You Cannot Stop Progress

MarketCycle Wealth Management

 

My father-in-law was a perfect 50/50 mix of comedian & actor Walter Mattheu and the 1960’s cartoon character of Fred Flintstone He didn’t talk much so when he did you tended to listen.  My wife’s name is Kate but he called her Kay.  When we first met, in the mid-1970s, I remember Ivan asking her about our relationship:  “Now Kay, I always raised you to make the right decisions; now are you sure that you want to marry this guy?”  There was something of substance to his statement because, at that time, my prospects didn’t look good.

Ivan’s most famous quote was this:  “You cannot stop progress.”  It was not a judgement call of ‘good or bad.’  It was just truth.

The evolutionary history of humans involves occasional leaps in technology, whether it was the wheel or the computer or the current blockchain technology which makes data, records and transactions more secure from hacking.  Things coast along and then they take a giant leap.  The phone in your pocket has evolved into a super-computer.  This “progress” that Ivan said “cannot be stopped,” is also known as ‘disruptive innovation’ and it changes your world.

Disruptive innovation refers to an innovation that completely disrupts an existing market.  Think about what the computer did to the typewriter.  Older companies are dinosaurs that often see but cannot pursue the new technology because it cuts into their current near-term profitability.  Disruptive innovation is almost always introduced by smaller startup companies that are unknown to the larger world.  Three out of four startups fail and more than nine out of ten never earn a return, but one out of four succeeds and one out of ten, with a combination of luck and proper timing, has the opportunity to become the next great thing.

Below are 20 areas where one can find investments that exhibit the qualities of innovative disruption.  Obviously, robotics and artificial intelligence are the most disruptive innovations on this list because they also disrupt by taking jobs on a massive scale.

  1. Robotics
  2. Artificial Intelligence (A.I.)
  3. Cloud computing (Skynet)
  4. Machine learning
  5. Blockchain
  6. P2P
  7. 3D printing
  8. Self-driving vehicles and planes
  9. Cyber security
  10. E-commerce
  11. Social platforms
  12. Mobile
  13. Digital Media
  14. Internet of Things
  15. Energy storage
  16. Stem cells
  17. Infrastructure
  18. Space exploration
  19. Alternative energy sources
  20. Innovative materials

 

Artificial Intelligence?  Unlike a robot, an A.I. does not need to have a material body.  Larry Page, the brilliant co-founder of Google has stated (20 years ago) that Google is not a search engine, but rather it is an artificial intelligence that people continually build upon when searching items on the Internet.  Billionaire investor Mark Cuban recently stated that the United States is in an A.I. race against Russia and China, except that the U.S. doesn’t yet realize it.  Putin recently stated that Russia will beat the U.S. in the A.I. “arms” race.  Most people don’t care.

 

 

 

Three good books on the topics in this month’s blog:

  1. The Inevitable:  Understanding the 12 Technological Forces that will Shape Our Future, by Kevin Kelly
  2. Rise of the Robots:  Technology and the Threat of a Jobless Future, by Martin Ford
  3. Dark Money, by Jane Mayer

 

 

 

The science fiction image of a friendly robot from when I was a kid:

 

The current reality of a more fearsome robot coming out of Boston Dynamics:

 

Average probability of automation by occupation and across population:

 

The rise of robots.  If you want to understand the most important thing about your future, it is the global disruption represented by the intersection of these two lines!

 

 

People need to keep their investment accounts busy because automation is going to make the following chart WORSE with each passing year.  The top 1% will only get richer while many workers will slowly lose their jobs to artificial intelligence, automation and robots.  And now the wealth gap is rapidly and progressively becoming so wide that citizens might eventually be given the handout of a “Government Guaranteed Minimum Income” of perhaps $20,000 per year in order to help us to continue our consumption.

Increasing divide between the rich and the poor:

 

Citigroup wrote this in a private memo to their wealthiest clients:  “The United States is evolving into a ‘Plutonomy’ — a top-heavy economic system where growth is driven primarily by a tiny, prosperous elite who consume an ever larger fraction of everything the economy produces.  Shy away from the stocks of companies catering to the rapidly dissolving American middle-class and instead focus on purveyors of luxury goods and services aimed at the richest consumers.”

More on artificial intelligence:  According to Moore’s Law, the intelligence of an A.I. would double every two years, non-stop, and compounding makes this a scary proposition.  Imagine an eventual artificial intelligence several thousands or even millions of times smarter than the smartest human.  Or perhaps A.I. won’t even work and just ends up being a total science fiction.  In May of 2014, Cambridge University physicist Stephen Hawking wrote:  “A computer that exceeded human-level intelligence might be capable of outsmarting financial markets, out-inventing human researchers, out-manipulating human leaders and developing weapons that we cannot even understand.  Dismissing this as science fiction might well turn out to be potentially our worst mistake in human history.” 

 

 

NO INFLATION???  The CPI inflation gauge is currently at 1.4% and the Fed is keeping interest rates near 0% because of a perceived lack of inflation and the obvious lack of wage gains.  But have prices only moved up 1.4%?  This is a list of price increases in commodities over the past 12 months; commodities are the base materials that ultimately become what we buy:

  • lumber up 115%
  • soybeans up 59%
  • silver up 55%
  • copper up 46%
  • corn up 45%
  • cotton up 30%
  • coffee up 25%
  • gold up 17%
  • crude oil up 16%
  • grain up 16%
  • home prices up 10% (and, because of materials prices, the cost of building a new home has been sky high effective 12 months ago)

To give you an idea of what’s happening with commodity prices and inflation, this next chart reveals potential copper mine supply (white dashed line) shown against needed supply (solid brown and yellow areas).  Increased demand but limited supply ⇒ rising prices ⇒ rising inflation ⇒ rising interest rates.  This is why MarketCycle has been, once again, holding commodities in our client portfolios.  I apologize for the blurry image; I grabbed this off of a video.  Copper is used heavily in the alternative energy sphere.

Copper, we need more than we have:

 

In my opinion, in the 2030’s decade we will experience much worse inflation than we saw in the 1970s when the CPI (inflation gauge) reached 15 and interest rates hit 20% (see left hand blue-bars on this chart).  And as stated above, today’s 1.4% CPI is a manipulated number as are the reported low inflation numbers in all other regions of the globe. (Chart courtesy of Investing.com):

 

Our (global) monetary actions have already set the inflated wheels into motion and there is no turning back.  MarketCycle’s continued prediction is that we will either see 20% interest rates by 2035 or else the price of every item that we need to buy in order to survive will be sky high as we eventually enter a major stagflationary period in the 2030s.  And for awhile during that period, we might get the trifecta of a weak economy, high rates and high costs until the coming massive inflationary balloon is finally popped by the pin of high interest rates (just as Paul Volker did during the very early 1980s).

MarketCycle continues to believe that the stock bull market of our lifetimes will last for another 8 years and this is partly because of the huge amount of money flowing around the globe. 

The massive U.S. government debt levels are shown below (Chart courtesy of WolfStreet.)  Debt was increased substantially by President Trump, but the below chart is shown before President Biden’s extra $2-Trillion and Treasury’s Janet Yellen’s suggestion of an additional $2-Trillion more in stimulus and before the recent talk of “slavery reparations” (estimated at $12-Trillion) and the left’s push for student-loan forgiveness (estimated at $2-Trillion) and Medicare-for-all ($30-Trillion or more by 2030).  “Thoughts and prayers.”

 

 

MARKET UPDATE:  Calculated recession probabilities 3 months out is at an extremely low 0.2%.  Every country on the planet is in economic expansionary mode.  All Breadth Indicators are showing expansion.  All Divergence Indicators are showing expansion.  All Risk Indicators are showing minimal current risk.  This means that every stock market pullback is a buying opportunity.  Inexperienced Day Traders will believe that they are “super-smart” when it is actually just the market running on all cylinders.

 

For what it’s worth:  Royal Dutch Shell just announced (in mid-February) that we have now officially hit ‘peak oil’ and that oil discovery and production will be all downhill from here as the planet slowly runs out of oil.

 

BITCOIN???   Crudely, Bitcoin is sort of like a limited amount of ‘digital tokens’ that were ‘buried’ on the Internet (cloud) by some anonymous person, and people ‘mine’ for them (like a video game) and then they can either store them online or sell the digit to someone else for an astronomical sum.  The total market value of these Bitcoin computer digits is currently at over $1-Trillion.  As I post this article, each digit is somehow selling for $57,000.  It is actually more than a bit crazy.  A longer-term price chart of Bitcoin looks fairly similar to the VIX Volatility Index.  Bitcoin and other cryptos spike (and everyone gets excited) and then they crash (and everyone panics) and then they form a relatively flat base for an extended period (and everyone stops talking about it for awhile).  Then the process repeats.  And every time crypto spikes, euphoric speculators pour into the trade and then lose their money fairly quickly.

There seems to be a new crypto-currency created every day of the week.  All national currencies will one day be digital and eventually we will get one backed by gold and that will really gain my attention.

Will MarketCycle invest in crypto-currencies?  Perhaps.  But right now, the betting odds are much greater for a loss than for a gain.  Risk is skewed to the downside.  MarketCycle has developed the very best market indicators for telling us WHEN to buy crypto-currencies, they have never failed in real time.  I’m monitoring cryptos every day.  The problem is in knowing when to sell, and that is not a minor problem.  This asset falls so fast that even trailing sell-stops may be of little use.

For me, gold has not lost its charm.

 

COVID-19???  I predicted early on that Covid-19 would get more contagious and much less lethal and then it would decline on its own; it is doing that now.  The truth is that it will likely never go away and the vaccine will work no better than does the annual flu vaccine (a 50%/50% coin flip) because the virus mutates too fast.  When I first mentioned that the coronavirus mutates, I had a few readers (not clients) of this blog that actually got angry with me and demanded proof.  Now we all know that it mutates both rapidly and often because this information is being shared on the nightly news non-stop.  Most of these mutations make the virus weaker, not stronger, and that is a good thing.  Today, an estimated 80% of all Covid-19 cases are entirely asymptomatic; most people don’t even know that they have it or that they have already had it.  Think about that for a moment.  

Right now, the global daily death rate from Covid-19 is approaching the number of daily deaths from the common flu in any given year.  Covid-19 really was dangerous at the beginning and the global response was entirely appropriate… but things change.

So today, on Sunday, February 21st, Dr Anthony Fauci (who is in charge of the Covid response in the U.S.) declared that we will need to wear masks for at least another two years.  Last month, he upped the necessary number of vaccines from two to three during 2021 (adding a booster shot because of the constant mutations).

As I stated in an earlier blog, if I personally contracted Covid-19 and was sick enough to be in an ICU unit (not likely), then I would request ONLY Dexamethasone (steroid) and no ventilator.  Months back I also gave a list of all natural prophylactics (such as natural D-3 and curcumin) that work against the cytokine storm (which is what actually kills people), and hopefully readers wrote that stuff down.

IMPORTANT:  Right now, today, Covid-19 case numbers are rapidly plummeting in the United States, just as they are everywhere else, and this data is almost entirely pre-vaccine.  This is extremely good news.   There has been a case number drop of 77% in just 6 short weeks.  (Chart courtesy of Goldman Sachs Research but confirmed at multiple sites):

 

 

Recent view from the ½-way renovated guest house that MarketCycle’s clients will be free to visit in the future:

 

Well, that’s it for this month… thanks for reading!  (Cartoon below)

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MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only, is not considered an individualized recommendation or personalized investment advice, may not be suitable for everyone and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Past performance or performance charts are not a guarantee of future performance. Portfolio performance charts are shown net of fees so the management fee, brokerage fees, trading fees and ETF fees have already been subtracted. Current performance may be higher or lower than that shown and differing accounts may show different results. Investment returns and principal value in client accounts will fluctuate. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Be sure to consult with a tax professional before implementing any investment strategy.