Why Musk Is Wrong

Wrong About Robots

“Is Elon Musk really wrong? Is Robin Chase, the founder of Zipcar, really wrong?” asks Paradigm’s AI expert James Altucher. “Yes, they are…

“I’m absolutely sure they are wrong about robots,” he says. “And history backs me up on this. Common sense backs me up on this. Basic counterexamples back me up on this.

“Here’s the issue: if artificial intelligence (AI) and automation really destroy all jobs and change all industries, won’t everyone become poor and we’ll need a universal basic income (UBI) to survive?

“Elon Musk, Robin Chase and many other billionaires say yes.”

Perhaps they’re so out-of-touch that they’ve forgotten…

“Many industries have already changed because of automation and AI,” James says:

• Cashiers at retail stores are being replaced by self-checkout stations
• People who work in warehouses are being replaced by robots that roll around the warehouse floor picking products and putting them in boxes to ship
• People who make cars, etc. are being replaced by smart machines.

And it’s not just blue-collar jobs that are being affected. “A lot of high-income jobs are being replaced by automation and AI as well, including some surgeons, lawyers, accountants, etc.

“Will all of these people become homeless?” James asks.

“Let’s assume they will be. Millions of people without jobs. If that happens, who’s buying what the robots produce? Nobody. Even the rich will stop getting richer…

“One basic example from the recent past: ATMs,” James notes. “There was huge demand for an easy-to-use machine that would allow people to get cash without waiting in line at a bank.

“The bank-teller industry was terrified. Would this be the end? Would we no longer need tellers?

“It turned out the demand for banking services was far greater than simply getting a few $20s,” James says. “The cost of providing banking services went way down, allowing banks to open up 10X the number of branches. More branches provided more services to their customers.

“More services meant greater conveniences for consumers,” says James. “Today, the number of bank tellers and other bank employees is probably 1,000% or more greater than before ATMs were invented.

“That’s just one example. Now let’s go to the theory…

“Automation and AI will create greater supply of services and products in high demand. This will create more conveniences for consumers at cheaper prices,” James notes.

“And selling greater supply at cheaper prices will allow businesses to generate greater profits. Those profits will allow for greater expansion, more products and services and hiring more employees.

“I might be 10% wrong. But I’ll still be 90% right,” he adds wryly.

“Creative destruction is a part of life. Just ask the buggy-whip makers and the lamplighters. When tech came for their jobs — the automobile and the electric light bulb respectively — it happened fast and it was permanent.

“The good news is that AI and automation aren’t going to destroy the job market like so many people expect. They WILL shake things up, but they’ll create many new opportunities.

“This won’t all happen right away,” James concludes, “but soon we’re going to see a new landscape of jobs. It’s important to get ready for it.

“And it’ll create fortunes for investors who see it coming.”

The Fed’s Losing Battle

“The second FOMC meeting of 2024 has arrived, and we are here for a complete analysis of what it means for markets and your money,” says Paradigm’s macro expert Jim Rickards.

So we won’t bury the lede: “The Fed will leave its target rate for fed funds unchanged at 5.50%,” Jim predicts. 

Why should you take Jim’s word for it? “Over the course of 16 FOMC meetings, beginning March 16, 2022, we’ve been correct in all of our forecasts including the policy rate pause that began last September. We’re confident we’ll be correct on Wednesday also.

“In addition, we expect the Fed’s rate hike cycle is over,” Jim says. “In effect, the Fed has concluded that they have reached the terminal rate. That’s the rate at which inflation is expected to come down on its own without further rate hikes, lowering inflation to the Fed’s target of 2.0%. It’s just a matter of time and patience.

“The reason for the Fed sitting tight and not cutting rates (the infamous ‘pivot’ that Wall Street has been wrong about for almost two years) is…

“The Fed is losing the battle against inflation,” Jim says.

“When inflation (measured monthly by CPI on a year-over-year basis) dropped from 9.1% in June 2022 to 3.0% in June 2023, the Fed was ready to declare victory. The Fed’s goal was still 2% annualized inflation, but progress from 9.1% to 3.0% was so dramatic that 2.0% seemed well within reach.

“Around that time (July 2023), the Fed hit the pause button on further rate hikes. Since then, the inflation news has been consistently bad for the Fed…

“Inflation is not going down,” Jim says. “It’s higher today than it was last month. The best that can be said is that inflation is stuck in a range around 3.3%.”

And inflation might get worse… 

“Energy prices have been on a tear,” Jim observes.

“The crude oil WTI futures contract hit an interim low of $68.50 per barrel on Dec. 12, 2023. Today, oil hit $82.00. That’s a nearly 20% price spike in three months.

“The price of oil shows no sign of backing down. With Houthi rebels in Yemen shutting down oil tanker traffic through the Red Sea/Suez Canal route, oil must now move around the Cape of Good Hope in South Africa. That’s a far more costly journey and will create oil shortages because it takes much longer.

“Oil price increases don’t hit consumer prices all at once,” he notes. “It takes time for the higher oil price to trickle through the economy in the form of higher transportation costs, higher prices for gas at the pump and higher prices for everything from food to clothing which depend on energy for their production.

Photo courtesy: Paradigm editor Byron King
“California gasoline,” Byron comments… Coming to a pump near you?

“The March 2024 oil price spike will keep CPI inflation higher than expected for months to come.

“The Fed’s dilemma carried over from prior meetings is still unresolved,” Jim concludes. “Continuing high inflation and high oil prices argue for keeping rates where they are.” On the other hand?

“Reduced consumer spending, higher credit card balances and higher loan delinquencies argue for possibly cutting rates to avoid a recession,” he adds. “In the face of such conflicting data, the Fed will do nothing and simply wait.”

Jim and his team will pore over the Fed’s report this afternoon; they’ll provide post-meeting analysis tomorrow…

Rethinking the “Rusty” Russell 2000

“Investors are already betting that we’re not going to get relief in the form of rate cuts early this summer,” says Paradigm’s trading pro Greg “Gunner” Guenthner.

“If we do hear hawkish comments from the Fed on Wednesday, it’s not difficult to imagine a scenario where speculators back off — or even begin to aggressively take profits.

“Rising yields are already causing problems with small-cap stocks,” Gunner says. “Rates are putting pressure on these potential rotation trades, which have encountered stiff headwinds recently.

“The small-cap Russell 2000 looked ready to explode higher less than two weeks ago. Now it’s red for the month and looking to test round-number support…

“If the rusty Russell can’t bounce soon, it could have much bigger problems.

“I recently told you about what was at the time a beautiful base breakout — and how the small-cap index was about to clock new two-year highs and erase a major portion of its bear market drawdown.

“Today, the Russell is officially on a false breakout watch,” Gunner says. To wit, the iShares Russell 2000 ETF (IWM) is up 0.15% today… but that’s barely over 1% YTD.

“Again, failure here could lead to a sharp move lower,” Gunner closes. “That would be a punch in the gut of this potential catch-up trade in the making as these rate-sensitive stocks reset.”

Meanwhile, stocks are ruler-flat so far today: The Dow and S&P 500 are slightly in the green at 39,120 and 5,180 respectively. Conversely, the tech-heavy Nasdaq is barely in the red, stuck at 16,160.

And the price of crude’s pulled back 2.20%, but still priced above $81 for a barrel of West Texas Intermediate. Gold’s holding steady at $2,159.60 per ounce. The same goes for silver: hanging out above $25.

But crypto’s getting whacked this week. Bitcoin’s lost 1.75% to $63,500, and Ethereum’s dropped 1% to $3,300.

Ozempic’s Dirty Secret

“The obesity and metabolic-space frenzy is sending valuations soaringfor companies like Novo Nordisk and Eli Lillythat are riding the wave of next-gen GLP-1 drugs,” says Paradigm’s chief science-and-technology expert Ray Blanco.

“If you’re not already familiar, these drugs (most notably Ozempic) are helping people improve their metabolic health by mimicking peptide hormones secreted by the digestive system.

“The benefits of GLP-1 class drugs are impressive and extend far beyond weight loss.

“For instance,” Ray says, “recent data shows a 25% reduction in major adverse cardiac events for people using these drugs, as well as reductions in background inflammation in the body.

“But these drugs aren’t perfect… The weight patients lose isn’t just fat tissue — anywhere between 25–40% of weight loss can come from muscle.

“This is bad because muscle burns a lot of energy. And losing muscle mass lowers your basal metabolism and makes you weaker. However, it opens a big market for companies that can prevent muscle loss.

“The top obesity drugs are already raking in billions per year, and they've only scratched the surface of the market.

“A muscle-preserving solution could blow the lid off the entire industry,” Ray says, which is “an overlooked opportunity that I’m watching very closely.”

Glassdoor Gets TOO Transparent

“Time to delete your Glassdoor account and data,” says Monica, a software pro who resides in the Midwest.

Monica has used the supposedly “anonymous” workplace-review site for about a decade. “This month, though, she abruptly deleted her account after she contacted Glassdoor support to request help removing information from her account,” Ars Technica reports.

“She never expected that instead of removing information, Glassdoor's support team would take the real name that she provided in her support email and add it to her Glassdoor profile — despite Monica repeatedly and explicitly not consenting to Glassdoor storing her real name.”

Deleting her account, by the way, wasn’t the solution Monica hoped it would be. Instead, she would have to fully deactivate her account to prevent the company from storing her name and personal data.

Nevertheless, Monica pursued the issue up the food chain until receiving this robotic response from a Glassdoor manager: “I stand behind the decision that your name has to be placed on your profile and it cannot be reverted back to just your initials or nullified/anonymized from the platform.”

*Beep-boop-boop-beep*

For a company whose entire business model was predicated on anonymity, there’s no way to whitewash this: Glassdoor deserves to be shattered.

Take care, and we’ll be back tomorrow with another episode of 5 Bullets…