Submitted by Nicholas Bucheleres of NJBDeflator blog [8],
A few weeks ago PIMCO's founder and co-CIO Bill Gross penned a piece on "the death of the cult of equities." It doesn't take a financial wizard to figure out the validity of his statement--I wrote a paper [9] earlier this summer on the Fed's long-term malevolent effects on markets--but it is nice to hear someone with clout actually come out and speak the truth. The Old Wall St. likes information from the "experts" for some reason. How else does Jim Cramer have a job?
The S&P over 20 years: Empirical evidence that Old Wall St.'s "buy and hold" strategy died in 1999.
[10]
The sit-back-and-relax "buy and hold" strategy that unqualified portfolio managers banked on for so many years has indeed perished in this highly leveraged, central banking dominated environment. There is also an interesting coincidence between the departure from the old-school investing strategy, and the corporate consumer-engineering that began in 1999, as highlighted in my last article [11].
There is something, though, that is more troubling for the US economy, and specifically middle-class laborers: Robotics.
As old names re-tool plants (Kroger) and new manufacturers conceive fresh production processes (Tesla), the marked characteristic of today's US manufacturing paradigm is the preference for robotic labor over manual labor. The benefits are obvious: 24/7 production, lower costs of "labor," and more precise assembly. Robots can produce faster, better, and cleaner than humans can, and US employment data is indicative of this trend.
Civilian employment-population ratio, % (blue, left), and the number of US citizens employed in manufacturing, in thousands (red, right), both since 1975.
[12]
The trends in the above graph are obvious: the United States has been shedding manufacturing jobs since 1979, and in 1999 this began to have a strong effect on the employment-population ratio. This is the same year (1999) as the death of the "buy and hold" strategy noted above, and the same year that the "new consumer" of the United States of Pill Poppers began to be engineered by a handful of short-sighted consumer corporations--this is no coincidence.
For these reasons, it is only logical for politicians, economists, and United States citizens to adapt their expectations for lower unemployment and realize that the new employment system is much smaller. As we will see over the coming years, robots will not only usurp the jobs of indignant manufacturers, but jobs of really any automated, repetitive process.
"In the face of rising labor costs, Chinese restaurateur Cui Runguan is selling thousands of robots that can hand slice noodles into a pot of boiling water called the Chef Cui. Runguan says [...] that just like robots replacing workers in factories, 'it is certainly going to happen in sliced noodle restaurants.' The robots costs $2,000 each, as compared to a chef, who would cost $4,700 a year. According to one chef, 'The robot chef can slice noodles better than human chefs.'"
This is the type of phenomenon that becomes clear down the road, but it is an important lens through which forecasts about the labor markets should be made. The reality is that this atypical Great Recession has forced business owners to become savvy: businesses have learned how to operate--and even thrive--in this dry economic environment, and the main tool that has allowed them to do so is cost-cutting. Unfortunately for the labor market, these cost-reduction techniques are sticking, and for the time being business owners (particularly manufacturers) see no reason to add more human employees when they can purchase robots at a cheaper rate.
Granted, many of the jobs lost over the past decades have been due to out-sourcing, but as US-based companies such as Intuitive Surgical ($ISRG), Mako Surgical ($MAKO), AeroVironment ($AVAV), iRobot ($IRBT), Adept Technology ($ADEP), and the likes make strides in surgery, defense, manufacturing, and everything in between, jobs that were once outsourced overseas will come back to the US and be completed robotically. This is all the same for the dislocated US employee, because the job will not be returning to him/her, but we will see more "Made in America" stickers on products that we consume. Do not be fooled, though; very few Americans were actually involved in the production of said good.