What is Driving the Economic Recovery?
Updated: Jun 7, 2020
The Bureau of Labor Statistics just released a very encouraging unemployment number of 13.3%, far below the consensus of 19.8%. The market has shown significant strength since the initial COVID-19 triggered correction with the Nasdaq Composite Index reaching all time highs and the DJI crossing 27,000. These are all positives that emphasize the underlying resilience of the U.S. economy. Technology is at the core of that resilience!
The news is encouraging indeed. This economy is showing signs that it wants to run. I believe this is driven by major advances in technology because in an old world economy given the macroeconomic factors, we'd be in a depression.
Recently the "technology trade" has been the "no brainer" position through the COVID-19 crisis, as it seems the entire institutional market figured out that AMZN, GOOG, AAPL, NFLX, MSFT etc, is a robust trade that boosts otherwise anemic P&L reports. And "benefit" in this case wasn't zero sum (meaning at the loss by other business sectors), it was additive in terms of enabling new functionality such as efficient "work from home", "eat from home" capabilities.
What is behind the unstoppable tech trade? The American inventor and Queens, NY native, Ray Kurzweil used the term "technological singularity" to define the point at which computing capability would enable technological evolution at a pace that would be several times, potentially an infinite multiple of what humans are capable. In other words, innovation is done by computers. When I watched the U.S. economy implode in March at greater than Great Depression rates, the thought I had was "ok, but the singularity is coming". This remarkable economic resilience we are seeing is the initial signs of the singularity taking hold. And it is just the beginning.
Artificial intelligence, 5G, blockchain/fintech, and biotech advances are laying the foundation of a new economy that will disintegrate the old and rebuild every process that we have relied upon.
Change is coming, and change means economic growth. But there are challenges. Debt levels are at historic highs. Bankruptcies will increase as a function of change. Many businesses will phase out, but they will be replaced by new businesses with greater capabilities. Certain asset classes will be repurposed. For example the changing face of retail has been accelerated by COVID-19. So shopping malls will be forced to evolve and be repurposed. Businesses are reevaluating physical office requirements as the "Zoom revolution" has proven that many job functions can be completed from home. What is the future of high priced office space? How can this space be repurposed?
Repatriation of critical supply lines will also contribute to increased manufacturing in the US. And repatriation is a possibility because of technology in the form of robotics and automation. Manufacturing will move close to the point of use in order to avoid strategic vulnerability and shipping costs.
Our allocation strategy remains the same as it has been tuned to weather the challenges and profit from the opportunities that we see ahead. In terms of real estate we are focused on "essential cash flow" properties such as industrial properties and assisted living (30% allocation). Our gold position remains at 30% as discussed previously, due to the effects of increased national debt. We are participating in the growth cycle by accumulating positions in distressed debt up to 25% allocation. Aggressive growth in technology is achieved through direct investments and VC allocation (10%). And we're 5% in bitcoin.
In terms of navigating the months ahead, think "essential cash flows". This is a theme on which I will be writing in the months to come.
Have a great weekend!
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Disclaimer- None of the aforementioned should be considered investment advice to the public. These are opinions and should not be considered or acted upon without first consulting the advice of a registered investment advisor.