Fed Chair Jay Powell echoes the Technochasm … why this time is very different … how to position your portfolio … join Eric Fry for a special event on Thursday
If we didn’t know better, we’d think that Federal Reserve Chairman Jerome Powell is a subscriber to Eric Fry’s newsletter, The Speculator.
That’s because Powell’s comments from last Thursday read almost as though they were pulled from one of Eric’s issues.
Here are some highlights from Powell, speaking at the European Central Bank’s Forum on Central Banking:
I would agree that what this crisis is in the process of doing is it is accelerating a lot of preexisting technological change …
We’re not going back to the same economy. We’re recovering, but to a different economy, and it will be one that is more leveraged to technology …
I think you’ll see more telework. You’ll see probably the acceleration of automation. All of that was in the process of happening, but you’re going to see much more of it …
I worry that that is going to make it even more difficult than it was for many workers …
Regular Digest readers will see the link between Powell’s comments and Eric.
It reduces to one thing …
The Technochasm.
***The wealth-generation, wealth-destruction, and social division that’s being amplified by the Technochasm
The “Technochasm” is a term coined by Eric back in February.
It describes the widening wealth gap that’s happening in America (and around the world), thanks in large part to huge investment gains coming from select, technology investments.
On one hand, cutting-edge tech products are simplifying our lives, making them far more convenient, and enabling some semblance of normalcy during this pandemic.
This is why Americans are happy to continue opening their wallets for tech, even those who aren’t necessarily earning high incomes.
On the other hand, all of these consumer dollars flowing toward tech companies reduces to one thing …
A wealth transfer.
It’s from the masses … to a select group of technology business owners, key employees, and investors …
And it’s a key factor in creating today’s sharp wealth divide.
Here’s Eric with more on this, from his Saturday issue of Smart Money:
In 1980, the richest 1% of Americans owned about 30% of all household wealth in the country … and the bottom 90% owned about 24% of all household wealth.
But by 2012, the share of all household financial wealth owned by the top 1% had skyrocketed to more than 60% … and the share owned by the bottom 90% had plummeted below 10%.
In other words, the middle class is shrinking as rich families and big businesses accumulate fortunes and others sink below the poverty line.
And recent data is showing that gap … that Technochasm … is getting wider.
Frankly, this is just the beginning of the divide.
***There is no “going back” to exactly what we had before
Let’s return to one of Powell’s comments in particular:
We’re not going back to the same economy. We’re recovering, but to a different economy, and it will be one that is more leveraged to technology …
It’s an an irony of the human condition — change is one of the few constants in our lives, yet so many of us are resistant to it. We try to hold on to the “before.”
This mindset can extend to investing.
We’re told “this time it’s different” are some of the most dangerous words you can utter as an investor. Instead, we’re encouraged to do what worked before.
“It’s a fad.” “It’s just a bubble.” “Investors who chase will pay the price.”
Yes, it’s dangerous to follow a fad. But it’s even more dangerous to confuse a fad with a massive, sustained shift in our society and our investment markets that creates a “before and after” line in the sand.
Or, least, that’s what I imagine the Blockbuster-investor would say who ignored a small competitor named Netflix.
Today, the coronavirus is accelerating innovation and threatening yesterday’s business models. It’s creating the conditions for a new batch of Blockbusters and even more wealth division.
Back to Eric:
Many companies will prepare for the next global pandemic by shifting more of their processes to automation, robots, and/or artificial intelligence, rather than human beings.
In other words, as people keep losing their jobs due to technology … that technology in and of itself will work to make the wealth gap bigger.
That, again, is the Technochasm.
Tech companies and their stocks were already distancing themselves from the rest of the economy before COVID-19.
But the pandemic has blown this division wide open — and it won’t ever go back to exactly what it was.
***To illustrate, just look at the collapse in retail space
U.S. retail store closings set a record in the first half of 2020. They’re on pace for a record number of full-year bankruptcies and liquidations.
This coronavirus-induced retail collapse could overtake that of 2010, which saw 48 retailers file for bankruptcy after the 2007-09 recession.
Through mid-August, 29 different retailers have sought bankruptcy protection in 2020. That has already surpassed 2019’s total filings of 22.
Will shoppers return to the malls once the pandemic has receded?
Or, by then, will our shopping habits have changed so much thanks to tech advancements, that we won’t be interested in heading out to bricks-and-mortar stores to the same degree as before?
I suspect the latter.
And keep in mind, fewer shoppers in stores isn’t new. This has been happening for years. The coronavirus has merely accelerated this transition.
Back to Eric:
… powerful technology trends like these are not new news. For many years already, sweeping technological innovation, proceeding at an exponential pace, has been creating a long list of economic winners … and losers.
And the stock market clearly reflects this phenomenon.
During the last eight years, for example, the S&P 500 Information Technology Index has delivered a total return of more than 400%. That is double the gains of the entire S&P 500 over the same time frame.
In fact, the technology sector’s outperformance over this time frame was much better than just a double. Excluding tech stocks, the S&P 500 Index produced a gain of just 117% during the last eight years — or barely one quarter the gains of the S&P’s tech stocks.
Thanks in large part to this overperformance by tech companies, the economy is recovering, and the stock market keeps rising. Yet … the net worth of America’s lower and middle classes keeps plummeting.
***Positioning your portfolio in light of the Technochasm requires both offensive and defensive strategies
As to “offense,” it means giving your portfolio exposure to elite tech stocks — something Eric has been urging for months, and doing in his model portfolios.
For “defense,” it means you need to perform a ruthless cross-examination of all the stocks in your portfolio.
How nimble are they in responding to our new “new normal” world? To what degree are they adapting to accelerating pace of technological changes?
Eric has been warning about the looming demise of yesterday’s market leaders for many months now:
You simply can’t afford to hold these stocks in your portfolio any longer.
Today there are so many ticking time bombs in so many people’s portfolios, because of bad business structures … heavy debt loads … and completely outdated business models that are being disrupted by fast-moving and creative, technological startups.
If you own doomed firms like these you are all but guaranteed to miss out on the biggest gains of the years to come.
***Join Eric this Thursday to learn even more about how to position your portfolio for the Technochasm
What technology is doing in our world — and our investment markets — is one of the defining features of this age. It is creating immense wealth for some investors, while simultaneously destroying it for others.
At 7 PM ET this Thursday, Eric will be holding a special, live event called The Technochasm Summit to discuss all of this. He’ll be joined by famed investor, Louis Navellier.
The two investors will be discussing how to make the Technochasm work for you — aligning your portfolio with tech strength, while purging it of the stocks of yesteryear.
From a wealth perspective, this could be one of the most important events you attend. You can reserve your seat to attend by clicking here.
Also, just for being a part of the evening, Eric will be revealing a Technochasm pick that he believes has 10X-returning potential. It’s yours free, just for joining.
Bottom line — technology is changing our world and our investment markets. Join us on Thursday to make sure your portfolio is changing with it.
Have a good evening,
Jeff Remsburg
