Zerohedge shared a recent Bloomberg analysis which articulated how the rise of automation has changed the capital markets and entire business models:
Similarly, technology is reducing the need for labor. While those with specialized skills can continue to earn more in a wealthier world, the rise of robots provides a significant disinflationary force on the median wage globally. This effect will be most extreme in developed economies where labor costs are already elevated. (And as an aside, is the reason why increasing inequality and populism isn’t going away any time soon).
The knock-on effects of this are profound: bond curves should remain flatter than we are used to, equity valuations will look distorted relative to history due to a sustainable paradigm shift in discount rates, and many financial operations will have to adjust their whole business model.
Something to think about next time you want to fight current financial valuations purely on the basis that they look historically anomalous. Technology has changed the game.
The analysis put into simple terms what is quite possibly the most profound change in the global economy in centuries – automation, which is increasingly putting people out of work, is changing business models everywhere. But, missing from the analysis is a look at the impact automation is having on the consumer, and the types of goods and services consumers will purchase in the future.
On Sunday, Marine Le Pen and Emmanuel Macron will square off in the second round of the French Presidential elections. Nearly every major poll and publication expects Macron to win the election with ease, as The Telegraph explains below:
The two candidates will face off in the second round on May 7, where Macron is widely tipped to become the president of France.
Oddsmakers have followed suit, but they seem to have thrown caution to the wind and all but ignored recent history. Despite the Brexit and Trump wins, wagering odds are shockingly low for Le Pen to win. It seems that bookmakers either have 1) not learned their lessons from the past, or 2) are goading the public into one of the biggest sucker bets of all-time on Le Pen. Even if no.2 is the truth, the risk/reward makes a bet on Le Pen almost too good to pass up.
In August of last year, Free Market Shooter wrote in support of an Obama administration directive to end the use of private prisons in the United States, one of the only policy issues the administration managed to get right:
Why, you ask, is a free market advocate in favor of ending private prisons? Simple: because these facilities aren’t “private” at all.
The reason why should be obvious. Prisoners are their only “customer”, if you want to call them a customer at all; the “customers” are provided by the government, who pays private prison companies for their incarceration.
What else makes private prisons so profitable? This should also be obvious – having as many facilities and customers as possible. They have every incentive to encourage laws that keep as many incarcerated as possible, as it increases their “customer” base. Moreover, they then sell the “labor” from prisoners to companies who source prison labor at bargain basement prices, increasing their margins even further.
We all should have known the Obama administration would manage to screw this up; it just took two weeks into the job for new Attorney General and Drug War champion Jeff Sessions to flick his pen and undo Obama’s efforts:
Last year, after a great deal of wrangling in the courts, Seattle instituted a tax on the sales of firearms and ammunition, of $25 per firearm and “between 2 to 5 cents” per round of ammunition. The tax was supported by Seattle City Countil President Tim Burgess, who stated the following justification for the tax:
Burgess has said Seattle’s tax is expected to raise hundreds of thousands of dollars annually. Solyanik and other critics of the ordinance have questioned that, saying the tax won’t raise much at all if it drives the city’s few remaining gun stores out of town.
Free Market Shooter has covered a litany of tax increases instituted by the state that have turned out to be complete failures. Almost always, the state implements the tax expecting to collect revenue on previous tax receipts, with nothing factored into how citizens will alter their behavior to adjust for the tax.
But in the case of Seattle’s tax, did the state actually expect and want it to fail?
It is pretty accepted knowledge that a number of lower-skilled jobs will disappear in the coming 5-10 years, due to the human element being replaced by autonomous machines. One of the most at-risk professions is that of Truck Driver, which as 13D Research points out, is one of the no.1 reasons you rarely (if ever) hear President Trump discuss automation in the workplace:
A widely circulated NPR graphic shows “truck driver” was the most common job in more than half of the U.S. states in 2014?—?in part because how the Bureau of Labor Statistics sorts common jobs, such as educators, into small groups. Indeed, truck driving is one of the last jobs standing that affords good pay (median salary for tractor-trailer drivers, $40,206) and does not require a college degree. According to the American Trucking Association, there are 3.5 million professional truck drivers in the U.S. Entire businesses (think restaurants and motels) and hundreds of small communities, supporting an additional 5.2 million people, have been built around serving truckers crisscrossing the nation. That’s 8.7 million trucking-related jobs. It also represents one of Trump’s most important voting blocs?—?working-class men.
And while it may be further out on the timeline, if you think your job requires a higher, special element of skill and mental acuity that just cannot be automated, you are probably very mistaken. In fact, there are few (if any) jobs in which a machine would be inferior to a person. And this is not as far out in the future as you may think.
On March 2nd, Snapchat (SNAP) had its initial public offering (IPO) of shares. Raising $3.4 billion by selling shares for $17, the shares quickly traded higher, closing at $24.48. Trading $26.56 at the time this article was written, the shares reached an intraday high of $29.44 the morning of March 3rd.
As Zerohedge and MarketWatch covered, nearly all institutions have put a price target far below the current price level, finding the stock to be far overvalued:
In the past day since Snap’s SNAP, +12.07% market debut, there have been at least six coverage initiations from brokerages on Wall Street. Morningstar initiated coverage with a $15 fair value on the stock, Pivotal Research initiated with a selling rating and $10 target, Instinet initiated with a reduce rating and a $16 rating, Atlantic Equities initiated with a hold rating and $14 target, Aegis Capital initiated with a $22 target and SIG Susquehanna initiated with a neutral rating and $22 target.
The city of Philadelphia recently implemented a “soda tax” at the start of the calendar year. As Philly.com recently reported, it hasn’t gone exactly as planned:
Two months into the city’s sweetened-beverage tax, supermarkets and distributors are reporting a 30 percent to 50 percent drop in beverage sales and are planning for layoffs.
One of the city’s largest distributors says it will cut 20 percent of its workforce in March, and an owner of six ShopRite stores in Philadelphia says he expects to shed 300 workers this spring.
“People are seeing sales decline larger than anything they’ve seen up to this point in the city,” said Alex Baloga, vice president of external relations at the Pennsylvania Food Merchants Association.
The failure of this tax is about as surprising as seeing the sun rise in the morning. The Burning Platform in particular has covered the tax on many occasions: here, here, here, and here, and they’ve been excellent at demonstrating the lunacy of the tax itself:
If you thought the last round of protest idiocy was counterproductive, you ain’t seen nuthin’ yet. Just when you think they’ve hit rock bottom, the liberal protests hit new lows. The Guardian recently published an article detailing a revival in “tax resistance,” which is a practice of not paying your taxes to “resist” government:
Andrew Newman always pays his taxes, even if he hates what the government is doing with them. But not this year. For him, Donald Trumpis the dealbreaker. He’ll pay his city and state taxes but will refuse to pay federal income tax as a cry of civil disobedience against the president and his new administration.
Newman is not alone. A nascent movement has been detected to revive the popularity of tax resistance – last seen en masse in America during the Vietnam war but which has been, sporadically, a tradition in the US and beyond going back many centuries.
“My tax money will be going towards putting up a wall on the Mexican border instead of helping sick people. It will contribute to the destruction of the environment and maybe more nuclear weapons. I think there will be a redistribution of wealth from the middle class to the wealthy elite and Trump’s campaign for the working man and woman was an absolute fraud. If you pay taxes you are implicated in the system,” said Newman, an associate professor of English and history at Stony Brook University on Long Island, part of the State University of New York.
It is quite amusing that an educator from SUNY academia, which is in part financed by federal funding, managed to list everything he had issue with, while at the same time omitting everything the state does that he does not object to… notably paying his salary.
Early this morning, the FT leaked news of a takeover bid to be launched by the American food conglomerate Kraft Heinz to acquire the British-Dutch Unilever. Unilever quickly rejected the proposal, as seen below:
But as Zerohedge covered, the news from the deal already had a profound impact on the share prices of both companies, sending Unilever shares up 11%, and Kraft Heinz shares up 4% in pre-open trading.
James Baker, George Shultz, And Hank Paulson
Last week, it was reported that a carbon tax was back on the table. I expected it to be from Democrats, as part of a “proposal” that would never pass muster under a Trump administration that all but squashed the idea during his campaign. However, I was in for a shock, when I saw who was actually proposing it – a group of allegedly anti-tax (neocon) Republicans:
A group of prominent Republicans and business leaders backing a tax on carbon dioxide were taking their case Wednesday to top White House aides, including chief economic adviser Gary Cohn.
The group, including former Treasury Secretaries Hank Paulson and James Baker, is pressing President Donald Trump to tax carbon dioxide in exchange for abolishing a slew of environmental regulations. They unveiled their plan with a press conference in Washington and an op-ed in the Wall Street Journal.
“We know we have an uphill slog to get Republicans interested in this,” Baker said before heading to the White House. But “a conservative, free-market approach is a very Republican way of approaching the problem.”
I actually had to do a double take when I read that last sentence. What is exactly conservative and/or free-market about a regressive, useless tax that hurts the working class (whom elected Trump) the most?