March 29, 2019
This is a publication that covers a variety of topics many of which may not be investment related. Cultivated topics include; a) disruptive technology and its impact on society and investments, b) investment trends and newsworthy events, c) ridiculous items occurring and worth pointing out, and d) items on the lighter side to provide a positive ending. Feel free to contact me to discuss. And, I welcome your thoughts and ideas for future publications. Most of these stories will include links to publicly available information. Much of the sourcing for investment content may be restricted due to licensing issues.
DISRUPTIVE TECHNOLOGY – THE AMAZING AMAZON
Technology has disrupted so much in our lives. While the benefits are enormous it does not come without pains. It has created new industries, companies and jobs, while eliminating others. Lately, the issues of privacy are coming into focus. Some politicians are starting to call for breaking up companies for anti-trust reasons. Amazon is one example. Ironically, one of the primary definitions of a disruptive technology/company is that it reduces costs and/or increases value, which is beneficial overall. It is hard to break-up a company according to normal anti-trust criteria if that is the case.
In this Bloomberg article, “The Enormous Numbers Behind Amazon’s Market Reach”, some of these issues are highlighted. The statistics on Amazon’s reach are remarkable. Their flywheel business model and reinvestment of profits for growth is impressive. Amazon’s disruptive technology and business model have essentially created a conglomerate. Consider the following;
- 1995 – Amazon.com goes live selling books, annual revenue of $511,000.
- Next 23 Years – Amazon adds digital advertising, cloud computing, e-commerce, online apparel, groceries and more. Artificial intelligence, Alexa, delivery drones and patents on floating warehouses in the sky keep us captive with intrigue.
- 2018 – Amazon reported annual revenues for 2018 of $232.9 billion – a multiple increase from 1995 of 455,773X.
This is not an investment recommendation. Choosing investments warrants individual review of circumstances.
INVESTMENT COMMENTARY – YIELD CURVE INVERSION & RECESSION WATCH
Everyone is talking yield curve inversion and an imminent recession. Not so fast. An inverted yield curve is when short-term U.S. Treasury rates yield a higher interest rate than long-term U.S. Treasury rates. The concept suggests monetary tightening, restrictive lending and consequently slow economic growth and/or recessions.
While short-term interest rates inverted on March 22nd, a closer look at the inversion suggests folks shouldn’t jump the shark. First, as the Barron’s article, “The Yield Curve Has Inverted. Here’s What History Says Could Happen to the Stock Market Next”, suggests the stock market generally continues to increase after an inversion. Second, Barron’s followed up with another article, “The ‘Weird’ Yield Curve Shows the Next Recession Could be Different”, which highlights the abnormality of this yield curve occurrence. That is, the very short-end is inverted, but the rest of the curve looks normal. See exhibit.
Exhibit: Yield Curve Inversion (very short end only)
I would add that when the curve inverts it is generally a sign that the Fed has made a policy error. They tend to continue with the error into a recession. With the Fed’s recent stance of no more hikes in 2019, it is highly possible that they averted a policy error that could create the next recession. Time will tell.
Reading between the lines, don’t be alarmed. Recessions generally do, but don’t always, follow an inversion and they generally occur at least 12 to 18 months later and the stock market tends to climb higher after an initial inversion. Stay calm and tuned in.
ON THE LIGHTER SIDE – WHY WE LOVE BASEBALL
With so much negativity around, it’s nice to reflect on the good things in life.
As a friend mentioned to me yesterday, this week marks the beginning of the best part of the sports season. The NCAA tournament is in high gear and America’s favorite pastime has officially started. He was on his way to opening day.
An article from the National Review, “Why We Love Baseball”, is a timely reminder of what is so great about baseball. The author, Michael Brendan Dougherty, draws comparisons to baseball and the political dramas that seem to infect us. “A key difference between baseball and democracy is that in baseball the winners don’t get to rewrite the rules. And it never occurs to the loser to blame the rules for their losses. Our deepest norms of order can still be seen in operation on the diamond when they’ve been adulterated everywhere else. Baseball is our Utopia – not in assuring us of the victories we dream of, but in generating ideal conditions even of defeat.”
As Mr. Dougherty reminds us, when we are rooting for our favorite team it’s nice that our tribal loyalties aren’t shrouded in vitriol for another’s political views. We can join together with others of different views, races and religions.
Enjoy your weekend.
Exhibit: America’s Favorite Pastime (Harry Caray Sings ‘Take Me Out to the Ball Game”)
Source: National Review, John Soohoo/MLB Photos via Getty Images