The Daily Alpha: Alternative Thinking on the Robot Apocalypse, Hedge Fund Talent, and Trump Triumphs

The Daily Alpha: Alternative Thinking on the Robot Apocalypse, Hedge Fund Talent, and Trump Triumphs

Garrett Baldwin

May 4, 2016

"One of the big causes for the stagnation of middle class wages is essentially because of clever computer programs."

Hedge fund chairman David Siegel of Two Sigma says that technology has fueled income problems over the last few years.

He’s late to the party by two centuries.

It’s rather stunning that the news media covers the story of how technology impacts job markets with such wonder and misunderstanding… and they never, ever… at any point… explore any solutions to this pending problem.

Instead, we get headlines like this one from Reuters: “Rich and powerful warn robots are coming for your jobs.”

Come on Reuters: It’s actually the rich and powerful who are coming for your jobs, since they are building the technology that renders your skillset obsolete by creating a technology that doesn’t need healthcare, 10-day vacation leave, eight-hour days, overtime, union rights, and so on.

As I explained in Possible Hedges Against the Robot Apocalypse, the story of technological waves is as old as the United States itself, and different waves of innovation have caused significant job displacement.

Remember, 99 percent of this country were once sustenance farmers. Today, less than 1 percent of the population produces enough food to feed more than the total population as a whole.

The issue is that automation fuels widespread increases in standard of living, while -- at the same time -- creates growing income disparity.

The guy who owns the self-driving tractor will need fewer people to operate his farm. He’ll make more money, but the positive tradeoff is that you don’t have to be a sustenance farmer.

And the income disparity is a direct issue that economists still don’t have a grasp on when it comes to the impact of technology. Karl Marx wrote a lot about it, and then everyone avoided studying it too much… because… you know… he is Karl Marx.

This is what we know: the people who own the robots make more money… the people who are displaced are forced to find new jobs and take up new trades.

There’s a pretty handy chart of the technology waves in Part I of that story.

The hypothesis is that we are seeing levels of automation coming faster and faster than any time before while our workforce is larger than ever. The internet has displaced a wealth of different professions.

And the ones that have been created by new technologies – think Uber drivers – are displacing another wave of human workers from taxis. And none of that will matter when the self-driving vehicles take over.

In fact, one of the top jobs in many states is being a truck driver. It’s also one of the most important given the American reliance on diesel trucks within the supply chain of everything we buy. When the Google or Amazon trucks take over… watch out.

The real issue at hand is addressing the solutions. No one in Washington has one.

And the Silicon Valley overlords are pitching some pretty basic ideas.

For example, a universal basic income has been pitched. The invention of large-scale 3D printers has the capacity to disrupt the entire housing market. (This is a thing.) Some are saying this is a solution to the unaffordability of housing in the United States. Give everyone a house if they need one with this technology.

While the charitable idea is in place, it lacks incentives to humans.

Basically, you’re just promising a world where people receive free food, free housing, free healthcare, and free whatever else has become the next tangible demand someone has termed as “a right.”

As P.J. O’Rourke once said, “Those aren't rights, those are the rations of slavery — hay and a barn for human cattle.”

Last year, I proposed a list of seven different ideas that I believe we should explore to address the transformation that is on the horizon.

Given that they all focus on personal empowerment and less government regulation, I’m not sure many politicians will get behind them.

But let’s at least get a conversation going…

“It’s not easy to find great people. We whittle down the funnel to maybe 2 to 4 percent of the candidates we’re interested in. Talent is really thin.”

It’s been a tough few months for hedge funds. AIG just announced that it lost nearly $350 million in its hedge fund portfolio over the first quarter… in a portfolio that has roughly $10 billon to $11 billion. They’ve informed their funds that they plan to exit as lock-up periods expire.

In the last week, three big names in the financial industry have taken shots at the hedge fund business. Over the weekend, Warren Buffett waxed poetic about the disconnect between hedge-fund performance and the associated fees.

Third Point’s Dan Loeb predicted that that 2016 performance has been “catastrophic” and projected the early stages of “washout.”

Now, Steve Cohen is sounding off that there is a lack of talent in the industry.

“The proposed regulation before us today represents another step forward in our efforts to make financial firms resolvable without either injecting public capital or endangering the overall stability of the financial system.”

Fed governor Daniel Tarullo is happy that the central bank is moving toward rules that would give regulators additional time to wind down a company in the wake of the financial crisis of 2008.

This is going to take some time to digest the actual rules that they are proposing, particularly when it comes to the impact on current contracts. But the thing that really pops out is the outlandish amount of derivative exposure that the top banks face these days.

It’s stunning.

"Brexit could be a source of heightened global uncertainty."

Atlanta Federal Reserve President Dennis Lockhart opened up about what’s on tap for the next central bank meeting on monetary policy. While the Fed largely ignores the U.S. manufacturing recession that simply won’t go away, the central bank could use uncertainty surrounding the future of the European Union as a crutch to hold the line on interest rates.

“The stages of grief - yeah. The acronym for listeners is SARAH, S - A - R - A - H, shock, anger, then rejection or denial and then acceptance. And then the last one, the big H, is for help.”

Anthony Scaramucci has described his feelings about Donald Trump practically wrapping up the Republican nomination. The host of Wall Street Week and hedge fund founder opens up about his willingness to stand behind Trump this fall, despite the fact that the hedge fund industry has taken a few shots from the frontrunner.

Be sure to check out the latest issue of Modern Trader: The Issues with Hedge Funds.

Inside, you’ll see Steve Lord’s interview with Anthony and get his insights on what he thinks about the state of the sector. In addition, we tackle the regulatory efforts happening in Washington, the major trends in the business, and explore different trading opportunities in the commodity markets. 


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