“When I see memos from Howard Marks in my mail they’re the first thing I open and read” is an oft cited quote from Warren Buffett to remind us of the wisdom that Marks has to offer. And yet Marks’ now legendary memos are less about predictions and forecasts as the humility that it is futile to attempt it even if you have seen decades of market cycles like Marks. It is one about continuous learning, being open to change and being able to adapt your thinking to the ever changing nature of the world we live in. This memo is all about change – change in business, economy, work and democracy alike. On the economy, he talks about the influence of technology on the labour markets given automation is making labour redundant:
“The optimists say, “some new need for labor always pops up” (as it did in manufacturing between 1920 and, say, 1970). But (a) you can’t see much sign of that in the tech-based industries that are on the rise – they’re just not labor-intensive – and (b) the workers that technological industries require are generally better educated than those cut adrift from the manufacturing sector. This latter element is especially worrisome given the declining quality of public education available in the U.S. (There is, however, room for growth in jobs in the service sector.)
I worry about where the workers no longer needed in manufacturing will find employment. For those who look to government for solutions, the most likely answer is support payments designed to guarantee everyone a living wage. But can we afford to support growing numbers of unemployed workers and their families? And how will we replace the non-monetary benefits from work: things like having a place to go each day and satisfaction with a job well done. Is sitting on the porch really a viable substitute for a job? I believe the opioid epidemic, for example, is highly correlated with job losses. Government largesse isn’t an adequate substitute for jobs.”
On inflation, he quotes extensively from Ark Invest’s Cathie Wood, somebody who epitomises the technological driven change in many ways:
“Cathie says:
“We’ve been saying for some time that the risk to the economy is more on the side of deflation than inflation. So, as Covid created all the destruction that it did and with supply chains really being thrown off, we’ve been through a period here of inflation which I think investors are baking into the cake. . . .
. . . I was in college [during the 1970s], when inflation was raging, so I know what that is, and I truly believe we are not going back there, and that anyone planning for it is probably going to be making some mistakes. . .
…On the innovation side, technologically enabled innovation – we are in a period today like we have never been. Never! I mean you have to go back to the telephone, electricity and the automobile to see three major technologically enabled sources of innovation evolving at the same time. Today we have five platforms: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology, all of which are deflationary, and not just by a little bit, either.
We think [the deflationary bust] is going to be balanced by a deflationary boom, so that’s where we differ. But where we agree is that there are companies who thought the world would never change and have been catering to short-term shareholders who wanted that extra penny or two in earnings and so got it by having the companies lever up and take more debt and shrink the number of shares, and they’ve also been focused on dividends. They are probably saddled with products and services that will become obsolete because of the record-breaking amount of innovation taking place today. And in order to service their debt, they are going to have to cut prices and move those goods and services that are on their way out anyway. . . So what it will mean is that the traditional GDP numbers we’re going to be seeing are going to be very low and growth will seem very scarce. . . .
There will be a lot of job displacement, there will be, no question about it. In fact, when we started our company in 2014, Oxford University had just put out a piece that said 47% of all jobs in the United States would be lost to automation and artificial intelligence by 2035. And they left it there. Hair on fire, headlines screaming, a lot of fear about automation. We got the question in every meeting. And what they had neglected to do – which we did – was finish the story.
With automation and artificial intelligence, productivity is going to go up dramatically. We think more than it ever has, certainly in modern times. And with productivity increases comes more wealth creation, and more GDP creation, and according to our estimates, in the year 2035, because of automation and artificial intelligence, we believe that GDP here in the United States will not be $28 trillion, which, if you drew linear growth, that’s where it would be, but instead will be $40 trillion . .”
“The optimists say, “some new need for labor always pops up” (as it did in manufacturing between 1920 and, say, 1970). But (a) you can’t see much sign of that in the tech-based industries that are on the rise – they’re just not labor-intensive – and (b) the workers that technological industries require are generally better educated than those cut adrift from the manufacturing sector. This latter element is especially worrisome given the declining quality of public education available in the U.S. (There is, however, room for growth in jobs in the service sector.)
I worry about where the workers no longer needed in manufacturing will find employment. For those who look to government for solutions, the most likely answer is support payments designed to guarantee everyone a living wage. But can we afford to support growing numbers of unemployed workers and their families? And how will we replace the non-monetary benefits from work: things like having a place to go each day and satisfaction with a job well done. Is sitting on the porch really a viable substitute for a job? I believe the opioid epidemic, for example, is highly correlated with job losses. Government largesse isn’t an adequate substitute for jobs.”
On inflation, he quotes extensively from Ark Invest’s Cathie Wood, somebody who epitomises the technological driven change in many ways:
“Cathie says:
“We’ve been saying for some time that the risk to the economy is more on the side of deflation than inflation. So, as Covid created all the destruction that it did and with supply chains really being thrown off, we’ve been through a period here of inflation which I think investors are baking into the cake. . . .
. . . I was in college [during the 1970s], when inflation was raging, so I know what that is, and I truly believe we are not going back there, and that anyone planning for it is probably going to be making some mistakes. . .
…On the innovation side, technologically enabled innovation – we are in a period today like we have never been. Never! I mean you have to go back to the telephone, electricity and the automobile to see three major technologically enabled sources of innovation evolving at the same time. Today we have five platforms: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology, all of which are deflationary, and not just by a little bit, either.
We think [the deflationary bust] is going to be balanced by a deflationary boom, so that’s where we differ. But where we agree is that there are companies who thought the world would never change and have been catering to short-term shareholders who wanted that extra penny or two in earnings and so got it by having the companies lever up and take more debt and shrink the number of shares, and they’ve also been focused on dividends. They are probably saddled with products and services that will become obsolete because of the record-breaking amount of innovation taking place today. And in order to service their debt, they are going to have to cut prices and move those goods and services that are on their way out anyway. . . So what it will mean is that the traditional GDP numbers we’re going to be seeing are going to be very low and growth will seem very scarce. . . .
There will be a lot of job displacement, there will be, no question about it. In fact, when we started our company in 2014, Oxford University had just put out a piece that said 47% of all jobs in the United States would be lost to automation and artificial intelligence by 2035. And they left it there. Hair on fire, headlines screaming, a lot of fear about automation. We got the question in every meeting. And what they had neglected to do – which we did – was finish the story.
With automation and artificial intelligence, productivity is going to go up dramatically. We think more than it ever has, certainly in modern times. And with productivity increases comes more wealth creation, and more GDP creation, and according to our estimates, in the year 2035, because of automation and artificial intelligence, we believe that GDP here in the United States will not be $28 trillion, which, if you drew linear growth, that’s where it would be, but instead will be $40 trillion . .”
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