Why I’m Bullish on “The Robot Revolution”

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club
robot revolution

Investors love a good scare story.

Whether it’s Y2K, the Ebola Crisis, the Avian Flu, the Fiscal Cliff, the Sequester, the Shutdown, the Rare Earth Shortage or the Brexit, pundits cobble together disparate facts to explain why the economy will soon collapse and take financial markets along with it.

Some folks can’t get enough of this stuff for some reason. They glom on to every horror story, convinced each time that this really is The Big One.

The latest is the coming “Robot Revolution.”

According to this scenario, millions of good-paying jobs are threatened by increasing automation. As more people are put out of work by machines, unemployment grows, popular unrest rises, tax revenues plummet, government spending surges, and the whole thing ends very, very badly.

It sounds credible at first blush.

We have already seen manufacturing jobs forfeited to assembly line robots. Airline employees have lost out to airport kiosks, bank tellers to ATMs, and grocery store clerks to self-checkout lanes.

With the rise of self-driving cars, voice recognition systems, intelligent software and increasingly sophisticated automation, millions more will soon see their jobs vanish.

According to an Oxford University study, robots will replace nearly half of U.S. jobs over the next two decades.

Beware the Robot Revolution!

Run!

Run for the hills!

A colleague insists that I’m not taking this seriously enough. “Have you not heard of the rise of robo-advisors?” he asked, arching an eyebrow.

Even your esteemed editor’s livelihood is at risk.

[Managing Editor’s Note: Matthew Carr weighed in on automated portfolio managers here. Spoiler alert: He thinks you’d be better off investing in toilet paper.]

OK, let’s start with the bad news first. Capitalism - the greatest wealth creator the world has ever known - is a profit and loss system. When a better and more efficient innovation comes along, businesses either adapt or fail.

When they fail, investors suffer losses and employees get displaced. This can be wrenching for them and their families.

History is replete with examples of creative destruction. Steam engines and automobiles displaced horse breeders, stable hands and saddle fitters. Calculators and computers wiped out men with rulers, compasses and pocket protectors. And the internet steamrolled middlemen everywhere.

In each case, consumers benefited hugely. Yet some workers, individual companies and, occasionally, entire industries were devastated.

As innovation and profit-seeking capital destroy low-productivity jobs, however, people find other, better uses for their talents. In the process, their skills are augmented rather than replaced.

A traveling pharmaceutical rep uses a GPS. Realtors offer 3-D home viewing. Carpenters adopt laser tape measures. Doctors clear your clogged arteries with a surgical robot.

Doing more at lesser cost is what drives progress and material wealth. In the near future, for instance, we will reap the benefits of everything from drones to artificial intelligence to immunotherapy.

This is to be celebrated, not feared.

Politicians who claim they will reverse globalization and bring back all those high-paying U.S. manufacturing jobs are blowing smoke. Or smoking something.

According to a recent Stanford University study, manufacturing robots cost the equivalent of $4 an hour... and are getting steadily better and cheaper.

The good news is that technology creates more jobs than it destroys.

Here’s how it works. First, technology makes everything cheaper. Recall what you paid a decade ago for a computer, a smartphone - which was not so smart back then - or a 60-inch flat-panel TV.

When things get cheaper, people buy more of them. (I grew up with one TV in my home. How many do you have today?)

When products are in more demand, the economy needs more people to sell them, deliver them and service them. Low-paying jobs are replaced with more technically oriented jobs that pay more. And with their higher incomes, remaining workers buy more stuff, adding fuel to the fire.

Need evidence that this is true? Let’s start with U.S. household net worth. It’s at an all-time high: $86.8 trillion.

Wealthy consumers buy more cars and boats, electronics, appliances, clothing, jewelry, healthcare services, and insurance. They want more housekeepers, lawn servicers and day-care workers. They eat out more often. They take more vacations. They use more personal trainers, massage therapists and music teachers.

This bolsters employment.

Yes, automation creates friction in the labor market. But workers who learn new skills, seek out fresh opportunities and are willing to relocate to survive and prosper.

Where will the new jobs come from?

No one can say. Ever.

The economy does not follow a five-year plan put together by really smart technocrats. The Soviet Union tried this and - not only could no one make a decent pair of jeans or keep bread on the shelves - it ended in national destruction.

If I had told you 10 years ago that hundreds of thousands of people would make money with Uber or Airbnb, you would have rightly said I was talking gibberish.

The companies didn’t exist, and no one could have predicted them, just as no one predicted the internet, social media, 3-D printing, big data, genetics, sensors or thousands of other innovations.

Every time pundits warn us that technology will swamp job creation, they are proved wrong.

In 1962, President John F. Kennedy openly fretted about how we would “maintain full employment at a time when automation is replacing men.”

At the time, total U.S. employment was 55 million. Today it is 144 million.

The lesson here? People and businesses adapt. They always have. They always will.

Embrace - better yet, invest in - the Robot Revolution. If you’re interested, there’s even an ETF devoted to the idea: ROBO Global Robotics and Automation Index ETF (Nasdaq: ROBO).

Good investing,

Alex

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A Highflying Giant in Healthcare Logistics

More often than not, efficiency equates to profits. And in the healthcare logistics industry, Owens & Minor (NYSE: OMI) is a giant. The company has been part of The Oxford Communiqué's Trading Portfolio since 2009. And for good reason...

Owens & Minor offers a line of medical and surgical supplies to healthcare providers under the MediChoice private label. And its supply chain management services include logistics, supplier management, analytics, inventory, outsourced resource management and consulting, and clinical supply management services to manufacturers of medical and surgical products.

For 85 years, Owens & Minor has paid a dividend to its shareholders. In Alex's words: "When it comes to paying a dividend, Owens & Minor is about as reliable as a company can get... over the last five years, Owens & Minor has experienced an annual dividend growth rate of 14.2%..."

Today that yield hovers around 3%. To date, the company has provided Oxford Club Members with a near 50% return (including dividends).

"It's not a nail-biting business," Alex wrote in 2013. "But when it comes to U.S. healthcare suppliers, no other company does it better than Owens & Minor."

- Alexander Moschina with Alexander Green

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