Five things I learned this week: May 5th 2013

I was watching Eric Schmidt’s interview on McKinsey where he talks about some of the likely disruptive technologies in the making (see http://www.mckinsey.com/insights/high_tech_telecoms_internet/disruptive_technologies), and the last one (better automated machines replacing allegedly low-skill work) is the one that I think about the most, and agree 100% with Eric that is widely under-reported in the media. But, I disagree strongly with his fix–better education and high skill immigration. This is the kind of junk that I can imagine Tom Friedman saying. How is better education the fix? If everyone got better education (which has indeed been the case in the United States over the past decades), the bar for any job would simply go even higher and the humans will not win that race against better automation. We are already seeing this; there was a very well-done article in NYTimes a month or so ago which talked about how companies are requiring that secretarial positions have a Bachelor’s degree as a minimum. We already have the scorecard of what happens when humans  in aggregate compete with automation by getting higher education and gaining more skills–they fight amongst themselves (in addition with machines) and overall, lose. Of course, getting higher education is completely rational decision on one person’s part, but it is not rational for everyone to do it, and if everyone cannot do it, that’s a terrible terrible policy to espouse. I don’t know what the answer is, but if I were to place a bet, one of the answers in the long term would be (higher) local content requirement (obviously, not ideal for the benefactors of the current capitalistic structure) which would dictate that companies must build their products more and more within the borders. Capitalism, as is understood today, has a great underlying concept but it has policies that I think were built for a certain time and I think some of the parameters will have to be changed as we keep walking along this path after having crossed the tipping point. Okay, enough rambling. But, I think we are many many years away from any policies along the line of what I hypothesized. When people like Schmidt speak, they not only speak for their corporations’ benefit, and to some degree, themselves, but also represent what the decision makers’ consensus is, and for now their consensus is absurdly far away from fixing the problem, and will only contribute to making the problem bigger.

In the recent market rally beginning on early 2012, non-cyclicals have led the cyclicals by far with cyclicals roughly down while non-cyclicals up >20% since then, which is another market is signaling the unease with the current rally.

If you had to guess the country with the highest suicide rate, would you guess South Korea? I wouldn’t have but that’s the truth, with about 32 suicides per 100,000 people in 2011 (2.5 times the rate in 1995). Most suicides are education and financial distress-related.

As usual, David Rosenberg’s latest presentation is gold. See it at http://www.zerohedge.com/news/2013-05-06/david-rosenberg-potemkin-rally. He believes that inflation is upon us, and talks about how whenever the Feb has manufactured negative real rates we have seen impressive asset bubbles and this time it is showing up in falling high-yield bond rates.

A brilliant post by Raghuram Rajan on why India slowed – http://forums.chicagobooth.edu/faultlines?entry=64. It’s so brief, no comments are needed.

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