Sharing from my friend David :
March 31, 2014
A billion hours ago, modern Homo sapiens emerged.
A billion minutes ago, Christianity began.
A billion seconds ago, the IBM PC was released.
A billion Google searches ago … was this morning.
Hal Varian, chief economist of Google. “Beyond Big Data,” NABE annual meeting, September 10, 2013, San Francisco. Reprinted in Business Economics, Vol. 49, No. 1. For details on NABE see: http://www.nabe.com.
· 2000-plus: Estimated number of times the online activity of an average internet user is tracked every day
· 868: Number of websites among the 2510 most popular in the US where Twitter can track the activity of visitors
· 1205: Number of websites among the most 2510 most popular in the US where Facebook can track the activity of visitors
· $27.61: Estimated annual value to Facebook of a very active US female user’s data ($22.09 for a male)
· 700 million: Approximate number of adult consumers in the global database of Acxiom corp., a leading data broker
· 3000-plus: Number of shopping tendencies Acxiom says it can measure for nearly every US household
Sources: Acxiom Corp; AVG PrivacyFix; Wall Street Journal, March 24, 2014, R1, “Big Data”
OK, so where are we going with this?
Financial TV, radio, print, and internet-based discourse is continually saying something like, “The Fed is printing all this money, and we are going to have a big inflation, and interest rates will go shooting up, and the economy will go in the tank.”
Right-wing Tea Party Republicans continually harangue about the huge coming federal deficits and the massive cost of entitlements. Intransigent left-wing Democrats stress income inequality and the need to raise taxes on the rich in order to achieve fairness. Both of these bookends of the political spectrum are embroiled in primary political fights, after which they will try to shift adriotly toward the center for the general election in November. While making a noisy show of dueling each other and their primary opponents, they will accomplish little.
Meanwhile – and quietly – the economy of the US continues a slow recovery, interest rates stay low, the governmental deficit shrinks (under 3% of GDP now and falling), and the current account deficit falls as energy production in the US rises and displaces the marginal need to import. Inflation remains under the Fed’s minimum threshold of 2%. Stock market volatility spikes on news events and then recedes.
So where are we going with this?
The lists at the beginning of the discussion highlight evidence of sources of massive gains in productivity and how they are achieved. Read the WSJ piece and the NABE piece for more details. The bottom line is that rising productivity means low inflation pressures and higher business profits and improved quality of living for those who desire to use these productivity gains for personal consumption, medical care, and business development or for familial and interpersonal relationships. “Big Data” means productivity gains. That means we are all way more efficient at what we seek to do.
This rise in productivity is happening while the classic economic twin deficits are shrinking and stabilizing. Capitol Economics sums it up this way: “The US economy is the closest it has been to both internal and external balance in more than a decade.” We agree. Furthermore, the trends that are carrying us toward these twin balanced positions are accelerating forcefully. The external balancing is progressing on the back of the nation’s growing energy sector, which is creating thousands of jobs in many regions of the country. The internal budget balancing progresses amid the push-pull of polarized politics in this election year and through the 2016 presidential election.
We may be poorly governed. We wish Democrats and Republicans would cooperate. But if they don’t, we as a nation go on anyway, with gains in productivity that we achieve not because of our politicians but in spite of them.
All this sums up to a continuing bullish outlook for the stock markets and a prolonged period of lower inflation and lower interest rates. The best guess, and it is just a guess, is that the short-term rates in the US will be close to 1% or lower for another two years or longer. Those short rates tend to anchor the long rates. There may be a glitch in labor markets tightening faster than folks expect. Or there may be a bifurcation in the unemployed cohorts, and Alan Krueger and co-authors of the recent Brookings paper will be right. That would mean labor costs will start to rise sooner than expected. See “Are the long-term unemployed on the margins of the labor market?” Brookings Panel on Economic Activity, March 20-21, 2014.
So our somewhat benign outlook still has risks attached. There are always risks attached.
But we remain invested in the stock markets, and we remain invested in the bond markets, and we believe the flight to cash or near cash, which yields near zero, is a mistake. Markets may correct and allow for entry points, but the trend is still up. Bond markets may have volatility, but receiving more than 4% tax-free is a nice reward under current circumstances of low inflation and low interest-rate policy and improving external and internal balance in the United States.
It is springtime. One hundred million Google searches occurred during the time it took me to draft this text. It will be electronically edited twice. Then spell-checked. Citations will be verified by editors. Publication will be in a text format to reduce risk of malware infection. The message will be sent to thousands of readers and hundreds of journalists and media folks, and Twitter and Facebook will expand its reach to any who wish to read it. That entire process occurs with enormous productivity.
Happy Spring. Enjoy Big Data. It is here to stay, and we have only just begun to experience the results.
David R. Kotok, Chairman and Chief Investment Officer
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