
It seems that that many school systems, over the past ten to fifteen years, have emphasized the STEM subjects (Science, Technology, Engineering and Mathematics), while de-emphasizing the Arts and Humanities for college bound students. Such a focus can make the job skills of such employees similar to those of the machines, and thus easier for the machines to displace.
Skills that reflect the humanity of the worker—such as intuition, relationship building, good writing skills, an ability to cope with adversity, creative thinking–may set him or her apart from their co-workers, in similar jobs. “This is Money” provides a fairly in-depth list of job occupations that are most, and least, likely to be replaced by automation.
For the most part, school curricula, through the 12th Grade, appear to have changed little over the years. As the advance of the machines continues at an ever-increasing speed, school administrators and teachers need to be honing their skills, and begin to plan for the challenges of the Twenty-First Century, which has already arrived. Business, government and labor also need to be part of the planning process.
Many computer engineer jobs have already been outsourced to India. And, this time, many white collar jobs, requiring college and advanced degrees—such as associate attorneys and some radiologists (yes, M. D. s), who perform many routine functions, may also be at risk. That’s why it would be important for the employee to set him or herself apart from their colleagues.
Since automation will impact the entire labor market, to one degree or another, the number of displaced workers could easily outnumber the available jobs, and probably drive the pay scales. That’s where the Arts and Humanities skills may set some employees apart from the crowd, and help them keep their jobs!
Surely, most people realize that you cannot trust anything that Donald Trump and the GOP say. The Tax Plan, which they released this past Wednesday, was a charade–focusing on what the middle class might expect, while burying the real meat, which they don’t want us to see. This plan is intended to reinitiate the Bush Era tax cuts, skewed to the top one percent. Additionally, they are selling the repeal of the Estate Tax–from which only 6,000 of the very wealthiest families will benefit–which adds to the top one percent of taxpayers. Those cuts, early on in Bush 43’s first Administration contributed t The Great Recession (4Q07-1Q09).
There is no “reform” included in the proposal; but, rather, that is merely to enhance the appeal to the middle class. Trump and the Republicans have claimed ad nauseum that America has the highest personal and corporate tax rtes on earth. Au contraire, both of those rates fall in the dead center, after deductions and loopholes, according to the OECD organization of industrialized nations.
Oftentimes, Donald Trump meanders around in various directions, suggesting one thing and then another; but in the end, he often reverts back to something that he said on the campaign trail. Rather than get bogged down analyzing a his short outline, I am including a blog post that I published last January. As you can see, little has changed after his nine months in office.