I suspect a vast number of the Black Swan crowd are scratching their heads today as they ponder the reasoning behind the market. I mean if you get stuck to news and media inklings, you would be hiding in a foxhole with canned goods, weapons and a pile of gold coins. Our hunch remains that will be a bad bet in the future as well.
The title today is a play on words – my generation called it “missing the boat” – the next generation to drive the power of our economy will be far different indeed, hence the reference to drones.
Speaking of Drones
Not sure if you caught the piece or not about the Chinese military movements in the small islands sprinkled around the South China Sea. Seems the military will be using drone subs to watch the area. Now there is a shift. The article went on to describe the pipeline of tools our military will begin to implement.
The list includes “forward pods” which will house even smaller drones (which apparently look like fish) to scour the area for information. This will be in conjunction with the surface drone we sent you a clip on last week which is designed to hunt enemy subs. It is capable of manning the surface during “hunts” with no one on board the surface drone.
Well I say this with kindness intended – many are indeed missing the boat. We are infatuated with data from our past – data from old assumptions – data from old systems, processes and industry.
Imagine for a moment living in the 50’s, 60’s and 70’s and refusing to embrace or accept what changes the Baby Boom brought in the 80’s?
The market is not overcoming all of these events we have been struggling through because QE. It is not reclaiming altitude because the Fed is printing money – or because of some secret group trying to foil the gold guys.
The market is continuing the climb up the mountain of commerce because we are reshaping our economy. Like a snake shedding old skin, nearly everything we currently think we understand will require a more refreshing perspective moving forward.
While the world awaited Doha – even Saudi Arabia was beginning to understand oil’s time is slowly but surely dissipating:
That is likely why the market did not sell-off after no agreement was reached this weekend (even though I held a secret wish it would).
Speaking of The Oil Front
In real-time, many have mistakenly assumed that oil production would plummet as rigs fell off and were stacked. The line of thinking went on to assume that as oil production halted, prices would rise and that is how the industry would eventually recover.
We suggest one not get too accustomed to that idea.
Instead note this:
A more productive view is likely to be something that sounds a bit like this:
Thanks to technology, cost-effectiveness and more advanced procedures, oil companies will begin find ways to make solid profits from far lower oil prices. Some companies will of course not survive this – which is part of the process always underway.
Instead, new investments will continue to be made, advantages will be built and solutions will be created. The energy sector will remake itself – just as every sector will while Generation Y seeps farther into the system.
Many may not recall the RTC back in the early 90’s. It was created by the Fed’s as a response to the last real estate crisis we dealt with in the US – that time being more commercially based. Every downtown district was dotted with “see-through” buildings. Nice glass statues with no tenants.
The Resolution Trust Corp (RTC) was created to flush all the bad loans into one entity and then sold off for cheap. The banks that were cleaned out survived. Over 1500 banks and S&L’s did not at the time.
The point is this: There was a siren call in the crowd – it told us for months that we would take decades to pay off the problems from that collapse and waves of default.
You had two choices. You could listen to that noise or you could hear the nearly silent voice whispering, “you cannot believe how much money I am making by buying real estate for 5 cents on the dollar from the RTC.”
The result? The RTC was done in 18 months – not decades. Massive wealth was created for some while others feared how big the problem was even after it was over.
By the way – back then, the DOW was bouncing in the neighborhood of 3,000.
I sense some of the same happening today.
I have a hunch that we will look back on this “walking in quicksand” feeling of the last 18 months (hopefully a bit more to go) and recognize it from a distance for what it really was – a series of shifts.
Tectonic Shifts is what we called it in our piece from 2013.
These shifts can be viewed as the ends of things or the beginning of the next phase. One can be lost in what is going away or can take advantage of all that is being built – even if different from what we knew before.
Today, we must understand the Barbell Economy.
We must understand the shift taking place as the next couple of years unfold.
We must envision the baton being passed under all the stress.
We must embrace the massive (and sometimes frightening) process of opportunity being built as it unfolds.
It sounds pithy – but everything old really is becoming new.
That is why the market has churned for 18 months making little to no headway.
Pray for another correction. Be ready to pounce.
…and watch “left field” – the next 100% move is up.