Holiday Food for Thought

I was born in the Space Age. I was four years old when Neil Armstrong took his giant leap for mankind. But most of my half a century on the planet has been spent in what’s being called the Information Age.

And as it turns out, a Big Data Age started in 2001, and the Social Age started in 2004. I had no idea. People in my social circles only started talking about Big Data after Edward Snowden started globetrotting in 2013…

I’ve managed to stay fairly up to date with the most significant themes of each new cultural trend.

But I tell ya, it sure feels like change is coming faster than ever before. And it’s getting more difficult to get a handle on the long-term impact of the newest gadget or invention.

When I was a kid, my friends and I had a few simple forms of entertainment. We tried to get money by raking leaves or paper routes or whatever. We rode our bikes places. And we played games like football or just running around in the woods fighting each other with sticks.

It’s pretty easy to see how those activities influenced my generation. We learned the value of money and of work. We learned self-reliance (we didn’t play soccer, and our parents certainly weren’t taking us to football practice or picking us up after school), and we learned how to suck it up and get along. Yeah, getting whacked with a stick hurts. So does getting smeared by someone’s older brother playing football…

But you took it. Because if you tried to bring up “fairness” or tried to get revenge, you’d either get whacked again or end up hanging out at home, helping your mom with laundry (which we learned to do by age 10 or so anyway).

These days, it’s pretty different for kids, what with all the phones, tablets, and social media. I honestly don’t know what this will mean for my kids when they get older. I hire and train people to work for Wealth Daily, and I’ve had fresh college graduates that really didn’t get what it takes to make it in business.

I was driving on my 16th birthday. I know kids that have no desire to get their licenses, though I’m proud to say that my daughter will get hers the second she turns 16 in May. (And don’t worry, she is already getting lectures about the dangers of driving while texting and Insta-Snap-Gramming.)

Newspapers, Retail, and Cars

I started in the newsletter business in 1997. The Baltimore offices I worked in got probably 12 different newspapers delivered every day. As a new research assistant, I actually went to the library and scanned old periodicals on microfiche.

Now, I can check my Twitter feed and get the market-moving events as they happen, practically in real time. It is an amazing tool. It’s easy to see why newspapers and other print media are on their way out. Despite how much I like having a print newspaper in my hands, and despite the fact that I pore over the New York Times every weekend, there’s little need for print anymore.

The problem is what I call the Twitter-fication of the news. It’s all about snappy headlines and salacious blurbs. Rumors and outright fabrications get accepted as truth. You can see that political debate has been dumbed down to absurd levels.

In-depth reporting and thorough research are harder to find, and we are the worse for it. But the upside is that good research and reporting is not lost. There is quality out there. And you can still gain a big advantage with your investments by doing good research or finding a source that provides it.

We’re seeing a similar thing happen in retail. I don’t know if you saw the recent moves for retail stocks after third-quarter earnings, but wow. Wal-Mart had already gotten creamed when Macy’s reported. Macy’s missed expectations, and the stock dropped 15%. Kohl’s reported good numbers and rallied 6%. But then J.C. Penney reported good numbers and got absolutely crushed for 17%, and Kohl’s gave back all its post-earnings rally.

Strange times for retail. People are spending money, but they are being particular. The most recent retail sales numbers show some interesting trends. Retail sales overall were up, but the increase was almost all attributed to online sales. Good for Amazon.com. Bad for Macy’s, Kohl’s, and J.C. Penney.

Spending at restaurants is at all-time highs. It was sometime last year that spending on restaurants outpaced grocery store spending.

We’re buying cars like crazy, too. But what’s ahead for autos? I bought a new car a couple years ago — a 2012 Mazda. But I’m pretty sure the next car I buy will be an electric car. The technology is advancing rapidly, and you see them everywhere now.

I’m not even sure what to say about driverless cars. I do like to drive my car — I like a good grueling road trip. But the thought of making our annual 12-hour drive to Amelia Island in the mobile equivalent of my living room while watching the Bourne trilogy on TV sounds pretty darn good.

What type of cultural change will driverless cars bring to America? We’ve identified with the cars we drive for 60 to 70 years. The Mustang, the GTO, the Cadillac — the internal combustion engine is part of rugged American individualism.

I don’t think it’s a coincidence that Ferrari just went public. This looks like the “sell high” part of buy low, sell high to me. A company goes public for one of two reasons: It’s either a way to raise cash for expanding your business, or it’s a way for the owners to cash out by selling their stakes on the market. I don’t see Ferrari expanding — part of the reason those cars are exclusive is that they are semi-rare, and who wants an electric or driverless Ferrari? So I’ll take selling high and cashing out for $10 billion, Alex.

InstaSnap TwitterBook

In a way it’s painful to see the things of value from one era of your life lose their significance and fade away. But at the same time, I LOVE telling “when I was a kid” stories to my kids. They simply can’t believe the cable remote control was attached to the set-top box with an actual cable…

And the thought that I lived the first 14 years of my life in Richmond, Virginia without any air conditioning makes them actually pity me. A little. But not for very long.

So, yeah, I wonder about my kids growing up with the Internet and all the social media they engage with (well, mostly my 15-year-old daughter — my 13-year-old son doesn’t have much to do with it yet).

I don’t waste much time worrying about my daughter and social media. I know she’s pretty well adjusted and can figure things out, both good and bad. And we have rules, like no phones at the dinner table or in restaurants. This is one of my pet peeves — it drives me nuts to see groups of people all staring at phones.

Maybe there’s a bubble in social media stocks. I definitely think there is one when it comes to InstaSnap TwitterBook and venture capitalists putting money into social media and apps. Everybody wants to catch the next Facebook and turn a million into a billion.

But maybe Facebook is unique. Twitter sure can’t figure its business out. Facebook has over a billion users. A billion. That’s the biggest lead gen list the world has ever seen. I read the other day that one-seventh of the world’s population logged into a Facebook account in September.

At the same time, I’ve seen Facebook criticized for not having any real assets and little protection from competition. But Facebook is way more than just a website. I understand that Facebook is building a new “artificial intelligence” messenger that can act as your personal assistant. It will be able to monitor your calendar and your friends’ calendars, suggest, order, and send gifts, make travel arrangements, order carryout… whatever you need.

Facebook is also making solar-powered gliders that can provide Internet access in remote areas. That’s thinking outside the box. I can’t tell you Facebook is really worth its $295 billion market cap right now. But 2013 revenue was $7 billion. 2014 was $12.5 billion. Fiscal 2016 is expected to be $24 billion. That’s impressive growth, and there’s certainly more to come.

What Age is This Again?

Space Age, Information Age, Big Data Age… I don’t know. None of these labels really capture the kind of change that seems to be happening now thanks to the Internet. The world itself seems smaller. But the reach of an individual is far larger than it’s ever been.

And we still have some crazy things coming, like robots. How is our culture going to deal with that one?

I don’t know, but I have some basic idea. Technology and the Internet are deflationary. They boost productivity and drive prices lower. Like for newspaper reporters. 30 years ago, you could have a great career as a reporter. Today, you can be paid $50 per blog, and that blog might get circulated wider than any newspaper. But a pair of Levi’s today costs the same as they did when I was in sixth grade.

Bond yields have been steadily declining for 30 years. Yes, people blame the financial crisis and QE for pushing yields lower, but it’s really a deflationary trend that has been in place for a long time. In fact, you could say the financial crisis was caused by this deflationary trend.

Who wins in a highly productive and deflationary environment? Big companies that have brand loyalty and that can weather different pricing structures should be in the best position to benefit from technology-driven productivity. Companies with rigid price structures and low margins may have trouble.

Also, countries with growing populations will have an advantage in a deflationary environment. Over the next 30 years, Africa is expected to grow the most of any continent by far. That population is expected to double by 2050. North America comes in pretty good, with population growth of 21% (and new housing starts are still 25% below the levels from 15 years ago, so… housing stocks?).

North America will grow faster than Asia’s 18%, believe it or not. Europe’s population is expected to shrink 4%. That is not good.

The takeaway to all this is that current global trends favor U.S. stocks. Now, enjoy your holiday, and I’ll talk to you next week.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.