Financial topics

[mosullivan]

Hi Gordon,

I ejoyed and agreed with a lot of your post. A couple things that cropped up in my mind as I was reading though:

"Today we are more productive than humans have ever been in all human history. I laugh when I hear idiots lamenting the loss of manufacturing or farming jobs - this is a wonderful byproduct and benefit of technology. Mechanization IS A GOOD THING, we all benefit from it, and it ensures that standards of living keep going up as has been the case for decades, and will only accelerate further in the future (perhaps with a few minor bumps in the road). The affects of these gains are CUMULATIVE. Did you know that even as recently as a few decades ago the stock market was open for trading on Saturday? The whole concept of a 5 day work week is relatively new, our ancestors worked their butts off 6 days a week from before sun-up to after sun down, and had little to show for all their effort. The world is completely different today then it was 80 years ago, and the difference 80 years from now will be exponentially more dramatic as we continue the march towards the singularity. Eventually there will probably be a time when we no longer have to "work" in any sort of traditional sense, mechanization and free energy will provide all of our needs at almost no cost, and people will be free to do basically anything they want."

More productive or discovered more technolog? I see a lot of broke people with Blackberrys with 0 skills. I wouldn't say that today's average 25-40 year old works harder and is hence more productive versus someone in the 50's (well before most of the tech boom took off) It appears at least to me that the middle class is growing smaller with many falling to the lower class. Many would argue that technology has made many lazy, the last 20 years was the result of easy monetary policy and MANY out there will not benefit from the tech infrastructure.

"A new great depression that is a lot like the last one is impossible. There, I said it. Yes - IMPOSSIBLE.
That certainly doesn't mean everything is roses. I would not be surprised if we ended up with an 80-90% REAL decline in stock indexes, a significant uptick in unemployment, and a big decrease in consumer spending, but none of this is the end of the world. Japan recently had a similar decline, and unemployment remained low throughout the entire debacle, there wasn't mass starvation or homelessness. Furthermore, note that I said REAL decline - that is in inflation adjusted dollars. If the US depreciates the currency, stock indexes will lose value AS THEY GO UP - this (along with the technology factor) is a concept a lot of people just don't seem able to comprehend."

Looking at things in "real terms" is very important and something most do not do. Many who are introuble appear to be getting laid off from restaurants, retail, housing, all finance, title, construction, etc. THESE jobs were many of the one's that were "created" from our tech boom. And like many of the Market Caps of the 95-00 NASDAQ, they are evaportaing. Where do they go? This, IMHO, will have a tremendous effect on everyone in our economy and spur even more government inervention, regardless of the tech plank we've developed. I learned the absolute danger (while being an equity trader for MS form 95-00) of saying this or that could never happen. The fact that technology may have made us all a little lazy coupled with the fact that most of my generation (I'm 40) have never even seen a protracted slowdown, tells me things could get a lot worse. One of my best friends (She is 45 with 2 kids) was a realtor for 20 years and is looking how to retrain herself. Believe most Gen X'ers never saw themselves going back to school in their 40s. But they may hve to. What's the new rule I live by?? Adapt or Get Left Behind.

There are just the things going through my mind as I read your post, colliding with what I see hear every day.

Respectfully, MOS

[Gordo]

Hi Gordo,
I enjoyed and agreed with a lot of your post. A couple things that cropped up in my mind as I was reading though:

Thanks, I like a good discussion.

More productive or discovered more technology? I see a lot of broke people with Blackberrys with 0 skills. I wouldn't say that today's average 25-40 year old works harder and is hence more productive versus someone in the 50's (well before most of the tech boom took off) It appears at least to me that the middle class is growing smaller with many falling to the lower class. Many would argue that technology has made many lazy, the last 20 years was the result of easy monetary policy and MANY out there will not benefit from the tech infrastructure.

Technology DOES make us more lazy (some more than others). Like I said, this is a BENEFIT of building on the shoulders of everyone who has come before us, and future generations will be standing on our shoulders, and they will be even "lazier" by your measurement - like I said, they won't even have to work, period. You may have misunderstand my term "more productive" - yes, in the future when no one has to work at all, they will be more productive than we are today, in the sense of everything being provided with such little effort. Again, our ancestors worked their butts off like slaves with little to show for it but a roof over their heads and food on their plates - they were not lazy at all, but as a society, they were horribly UN-productive. The definition of productive = "Capable of producing things in abundance". The fact that we are now capable of producing so much in abundance is exactly what has afforded us the capability of being "lazy" - this is a long term trend that is permanent, and even exponential (meaning the advances will come quicker and quicker as we move forward). This is also why economic crises are LESS likely to be as severely disruptive as they have been in the past. Its very hard to predict how severe they can be today, but easy to predict that their severity will lessen over time. The one and ONLY thing that will pull us out of this mess is technology.

For people who have not heard of it, I highly recommend the television series "Modern Marvels" if you want to learn more about what makes us so productive today compared to the past.

Many who are in trouble appear to be getting laid off from restaurants, retail, housing, all finance, title, construction, etc. THESE jobs were many of the one's that were "created" from our tech boom. And like many of the Market Caps of the 95-00 NASDAQ, they are evaporating. Where do they go? This, IMHO, will have a tremendous effect on everyone in our economy and spur even more government inervention, regardless of the tech plank we've developed. I learned the absolute danger (while being an equity trader for MS form 95-00) of saying this or that could never happen. The fact that technology may have made us all a little lazy coupled with the fact that most of my generation (I'm 40) have never even seen a protracted slowdown, tells me things could get a lot worse. One of my best friends (She is 45 with 2 kids) was a realtor for 20 years and is looking how to retrain herself. Believe most Gen X'ers never saw themselves going back to school in their 40s. But they may hve to. What's the new rule I live by?? Adapt or Get Left Behind.

Our economy actually works via layoffs. This is another thing a lot of people do not understand or think about. As we continue the march of technological change, your flexibility has to be greater than ever, and you have to expect to work many different jobs. To use myself as an example, I've worked for 4 different companies in the last 10 years, so about 2.5 years is all I can expect from any job. This of course is in stark contrast to generations before us where it was common to work your whole life for one company or in one industry. Layoffs are an INTEGRAL PART of ever increasing productivity gains and higher standards of living. This is why countries (and industries with strong unions) that bend over backwards to prevent layoffs often flounder and have high unemployment. If the government wants to do anything to intervene with this natural process, it should help people retrain, and create PRODUCTIVE jobs that will have a return on investment (for example Pickens wind energy infrastructure build-out might have a lot of merit - not something I have personally researched but thats one idea that could put a lot of people to work, pay for itself, and drive us forward technologically).

What will all these newly unemployed do? Anything more productive than they were doing, same thing that has been happening before the recent crisis. There are thousands of things a person can do for a living, they just have think of ways to add value to society, or go work for someone who has already done that thinking for them. If they need to learn something new, all the better. It really does not cost a lot of money to survive, sure things might not be like they used to, but people will survive.

Speaking again from personal experience, when my Dad got laid off from his job after working for the same company for almost 20 years, he was devastated. Little did he know, it was one of the best things to happen to him. He retrained, started a new career, and ended up MUCH happier with his new work, got to set his own hours, and made more money than he did before. Being fired was exactly the kick in the pants he needed to get on with his life, to become more productive, and even the company that fired him cut costs to become more competitive and do better themselves. Layoffs are a win-win for both employer and employee - even if they don't realize it right away. They are essential to continued and even accelerating productivity gains, and on whole we benefit greatly as a society from layoffs.

[mkrogh]

Very nice blog. The generational theory makes a lot of sense. It is similar to the Kondratieff cycle, or are you saying something different?

About the market. It will not go down in a straight line. That would be too easy for short sellers. So one should expect violent rallies, also rallies that will last for months.

About productivity gains and humans living in a leisure society. That will not happen. If we make machines that are so powerful, they will kill us. Also we will probably start killing each other.
Before, we get to the point of full robotic society, there will be a time where only a few people will work, and the rest are unnecessary. That will create tensions, and wars.

Robots might take over, but humans will not live to see it. Also, there could be huge delays along this path. It might not happen in 40 years or so as Kurzweil and other tend to believe.

[mosullivan]

Gordo,

Great discussion. What I am concerned with is what happens “in between” this crisis event or era and where we end up and just how bad does it get in between? I also agree with you that our attitude in how we look at things has more to do with our destiny than anything.

I grew up, went to college, did my first internship with Dean Witter Reynolds back in the days (late 80s) when we pulled quotes off a “bunker” Quote system. When I look at the degree of access to capital market information, trading, commercial advertising of the stock market, etc I see great advances in technology. But has it made our markets more transparent and safer? Has the corruption been reduced or increased? Technological advances and moral hazard are 2 separate issues, each with entirely different consequences that can go to extremes either way. Its too bad that what appears to be human nature's dark side hasn't made the leap with tech.

One could correctly argue that for those who choose to adapt to the technology and a proven system will do better. Will life be better 100 years from now? As far as I know, yes. Here’s the flip side and what concerns me. Hopefully, its never an issue.

I manage pension and 401k money for a living. I sit down with countless Plan Committees who will never fund their pension (defined benefit) obligations. Yesterday, I met with a client who has a defined contribution plan. Part of this entails sitting with their employees (participants in the plan) I remember speaking wit a 25 year old who was completely oblivious to the credit crisis, inflation vs. deflation, crash or no crash. This made me ask: how much of what I am worried about will never come to pass? On the other hand, I see countless numbers of single women (late 50s early 60s) who have diligently worked, saved 10%, received the match, have the certs and appropriate designations hanging in their cubicles, who have seen their 200k balances reduced to 70k or 80k in a few short months. THIS, IMHO, is going to introduce more concerns than technology or better lifestyle will answer (net) in the short term. I guess they will get by. But that assumption has never been enough to close the mental loop for me.

I understand that one day we wont work but I believe that is a long way off for most. In the 50’s weren’t more families than today, comprised of a stay at home mom? I believe many lived on one salary. Values, monetary policy, moral hazard, technology…so much to consider. Then has human nature changed? Does technology put us more at risk?

I hope (and pray) the transition isn’t “as bad as possible” Mainly, I worry about a mother who is almost 70. Although she is debt free (including home) and has a healthy state pension, SS and a healthy savings account (T-Bills) I wonder. I hope I am simply paranoid. Admittedly, I am very conservative and always have 3 years cash in the bank for a “rainy day”

To your point, I am 40 and am trying to semi-retire in 5 years so thatI can pursue more meaningful and rewarding work. Part of this is due to today’s technological infrastructure. I would have never been able to do this “back then”

To say its both exhilarating and somewhat nerve racking to be front-center of this transition is an understatement.
Best, MOS

[Gordo]

About productivity gains and humans living in a leisure society. That will not happen. If we make machines that are so powerful, they will kill us. Also we will probably start killing each other.
Before, we get to the point of full robotic society, there will be a time where only a few people will work, and the rest are unnecessary. That will create tensions, and wars.

Robots might take over, but humans will not live to see it. Also, there could be huge delays along this path. It might not happen in 40 years or so as Kurzweil and other tend to believe.

Well its nice to know others here have even read Kurzweil. I don't know how you can make such absolute statements though, when you know full well that you have no idea. First off, we could achieve a "leisure society" (if that's what you want to call it) without intelligent robots. Its very easy to see this based merely on the projected path we are already on. A lot of our goods are already being built by robots. Even milk now to name just one small example, goes from cow to your cereal bowl with almost no human intervention (a great 'modern marvels' episode!). Every basic need can be met with unintelligent (pacifist! haha) robots.

Contrary to your dark (luddite?) vision of technological progress - people are LESS likely to kill each other and start world wars when standards of living are high and all basic needs are being met. I have little doubt that the technology pessimists will be proven wrong again and again just like they always have been. As for the timeframe for all of this - who knows, but I tend to agree with those that think sooner rather than later - this is yet another thing most people just can't seem to comprehend - the exponential curve of technological progress.

[mkrogh]

Gordo, I assumed you had read Kurzweil because of your use of the word "exponential". Kurzweil likes the word even though there is no way to define what exponential growth means.
y=k*exp(a*t), sure, but what is y? And if you replace y with log(y), it becomes linear growth.

I am not a luddite. Saying that the robots will get rid of people is not luddite. Luddites say that people should get rid of the robots.

I don't believe in the exsitence of a species, or civilization, that is not working anymore. They have become irrelevant and evolution will wipe them out.
So the day, there is no work left for humans, their time is basically over.

[Witchiepoo]

People have a psychological need to work, produce, be creative. Without these things, there is no meaning in our lives.

[Gordo]

Gordo, I assumed you had read Kurzweil because of your use of the word "exponential". Kurzweil likes the word even though there is no way to define what exponential growth means.
y=k*exp(a*t), sure, but what is y? And if you replace y with log(y), it becomes linear growth.

Are you serious? No way to define exponential? How about a picture?

People do not realize how much has happened in just the last 10-20 years, there were more patents issued than in the previous 100 years.

I don't believe in the exsitence of a species, or civilization, that is not working anymore. They have become irrelevant and evolution will wipe them out.
So the day, there is no work left for humans, their time is basically over.

That is just so silly. "Not working" is perhaps not a good way to describe it. Total freedom to do what you want seems more appropriate. This is essentially the society depicted in Star Trek. People will still have aspirations, colonizing the moon and other planets for one thing. Exploration. Discovery. Education. Science. Technology. Human ambition will not stop just because technology provides for all our needs with no effort. Sure there will be plenty of "dead beats" but they exist RIGHT NOW too...

People will not cease to have hobbies, to experiment, to enjoy new experiences, and to make meaning of their lives just because they no longer have to "work" to put food on their plates. Really how is it any different than those in comfortable retirement right now. Some of them are happy, some are not, some are active, some are not, some have hobbies and even start businesses, not because they need the money, but because they are doing what they want to do. Just extend that to the entire population to understand what it will be like, that's not so hard to imagine is it?

[mosullivan]

People will not cease to have hobbies, to experiment, to enjoy new experiences, and to make meaning of their lives just because they no longer have to "work" to put food on their plates. Really how is it any different than those in comfortable retirement right now. Some of them are happy, some are not, some are active, some are not, some have hobbies and even start businesses, not because they need the money, but because they are doing what they want to do. Just extend that to the entire population to understand what it will be like, that's not so hard to imagine is it?"


This IS a different and IMO (refreshing way) to look at what we call our self-worth. Perhaps we are too caught up on the concept that meaningful "work" must not be looked forward to but be some part of our life we sacrifice in order to live for the weekend? I am working on a internet based radio program. This is something I really like. 2 hours goes by in a flash when I am "working" On this project.

Speaking on Kurzweil, I believe he and Aubrey DeGrey believe we will be able to beat aging sometime in the next 50-100 years.

[John]

-- Market summary, Friday morning, October 31, 2008

Here's the word from a tv pundit:

> For the first time in several weeks, there's a sense of optimism
> that all the bad news has already been priced into the market,
> and that the worst is over.

> Expect a big move, one way or the other, at the close today.

John