Over the holiday weekend, I have been going back over my trades and posts to see what worked and where I have made mistakes. Over the past year, investors who didn’t jump onto the “disruptive technology” theme have gotten crushed. I know it seems hard to believe, but just watching Cramer and buying his picks has worked much better than actually working (hard to believe because Cramer reminds me a bit too much of Damon Killian, the host of the Running Man game show: http://www.youtube.com/watch?v=tiIFgtfl2rE )
I have to give credit where credit is due, and Cramer has been spot on so a Booyah is in order here even though as a value investor I wouldn’t buy most of these names if you put a gun to my head. Shares of Netflix, Chipotle, Green Mountain, Amazon, Lululemon, Under armour, Travelzoo, Salesforece, VM Ware, Riverbed, and Acme Packet have soared while the blue chip value stocks like Microsoft, Berkshire, Goldman, Johnson and Johnson, Gilead, Cisco, and others have badly underperformed.
Growth investing is all that investors seem to care about at present with an eye toward new media and disruptive business models. This “Rise of the Machines” mentality has been quite swift and with new HFT program trading algorithms, an earnings beat and raise has trumped all else in the current investment climate. Robotics, Cloud Servers, new technologies, and first mover advantages are that have driven the “recovery” thus far.
Are the disruptive technologies driving the stock market recovery and benefiting from stimulus actually making the problems worse? I think so and this is why I am very sceptical of the recovery and also of the major stock averages at present. Companies involved in disruptive business models often require no employees, meaning that even though Wall Street is booming, Main Street is actually suffering as new technologies allow corporations to drive profits without actually creating any jobs. This “productivity” is not coming from workers putting in more hours as much as it is from automation and computing advances which help businesses earn money without having to employ a labour force. If indeed we are involved in a “jobless recovery” disruptive technology is at least partially to blame. IE, the same stocks driving investor profits on Wall Street are crushing jobs on main street.
Without regulation or taxation based on employment levels, the machines are going to defeat the humanoids both on Wall Street and on Main Street. Handing our data to servers on the Cloud and creating robots capable of warfare and intelligent decision making is putting us on par for some type of “T2 Judgment Day” type of society at some point.
While this all sounds a little bit too much like the Matrix, I assure you I am not wearing a tin foil hat — more U.S. citizens are on food stamps than ever before with some 44MM of us receiving financial assistance at the grocery store. While the stock market is up some 30% since August, unemployment is roughly flat over the same period of time as the Fed’s balance sheet expansion has helped the machines and their masters far more than the “Humanoid Ca ca.”
While I am not saying that there is some type of conspiracy out there against the humanoids, I should say that D.A.R.P.A.’s announcement on Friday that they are developing “super-soldiers” which are part man and part machine is a bit disturbing. I loved Robocop the movie but a real life Robocop is just creepy. Darpa’s new soldiers can fly a plane using their mind, run upp building walls, sprint for 200 miles at 20 miles per hour, and they can even fly. The new technologies can stop soldiers from feeling pain for a month and gives them a heightened ability to see and hear things. I can’t decide if they borrowed this technology from the Matrix, Predator 2, Robocop, Transformers, or Terminator but in any case it appears that companies and the governments of the world possess technologies that are far more advanced than any of us humanoids have previously fathomed.
All in all valuations here are at nosebleed levels, as this uneven recovery sputters forward. Innovation is actually hurting the main stream economy while benefiting the elite class and the thinking robots out there, so make sure to have some tech longs to hedge your short positions on the IWM and QQQ against. Q3 will either be a continued Rise of the Machines or it will be Judgment Day for the stock market, as stocks and the economy at some point intersect and we are at CAPE and Tobin’s Q ratios that are found at market tops.