Sunday, October 25, 2020

Artificial Intelligence To The Very End

Henry Ford: "Walter, how are you going to get those assembly line machines to pay union dues?"
Walter Reuther: "Henry, how are you going to get them to buy cars?"

The consumption Borg has been fully assimilated. Thinking has been fully outsourced to dumbphones and trusted idiots...

Technology/growth investing has become the only game in town, as value/cyclical investing implodes along with the economy. We are in the latest stages of this self-destructing delusion:

"Value, tracked in part by the iShares S&P 500 Value ETF (IVE), has lagged growth substantially over the last 10 years"

Growth dominance sounds innocuous enough, except the root cause - deflation, due to lack of middle class spending power - is a cancer now metastasizing the entire economy. Jobs are being destroyed at an unprecedented rate, as this deflationary disaster heads towards full unemployment. The death of value/cyclical investing parallels the implosion of the economy. They are one and the same. Recession has been eliminated, and replaced with ludicrous amounts of stimulus "GDP" currently running at 30% annualized fiscal and monetary heroin. It's the biggest fucking fantasy/fraud ever bought and sold. The Pyrrhic victory of corporate automation for maximum profit. The largest corporate oligopolies are now profiting at the wholesale demise of small business.

The reason gamblers are willing to write off the entire economy is because Tech stocks are now viewed as safe havens. Microsoft, Apple, Google, Amazon, Facebook and the rest of the Tech oligarchy are now being priced as constant annuities. With interest rates at 0%, the theoretical present value of these annuities approaches infinity. Judged vis-a-vis companies having cyclical risk, these Tech monopolists are now perceived as "safe havens" from collapse. 

Way back in Y2K, the exact opposite economic situation attended that infamous Tech bubble. GDP was booming at 7%, the employment-population rate was the highest in U.S. history. The Federal government was running a surplus. Everything was going great, and then the bubble collapsed. Why? No reason other than overvaluation and a Fed taking minor steps to tighten liquidity. 

Today, Tech stocks are not booming due to extreme reflation, they are booming due to extreme deflation. The belief that today's Tech earnings are immune to the economy and therefore deserve infinite valuation.

What could go wrong?

For one thing, deja vu of the 1930s, today's robber barons are now in the sights of anti-trust regulators. This past week, Google was targeted for long anticipated anti-trust action. The stock gained on the news, as apparently investors don't believe the government will take meaningful action.

Nevertheless, gamblers have now crowded into this Tech delusion at a rate that eclipses Y2K.

"On a yearly basis, flows into ETFs with a technology focus have already surpassed 2000"

Back in Y2K, Warren Buffett lagged the S&P benchmark because he eschewed ALL Tech stocks as not having defensible long term market dominance. He was right. The Tech sector is constantly creatively destroying itself, hence no Tech company has been able to maintain long-term dominance. This time around, Buffett has half his invested portfolio in Apple, meaning he was smarter twenty years ago than he is today.

As always, the dumb money comes in at the end of the party.