Age of Abundance? It Depends

From Joshua Brown of The Reformed Broker: Abundance

Facebook is free. Twitter is free. Snapchat is free. Instagram is free. Youtube is free. Video game apps are free. Texting is free. Sexting is free. Skyping is free. Chatting is free. Why would you spend money on anything? Where do you think people spend their time now? Endless entertainment and content, for almost nothing.

Kinda…but the internet service is certainly not. Carriers will give the phone for free if you lock-in a long-term expensive contract. The electricity bill, too, which in addition to the internet bill, needs to be paid to run Netflix. TVs are very cheap but cable bill keeps rising:

Computers are cheap but software still stubbornly expensive. Through bifurcated inflation, the money is still going to be spent. Not through hardware (which is getting cheaper) but by services (which are becoming more expensive).

Here is the break-down by category:

Automate everything, outsource the rest – it’s cheaper for the customers. “But now there are no customers left, no one has the money to be a customer anymore.”

hmmm…yet the new Star Wars movie grossed $2 billion, a record haul. Obviously there are customers and they are buying stuff. There is also the huge business to business segment of the economy of companies spending tens of billions of dollars to advertise on TV and on social media. Consumer spending still at record highs.

The Luddite Fallacy is the subject of considerable debate. Some assume that eventually all jobs will be automated, but history has shown that new jobs are always being created. The automobile industry, which replaced the horse and buggy industry, has created millions of jobs around cars, car parts, aftermarket modifications, car salesmen, accident lawyers, car accessories, etc. No one really knows what is going to happen but the evidence suggests that human labor will not be subsumed by robots anytime soon. You also have to take into account that the definition of ‘work’ is also changing, with salaried jobs being replaced by ‘gig’ work, temporary work, contracting, self-employment, as well as jobs that have fewer weekly hours.

You can blame the Federal Reserve’s loose money policies if you’d like. There is over-investment in every industry. It’s killing confidence. Nothing is worth what it used to be. We haven’t adjusted to this reality yet.

What evidence does he have that confidence is ‘getting killed’. Just another unfounded supposition.

Here are the results: You can get a job but there’s nowhere you can afford to live that is anywhere near that job. You can create your own job but, absent access to capital markets, you can’t compete with those who have it. Plenty of hiring in New York and San Francisco. Good luck living there.

Josh also ignores that New York and San Francisco also have among the highest wages.

Although New York is expensive for minimum wage earners, San Francisco is relatively affordable because wages are so high.

Even money is free. The people and firms with the least need to borrow it can borrow it with abandon. Apple can have as much money as it wants, virtually free. They have no idea what to do with it. The US and German and Japanese governments can borrow for free. Then what?

It’s close to free for large entities like multinationals and the fed. govt. that can borrow at next to nothing, but rates are still high for ordinary people. It costs 6-8% a year to borrow money from TD Ameritrade when using a margin account, which is the same as it was when interest rates were much higher. Low interest rates haven’t dented credit card interest rates; in fact, rates have risen (probably in response to federal consumer regulatory costs incurred since 2008):

Malinvestment is everywhere. The capital markets runneth over. “Give us something with an income stream to put our money into! Even the promise of an income stream will suffice.”

As if he’s one to judge…In early 2014, Josh was bullish on 3-D printing stocks, all of which have fallen 75% or more. Facebook and Amazon were called bubbles and have defied expectations. Sometimes there’s malinvestment’; other times there isn’t, but the expected value is what matters. A few big winners are enough to compensate for many losers. That’s how VC works.

Today there is too much of everything and no demand for it. Abundance is wrecking the economy. Too much oil, too much gas. Too many websites and shows and streaming services and apps. Too many subcultures and verticals and genres. How can anyone be heard or seen? How can anything rise above the din?

There is abundance in some areas (TV show selection, apps, cheap food, low borrowing for multinationals and US govt.) and less so in others (college tuition keeps going up, very high borrowing costs for mainstream and small business). With the exception of recently bad earnings in the energy sector and potential problems with China and emerging markets, the economy isn’t ‘wrecked’, but rather subdued or slow. It’s more like a ‘winner take all’ economy, amplified. It’s possible to have a strong economy even if many are not fully participating, due to a handful of superstars who compensate for the millions who are treading water, just getting by.

If you’re wondering why the fringe candidates are the mainstream candidates in this election cycle it’s because there is no mainstream. It’s because only the most extreme views can be heard across all of the cultures and platforms and verticals and genres. You have to sound like a fucking insane person. Kanye knows this. Kim taught him. Trump knows this – instinctively. “I can be anything to any group I’m speaking to.” He was born for this moment in time.

No, fringe candidates are succeeding because people are tired of the ‘mainstream’, not because the mainstream does not exist. People are tired of the unmovable ‘status quo’, where their voices are drowned out, and this could explain the rise of Trump and Sanders, who are lending an ear to the masses. Josh’s article is full of so many generalizations, many of which are wrong or have many counterexamples. Hard to know what will happen, but my money is on things remaining how the are, but more so.