“Altruistic passion is sluiced into the reservoirs of nationalism with great ease, and is made to flow beyond them with great difficulty.”

                                                       -Reinhold Niebuhr

  Moral Man and Immoral Society

Election season always brings out the crazies, and this one is no exception. The talk of our declining nation is excessive and makes one wonder how we can possibly continue under such conditions. Talk of populism abounds, the electorate is angry, “throw the bums out” is the accepted mantra. But is everyone really that upset? An interesting column by Simon Kuper in the Financial Times delved into this on May 7th. Kuper looked at social media as a proxy for sentiment and found little proof that attitudes were desperately glum. The Twitter traffic of 2015 showed the four most popular tweets were from members of a British boy band named One Direction. The fifth most popular was from President Obama celebrating the Supreme Court’s ruling to legalize homosexual marriage.  A search of Google searches turned up equally benign results. Admittedly, the possibility of angry middle age citizens focusing their anger on Twitter is doubtful, but the Millennials and their micro-aggressions should be most visible in this medium. Alas, little surfaces.

When you consider the implications of the disappearing middle class, the income inequality, the migration of refugees, police brutality, Brexit, the Brussels attacks, a weakening Chinese economy, the Mideast in turmoil………the implications are horrifying. In truth, we do not give this much thought. In reality, most of the individuals reading this missive hardly feel touched by any of it. We are quite simply the most fortunate population on the face of the Earth. We enjoy amazing standards of living, even if we are not “one percenters”. We have a racially and ethnically diverse population that functions amazingly well. Towering problems exist, but all are within our ability to fix or correct. Economic growth is the key, and the middle class requires economic growth to function.

Globalization has, and will, play a major part in this growth. It is already a central component of our lives, and often we do not realize it. Driving around our office in Peachtree City, Georgia, can seem like a United Nations exercise. In a two mile radius one comes across several Japanese companies, three in fact, a Swiss company, a German company, and a large Chinese manufacturing plant. Peachtree City is not a global hub, yet we enjoy these companies presence, our residents are employed there, we benefit from their tax contributions, and we are enriched by their contributions to our local culture. We are not so different from thousands of similar American communities. Yet we hardly consider this as we discuss walls, tariffs and immigration restrictions.  One has to think of the KIA manufacturing plant further south, just down the Interstate from here, of the Hyundai and Mercedes plants just across the Alabama border, and then the BMW plant over the state line in South Carolina. Consider all their local suppliers. The economic ecosystem is deep and vibrant.

So dispense with doomsday scenarios and consider the points we have touched on in previous updates; the technological boom in oil production, the explosion of robotics and artificial intelligence, changes in the automobile industry.  Consider wireless communications.  Bear with being inundated with figures, and just let them soak in…..The Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2015-2020 White Paper is enlightening reading. Global mobile data traffic grew 74% in 2015. Mobile data traffic has grown 4,000 fold over the past 10 years, and almost a million-fold over the last 15 years. More than half a billion mobile devices (563 million) and connections were added in 2015. Of the explosion in mobile data traffic, 55% is mobile video traffic. Average smartphone usage grew 43% in 2015. By 2020, 75% of global mobile data traffic will be video. In 2020, Cisco estimates global mobile data traffic to be 30.6 exabytes, compared to today’s 3.7 exabytes. Extraordinary. This is growth, the type that fuels economic expansion.

In fact, it is already fueling economic expansion in the form of Amazon. The former internet bookseller is now a global retailer, scaring the likes of Wal-Mart. But it also has Amazon Web Services (AWS), a massive accumulation of data centers providing cloud storage to governments and companies, all the while recognizing the exponential growth in mobile video data. This data must be stored, and AWS has a solution. Data centers must be constructed, servers built, networks wired. All are jobs that we desperately need for the middle class to once again thrive. The problem appears to be that many laid-off baby boomers are loath to wire a network. This will change.

Looking at the investment picture it is wise to examine the tech sector closely. It is segmented. There are the mature tech companies such as Microsoft and IBM. There are resurgent older tech companies such as Apple, and there are the semiconductor companies, Intel and NVIDIA being examples. Then Alphabet (Google) and Amazon emerge in the cloud space, with Microsoft very active as well. Akamai deals with the providing a pipe for the content to flow through, and social networks occupy another sector, think Facebook and Twitter. All the while, internet security must be bolstered, and Fireye and Palo Alto Networks fill that space.  These companies all have a role in the huge expansion of wireless data and video that is underway.  The investment group, Payden & Rygel, report that global app revenues in 2015 were $41.1 billion. That is more than global box office revenues. In 2015 Americans spent more time on mobile apps than on TV. Watching for buying opportunities is a priority in dealing with these volatile technology related stocks.

Recovering from the 2008 meltdown has been largely left to the Federal Reserve and its easy money policies. Some banking legislation has played a role, but little in the way of fiscal policy has evolved to match up with monetary policy. This imbalance has led to a slow growth episode in our American economic history, something we will regret. Should government begin to move forward on issues, like infrastructure, the initial growth we are seeking could transpire rather quickly. Rebuilding bridges and roads is vital and will lead to employment gains. The American Society of Civil Engineers have projected a $1.4 trillion funding hole between 2016 and 2025 in dealing with our aging infrastructure. This gap must be filled, and quickly, or economic activity will slow further as our capacity to handle the country’s commerce will be impeded further. The Institute on Taxation and Economic Policy says that 18 states have passed reforms or increases to their gasoline tax structures to accommodate more construction. This in a time of cheap oil seems like a worthy pursuit for all 50 states. The metro Atlanta region will add 2.5 million people by 2040 based on projections from the Atlanta Regional Commission. We suggest a rapid increase in infrastructure improvement or we will never accommodate this influx of people.

Meanwhile, the world is not standing still.  Consider that in mid-February the first freight train to roll down the old Silk Road arrived in Tehran from China’s eastern Zhejiang province. China has embarked on the One Belt, One Road (OBOR) plan to reconstitute the old silk routes through Eurasia. This linkage with Iran is significant, cutting the normal 45 day sea route to just a 14 day rail excursion. Infrastructure improvement will build a budding commercial relationship between the nations and grow economic activity. An advertisement in a newspaper caught my eye. It was by Oppenheimer Funds and had a turn of phrase that could not help but make one think.

     A woman in Mumbai flaunts iconic shades from Milan.

     A farmer in Ghana sips an Irish stout.

     A Vietnamese hiker sports a Parisian backpack.

     Invest in keeping up with the Junses.

     The Owuses. And the Chens.

     See a world thirsting for the finer things.

     And a rising middle class not just working,

     but working it. 

We must invest in keeping up with the Owuses and Chens. There is no alternative.


E.B. “Chip” Beard

May 2016