Authored by Mark Melin via ValueWalk.com,
A dad doing car pool duty listening to children age seven to thirteen can be instructive, hedge fund literary paragon Eric Peters notes in his Sunday, October 9 e-mail missive. “They can turn a boy into a girl,” one of the children casually observes, pointing to two transgender classmates. There is a higher meaning. “They can do anything these days,” the father explains, avoiding road hazards as he points to a generational belief that a new age is upon us. This is the era where yesterday’s societal norms might not matter, but does this concept of breaking commonly held economic beliefs translate the same?
Eric Peters – The driverless car could lead to a bankerless world where no one makes money
As one might expect, the real question in Peters’ weekly observations is not social, but economic. Can the economy “do anything” and defy traditional economic theory?
The driverless car, for instance, is one technical innovation that is likely to significantly impact jobs. Can somehow those “do anything these days” people wave their magic wand and make normal economic rules melt. For Peters, he looks at automation and the technical obsolescence of the human mind through a logical if wary lens. In this regard his background as a portfolio manager weighing both sides of a trade thesis shines through in his writing: he looks at issues without innate bias, searching for truth that points to the investible economic future.
Here he doesn’t like what he sees.
Eric Peters – Those who say technical advancements have always led to different jobs have never considered the replacement of the human mind
When optimistic market prognosticators look at the intelligent automation sweeping the world, they often point to past performance for guidance. “Every advancement in technology has brought about new types of jobs. There is no reason to suggest that the next phase of technological advancement won’t be the same,” is a common refrain.
“Technology replacing human thought processes and skills is nothing to worry about,” the technical optimists say, comforting those that might not want to take a two-sided look into the issue. What these people often fail to analyze in their projection formula is the statistically significant component regarding intellectual transformation: never before in human history has the human mind, judgement, been replaced with a faster, cheaper and some argue better automated equivalent.
Eric Peters, the chief investment officer at One River Asset Management, must be drinking something special in the water from his Greenwich, CT, faucet because he thinks differently on so many levels.
When the human mind is replaced, even on rudimentary tasks such as driving, the number one employer in the country, is sure to have downstream economic impacts, Peters thinks:
2026: “In ten years I see banks making no money,” said the Lithium, hands free on Highway One. “I see auto companies making no money, oil companies making no money.” That’s zero.
“The oil thing is obviously coming to an end, and if you don’t have a growing population, it’s not clear that you need a growing banking sector.” Driverless automobiles will collide with state sponsorship of manufacturers, ensuring overcapacity. “Maybe landlords make some money, healthcare companies too, and technology firms that control retail transactions.”
Eric Peters – These guys can do anything, including making the math of government buying unneeded factories just to employ workers
The concept of government investing to generate jobs may sound socialistic to old economic thinkers, as if hearsay. But not to today’s generation of economic magic men. In fact, government is already expected to make illogical investments just to save jobs. Eric Peters observes the “free market” dichotomies all around us that point to the future:
“We’ve chosen to roll up our sleeves and listen to the distress calls of local politicians and unions,” said Sirugue, French industry minister, placing a E500mm order for high speed trains that his nation doesn’t need. Saving an Alstom factory and 400 jobs.
This, too, is a violation of core economic principle. The government stepping into the business of private enterprise has been taboo among free market thinkers. But the new “these guys can do anything” attitude seems to be taking shape in France as well as in Japanese central bank policy, where the major buyer of bonds is the central bank.
“So a group within the bank now thinks they should change policy from fixing a level of demand to fixing a price level.” Now earth’s most indebted nation has fixed its 10yr interest rate either side of 0%.
Increasing government debt to unsustainable levels, in a logical world of supply and demand theory, would trigger bonds to go higher in price. The new economic model is magic, however, and such logic does not apply.
…targeting a 0% yield for 10yr JGBs may require much more monthly purchases or much less; it just depends on whether investors want to sell bonds at 0% or buy them there. And if the government issues a mountain of bonds to fund a new stimulus, well, the BOJ would now have to buy them and the Yen would collapse.
Harken back to just ten years ago, before the 2008 financial crisis altered economic reality, and one can only think what market participants would have said at the notion of buying government bonds on either side of 0%. It probably would not be positive.
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