Readings for the Weekend – RBTL Style April 5, 2019

April 5, 2019

Welcome to interesting readings for the weekend. Topics covered include an interesting take on how AI impacts us socially, whether the Fed’s recent pause is good, a take on the recent Federal Reserve Board nominations and a satirical approach to the recent college admissions scam.

DISRUPTIVE TECH – ARTIFICIAL INTELLIGENCE & A SOCIAL CONTRACT

Last week I sited an article regarding the amazing impact of Amazon and how some politicians are interested in breaking up some companies. One of the sensitive issues that politicians are also engaged in involves the social impact of technology, specifically use of private data and harmful speech.

The Atlantic article, “How AI Will Rewire Us” by Nicholas Christakis highlights how AI impacts our social interactions and a concept that we should consider for constructive integration in our social lives. He takes us on a path from C-3PO and R2-D2 to HAL 9000 and beyond. Originally, robots were intended to not be harmful to humans. As AI advances and sometime replaces human interactions, it has presented some serious challenges. “As AI permeates our lives, we must confront the possibility that it will stunt our emotions and inhibit deep human connections, leaving our relationships with one another less reciprocal, or shallower…”

While the famous philosopher, Thomas Hobbes, believed, humans needed a social contract to keep us from being cruel. Reading between the lines and perhaps inconsistent with the article, we might need to be reminded of these issues even as we communicate in emails. And, we may realize that AI and robots may not be the only issues of which deserves our focus for a gentler society.

INVESTMENT COMMENTARY– FED HIKES & BOARD NOMINATIONS

The Fed was criticized for raising interest rates too aggressively last year out of concern that the economy was not strong enough to support such a policy. Their about face stance this year is now being criticized as not enough. The domestic stock market has responded with its best first quarter since 1998 (based on other factors also). However, the bond market doesn’t agree with the euphoric rise in the stock market as rates have declined on concerns for economic growth.

As this Bloomberg article suggests, economic data may be supporting their current hold stance. The job market is growing and wages are increasing, suggesting interest rate cuts aren’t necessary. On the other side of the coin, we aren’t seeing inflationary pressures that warrant rate hikes. So as of this week, the Fed appears in the Goldilocks zone – not too hot, not too cold, just right.  Reading between the lines, we believe there are extraordinary downward inflationary pressure due to technological advances and that the Fed’s next move may be an increase instead of a decrease. That’s a contrarian position. Holding is the base case for the forseeable future. The following exhibit illustrates that the real Fed Funds rates suggest room for increases before a reversal.

Real Fed Funds Rate (Less Inflation)

Note: Since 1960, Recessions Have Not Occurred When Real Fed Funds Rate Was Less than 1.91% Source: Strategas Research Group

On a related note, there are numerous articles that show why the Fed needs to be an academic, fact-based, independent entity and not influenced by politicians (conservative or liberal). Please read the two Bloomberg articles on the dubious picks of Herman Cain and Stephen Moore and even their unpopular views on the gold standard. In a 2019 survey of economists, 34% disagreed and 66% strongly disagreed (yes, that’s 100%) with renewing a gold standard.

ON THE LIGHTER SIDE

HELICOPTER AND BULLDOZER PARENTS & HOW THE NCAA GOT RIPPED OFF

We are all now aware of the scandalous parental developments of unethical payments and outright fraud to get their kids into college. This bulldozer approach puts shame to helicopter parenting. Leave it to The Onion to turn the scales on this development in a satirical article titled, “NCAA Launches Investigation Into Why It Wasn’t Making Millions Off Recent College Admissions Scandal”.

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