The Music Goes on and on

[greengiraffe]

The disruptions reshaping our world

• THE AUSTRALIAN
  
• NOVEMBER 21, 2015 12:00AM
  

1

Alan Kohler
[Image: alan_kohler.png]
Editor-at-large
The Australian Business Review

[b]The day after a book called The Rise of the Robots won the Financial Times McKinsey Business Book of the Year award in London this week, a little company called Fastbrick Robotics listed on the ASX and promptly doubled in value.[/b]
It was instant fulfilment. Fastbrick Robotics has invented a bricklaying robot; the book, by Silicon Valley entrepreneur Martin Ford, presents a grim view of a ­future in which robots permanently replace human jobs.
Replacing brickies with robots is not that surprising when you think about it — after all, laying bricks is a repetitive, robot-like task. Talk to me when you’ve invented a robot builder, then I’ll be impressed (and grateful).
Brickies might not agree, but the corporate videos of Fastbrick Robotics present a bright new world of quick and efficient construction, in which a house can go up in two days.
The Rise of the Robots, on the other hand, foresees a dark dystopian future of fewer jobs, with disruption from machines and algorithms on both manufacturing and professional industries.
According to the reviews (I haven’t read the book yet), Ford essentially argues that the current industrial revolution will not be like the last one, when new jobs were created just as quickly as the old ones were eliminated by technology. He writes: “While human-machine collaboration jobs will certainly exist, they seem likely to be relatively few in number and often short-lived. In a great many cases, they may also be unrewarding and even dehumanising.”
According to Martin Ford, artificial intelligence is already well on its way to making “good jobs” obsolete: many paralegals, journalists, office workers and even computer programmers are poised to be replaced by robots and smart software. As progress continues, blue and white collar jobs alike will evaporate, squeezing working and middle class families ever further.
But Ford does not only talk about job theft by machines. One of his key points is that robots weaken middle-class demand by skewing the gains to a few — worsening inequality.
As labour becomes uneconomic relative to machines, purchasing power falls. For example, the US economy produces a third more today than it did in 1998 with the same sized workforce. What he doesn’t mention is that macro-economic policy is doing the same thing, to some extent driven by digital disruption and robotics.
Just as falling wage growth is reducing middle-class demand, so are super low interest rates. It’s true that disposable incomes of middle-class mortgagees are being boosted by low interest rates, but that is being cancelled by the opposite effect on retirees who live off their savings. To some extent it’s a circular phenomenon: automation and disruption reduce costs and prices, reducing inflation and therefore interest rates.
So monetary policy itself becomes a disrupter. Not only is wages growth the lowest on record and unit labour costs not grown at all for three years, interest rates are the lowest they have ever been. In the US they have been effectively zero for seven years.
As I see it the world has to deal with six great disruptions at once:
Monetary policy
Zero interest rates and quantitative easing are one of great disruptive innovations of our time: negative real interest rates — and in some places even negative nominal interest rates — and central banks simply printing money and buying assets from banks. It’s an experiment that is having a profound effect on the way all markets and economies operate.
Computing power
When Gordon Moore observed in 1965 that the number of transistors on an integrated circuit could double every year (and then revised that to every two years in 1975) it was early days for Moore’s Law. Forty years of that exponential growth in computing power is now affecting every part of life. Moore’s Law is responsible for smartphones, robotics, artificial intelligence, programmatic trading in shares and advertising … the list goes on, and includes all the things that Martin Ford is so worried about.
Cloud computing
In a way this is an extension of Moore’s Law, but turning both data storage and software into a service — operating expenditure rather than capital expenditure — is itself hugely disruptive and deserves its own mention.
Hyper-Connectivity
In an interview this week with Stephen Bartholomeusz and myself for Business Spectator, the CEO of Telstra Andy Penn revealed that the company had achieved a data speed over its mobile network of one gigabit per second in a test environment. Similar download speeds are already being achieved over fixed line. This has meant the internet can be used for broadcasting as well as connecting millions of machines (the “internet of things”) transmitting colossal amounts of data and storing it in the cloud.
Blockchain
This is the technology at the heart of Bitcoin, but its uses go far wider than that. Blockchain is a way of organising and verifying almost any transaction. It is early days, but already clear that this technology will eventually be at heart of a new banking system and a new settlement system.
Trust
In my view this is the most powerful disruptive force of all.
The internet has become a tool for humans to deal directly with each other. And it turns out that in even a world that is also being disrupted by appalling acts of terrorism, there is an overwhelming urge for people to trust each other.
We go and stay in each other’s houses (Airbnb), get in each other’s cars (Uber), buy stuff from each other and pay first (eBay, etc). We tell each other about our lives and ideas (Facebook, Twitter, Instagram, etc) and we’re now lending each other money (Society One, Lending Club, etc).
The willingness of humans to trust each other and, separately, to express themselves to each other, is not a new thing, but the internet has unleashed it and allowed it to be organised.
The social urge in human society has always existed, but has been confined to small communities simply because of the lack of any means to communicate efficiently across large distances.
The combination of connectivity and computing power has literally put that ability into our pockets — it’s with us everywhere we go. It has meant that our inherent urge to trust and communicate can be both fully expressed and organised.

[greengiraffe]

• Nov 22 2015 at 8:22 AM 
  

What to expect for markets in 2016

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[img=620x0]http://www.afr.com/content/dam/images/1/0/f/z/d/p/image.related.afrArticleLead.620x350.gl4rfd.png/1448142642543.jpg[/img]"Equities are going to do really well in 2016, especially banks and blue-chip businesses." Louie Douvis
Top financial experts make their predictions for next year; some warn of recessions and crisis, while others share their tips for finding yield.
WATCH FOR A WORLDWIDE RECESSION
Ruchir Sharma,head of emerging markets equity and global macro, Morgan Stanley Investment Management:
"We are now just one big shock away from a global downturn, and the next one seems most likely to originate in China, where heavy debt, excessive investment, and population decline are combining to undermine growth, while relatively low-debt countries from Eastern Europe to South Asia look better positioned to weather the inevitable next turn in the cycle."
[img=620x0]http://www.afr.com/content/dam/images/g/j/i/4/l/o/image.imgtype.afrArticleInline.620x0.png/1447939753872.jpg[/img]"The markets may also be surprised by how slowly the Fed hikes rates in the face of what we think will be an improving economic climate." AP
FIXED INCOME FACES A ROCKY ROAD
Dan Fuss, vice chairman at Loomis Sayles & Co and coportfolio manager of the $20 billion Loomis Sayles Bond Fund:
Yields on the benchmark 10-year Treasury note will likely rise to 2.6 percent to 2.8 percent by the end of 2016, Fuss says, although he cautions that the current geopolitical turmoil makes forecasting especially difficult.
For investors with a bond portfolio in these rocky times, Fuss recommends a mix of Treasuries, investment-grade corporates (with maturities of five to 12 years), and high-yield debt has the best chance of success in 2016.


And you'll need to be especially picky when it comes to high-yield bonds instead of relying on an index fund, he says. "It's quite clear that high yield has the best value relative to stocks, but there's a lot more scatter there."
KNOW WHICH EQUITIES TO WATCH
Thomas J. Lee, managing partner at Fundstrat Global Advisors:
"Equities are going to do really well in 2016, especially banks and blue-chip businesses. Banks will benefit from the Fed tightening and will boost their returns on equity as the economy expands. And when you look at blue chips, they're going to have the ability to generate stronger returns as the economy picks up."

THE EU FACES ITS BIGGEST CHALLENGE YET
Rebecca Patterson, chief investment officer of Bessemer Trust, which oversees more than $100 billion in assets:
The biggest risk for Europe in the year? "It's the refugee crisis," says Patterson. "I think it's the biggest challenge to the European Union yet. The horrible terrorist attacks in Paris increased the risk that the refugee crisis could result in a political and/or policy shift, or simply lead consumers to change their spending patterns. Either could weigh on sentiment around European growth and corporate profits."
Patterson is on alert for any such changes but remains overweight European equities and positioned for a weaker Euro, she says.

"The Paris attacks sadly shone a light on the European refugee crisis; I assume more investors globally now are thinking more about what millions of immigrants can mean for an economy and respective markets. However, I am still not sure that investors globally have adequately thought through what market spillovers the European refugee crisis could trigger over the coming year."
EXPECT A LIFT
Jim Caron, a managing director at Morgan Stanley Investment Management:
"I believe inflation risk premia will return to the markets. This should provide upward lift for 30-year Treasury yields, possibly toward 3.75 percent. The markets may also be surprised by how slowly the Fed hikes rates in the face of what we think will be an improving economic climate."
UNICORNS WILL HAVE THEIR MOMENT-OR NOT
Alan Patricof, co-founder of Greycroft Partners:
"I am concerned about the over exuberance in financing of startups. There are just too many at the moment, and there isn't enough money to sustain them.
"I think inevitably we're going to see more of these unicorns"-startups valued at more than $1 billion-"try the public market, and that will finally tell us whether they can support themselves. By the way, I don't think there's enough money around to sustain all of them. We're going to find out which unicorns can make it."
THE SEARCH FOR YIELD WILL INTENSIFY
Russ Koesterich, global chief investment strategist at BlackRock, the world's largest money manager:
"The Fed is going to be less important in 2016," says Koesterich, who expects Janet Yellen & Co. to raise interest rates incrementally.
He predicts global growth will stay sluggish, increasing the thirst for higher-yielding assets. Investors who have relied on high-coupon bonds they bought before the financial crisis are running out of those securities, he says-and there's little to replace them that's a slam dunk.
"You won't be able to find income without risk. Asset classes from [master limited partnerships] to high-yield bonds each have their own risks-and none of them are cheap. You're going to have to have a multi-asset-class, diversified-yield play."
GET ENERGIZED
Barbara Byrne, vice chairman of investment banking at Barclays Capital:
"We will begin to see a recovery in the prices of natural resources for largely-and critically important-political reasons.
"We're beginning to see sovereign wealth funds decline-Norway, Saudi Arabia. I think we'll see a reversal on that; countries will not be able to afford fluctuations in their reserves.
"We'll probably move to a more stable oil price, which I would say is $60 per barrel. And I think energy assets that are investing in sustainability at the same time that they're focusing on meeting the needs of the current demands will probably do well."
STUDY LATIN AMERICA
Tulio Vera, chief global investment strategist for the JP Morgan Latin American Private Bank:
"There's a ray of sunshine from Argentina," says Vera. "That's not only important for the country but also for the region." While Vera says the investment landscape in Brazil remains uncertain, he sees Mexico continuing to benefit from the U.S. economic recovery, especially in the auto industry.
"There will be some very interesting entry points in Latin American assets between now and the end of next year," he says. "We are getting closer to a re-entry moment for some of these markets."
GROWTH IS COMING IN 2017
Joseph LaVorgna, chief US economist at Deutsche Bank:
"I've got growth accelerating a bit because it seems like there are reasons that the economy should get better, but it's concerning that 2010 was the best year for growth since before the recession.
"As I look forward, the message is 'more of the same,' with maybe some optimism into 2017 that whoever the U.S. elects president will pursue growth policies, since this economy hasn't done well."
IMPACT INVESTING WILL TARGET CANCER
Mark Haefele, global chief investment officer at UBS Wealth Management:
"The world's populations are aging, and demand for cancer treatments will only increase," says Haefele. "Yet the supply of capital for the riskiest stages of development is limited."
Health-care companies tend to focus on later-stage research, providing an opportunity for earlier-stage investors to earn an attractive long-term return-and benefit society.
"This type of practice"-known as impact investing-"is likely to become more popular as investors seek to align their portfolios with their social values as well as generating a return," says Haefele.
CHINA WILL BE JUST FINE
Yang Zhao, chief China economist at Nomura Holdings, which cut its 2016 GDP forecast to 5.8 percent from 6.7 percent on October 6"
"Is there going to be a hard landing in China? I don't think so. The labor market remains largely balanced; even with 5.8 percent GDP growth, the economy will create jobs, especially in the labor-intensive services sector.
"And it's unlikely that China's financial industry is headed for a crisis because most of the country's institutions are backed by the government. Should any systematically important financial institutions have any problems, we believe that the government will step up to rescue them."
THINK LIKE A MILLENNIAL
Katie Koch, a managing director at Goldman Sachs Asset Management, which oversees almost $100 billion in global stocks:
"The rise of the millennials will have long-term investment implications," Koch says. "Their spending trajectory is getting steeper and increasing compared to baby boomers, who are decreasing their spending as they retire."
In 2016, Koch is especially keen on Netflix, Nike, H&M, and PChome Online, a Taiwanese e-commerce company, because they prioritize instant information, quick consumption, and healthy living-themes that resonate with the two billion people worldwide born from 1980 to 2000.
MORE OF 'WHATEVER IT TAKES' FROM THE ECB
Erik Nielsen, chief economist at UniCredit:
"Expect further divergence between the Fed and the ECB, with the former hiking rates a couple of times next year and the latter expanding its balance sheet more than it has presently announced."
 
 
 

Bloomberg

[brattzz]

World economy won't collapse,

unless somebody pulls the plug on free money!

[greengiraffe]

Morgan Stanley forecasts growth in 2016 but consumer spending essential
DateNovember 30, 2015 - 3:41PM

• Read later
  

[Image: 1426323565853.png]
Vanessa Desloires
Reporter

[Image: 1448858492890.jpg]

The biggest threats to consumer spending in developed markets in 2016 will be tighter monetary policy and recovering oil prices. Photo: Andrew Quilty

The recovery in global growth will be a slog in 2016 and relies primarily on consumer spending holding up in the face of higher US interest rates, rising inflation and political uncertainty, Morgan Stanley says. 
The investment bank's forecast for global real gross domestic product growth in 2016 is 3.3 per cent, up from 3.1 per cent this year. This will be the fifth year global growth remains below its long-term average of 3.6 per cent, chief European economist Elga Bartsch wrote in a research note. 
"The global economy is projected to remain on an expansion path, though the recovery remains distinctly subpar, with risks skewed towards the downside," Ms Bartsch said. 

[Image: 1448858492890.jpg]

Private consumption in developed markets should hold up in 2016 and keep global real GDP growth tracking, Morgan Stanley says. Photo: Morgan Stanley Research

Two themes will swing the outlook for global growth between recovery and recession next year: the resilience in consumption in developed markets and the state of the adjustment in emerging markets. 
For developed markets, tighter monetary policy and recovering oil prices are the biggest threats to consumer spending, which was the biggest source of growth in 2015 through jobs growth, wages growth, cheaper petrol and accommodative monetary policy.  
Interest rate rises in the US and Britain, a looming election in the US and a referendum in Britain  on remaining in the European Union, as well as recovering oil prices, may curb consumer spending in those areas. Elsewhere in developed markets, private consumption should remain steady. 
"At the margin, we expect fiscal policy to turn more supportive of growth, with the agreement of the US fiscal package," the bank said.  
"[There is] potential additional spending in the euro area, due in part to the influx of refugees, which will also be supportive of consumption prospects."
Emerging markets remained in "adjustment" phase, and their contribution to global growth hinged on the extent of China's economic slowdown, the effect of a stronger US dollar on US interest rate rises, and capital flows on economic stability.
"With real rates remaining high as [emerging markets continue] on the adjustment path, a number of them, though not all, are likely to see improvement in macro-stability indicators including their current account balances and inflation."
Societe Generale is also forecasting better growth prospects in 2016, which will be good news for equity markets. The bank predicts the global bull market has further to run, with the end not in sight until the second half of 2017.
Its preferred equity markets in 2016 were in Europe, with Italy and France favoured, and the sectors set to benefit were oil and gas, banks and construction.