Tag Archives: technology

As Time Goes By – Technology and Emerging Markets

Technology advances are swift in the emerging markets.

Photo: David Wilson. Source: Wikipedia

The Templeton Emerging Markets Group recently noted the evolving make-up of the emerging market technology sector. In theory, an emerging market is an economy in transition from state controlled to one with increasing economic freedom. Along comes integration in the global marketplace and greater standards of living. A more familiar imagining of the emerging market is one of extraction: both of resources (commodities and labor) and cheap, manufactured goods.

Global investment in emerging markets took off in the 1990s. At that time, technology companies were 3% of the MSCI Emerging Market Index. Now it’s at 23%. Growth in software and services has outstripped that of the production of hardware and components.

In China, Baidu, Alibaba and Tencent are the holy trinity of tech companies (paywall). Although they lack the size of the FANG stocks, they not only dominate their home markets but invest in many of the same lines of business as their American counterparts. Autonomous cars, grocery delivery, drones…

Companies in the emerging markets can innovate in certain areas like mobile payments or fintech that traditional tech companies struggle with because they can adapt and add on to existing technology without the legacies of mainframe or desktop computing or certain consumer expectations.

Many people around the world get online for the first time through their phone. 75% of web pages loaded in India are done on mobile devices. Chinese users rarely use a credit card. Got a tricky bill to split at a restaurant? Each diner need only scan a QR code at their table with their WeChat app and enter the amount they wish to pay the vendor. M-Pesa, a mobile phone based money transfer app was launched in Kenya in 2007 by Vodafone. Users bypass the bank- mobile network operators and retail outlets act as banking agent. In 2016, M-Pesa had 29.5 million active customers, 287,400 agents, and operated in 10 countries. It processes billions of transactions a month, an integral aspect of everyday life for millions of people around the world.

While it is no surprise that companies in emerging markets would increasingly turn to serve their domestic economy and cater to consumers, investors tend to focus on their home markets and developments abroad can pass unnoticed. Who knows? Maybe soon we will see an EM company successfully take on an issue in the American market left unaddressed by our own legacy products.

Veronica Peterson

Technological Feudalism

Technological Feudalism

Are we technology serfs?

Reeve and Serfs harvesting wheat. Source: British Library

In the Middle Ages, serfs were tied to the land. They weren’t slaves—it was worse. They and their descendants were perpetually bound to their Lord’s estate. They couldn’t just leave. If the Lord wanted different crops, the serfs had to plant them. If the Lord went to war, the serfs had to take shelter. The nobility had a lot of privileges but very few responsibilities. In exchange serfs got security, of a sort: by storing the harvest in the Lord’s castle, raiders couldn’t just steal all their food.

In the tech world today, we are bound to our technological Lords—Apple, Google, Microsoft. We let them gather our data and we hoping they’ll keep it safe. They do maintain some kind of order—looking out for virus-infected apps, or protecting us from other data dangers. But they really are like feudal lords.

And they exact a price. They control the social space around their products; it’s difficult to have an email account not linked to the cloud, it’s hard to get your resume out if you’re not on LinkedIn. And they reserve the right to change the rules of the game, updating operating systems, installing security patches, even rebooting our machines in the middle of the night.

Companies like Facebook and Google insist our data is theirs, to do with what they will. Maybe it has been. But data, like land, can revert to its original owners. Is it time for a data jubilee? Will the serfs rise?

Douglas R. Tengdin, CFA

Inflation Nation (Part 1)

Why isn’t inflation coming back?

Year-over-year CPI change. Source: Bloomberg

In the ‘60s and ‘70s inflation grew out of control. Nixon’s price controls didn’t stop it. But it settled down after Paul Volker’s restrictive monetary policy and Alan Greenspan’s careful management of the Fed. Economist Milton Friedman famously claimed that inflation is “always and everywhere a monetary phenomenon.” But after the financial crisis, inflation dipped below zero and the Fed flooded the economy with money. Many feared that inflation would come roaring back.

But this didn’t happen. Prices have been pretty stable. In fact, inflation still seems to be on a downward trend that began around 1990. Why?

A lot of theories have been proposed—the Fed’s money just “sat in the banks,” the rate that money circulated through the economy fell, that assets have inflated via bubbles while consumer goods have stagnated. But these seem to miss the point, or to be tautologies. The economy’s money supply has expanded dramatically, but consumer prices have grown at a snail’s pace.

M2 growth and Core CPI growth, year-over-year. Source: FRED

It’s not enough to say that monetary policy acts with long and variable lags. M2 is the most common measure of transactional money—what we use to purchase goods and services. It’s been growing faster than 5% for over six years. Both core and headline inflation, however, remains extremely low.

The problem must lie in the theory—the theory that dictates that inflation is exclusively a monetary issue. There must be elements of the real economy keeping inflation in check. I see three large-scale, long-term issues. First, the US economy is far more integrated with the rest of the world than ever before. And we do not have good data on global money supply. Second, global demographics limit demand. Populations around the world are aging—in some cases, quite dramatically. This is because life-expectancy is rising while fertility rates are falling. This is happening in almost every country around the world, but especially in high-demand countries like Europe and Japan. Since 1980, the share of the world’s population over 60 has grown from 8.5% to 12.3%, and older folks don’t consume as much as younger people.

Source: UN

Finally, technological innovation continues to challenge traditional economic equations. The cost of distributing a movie to a billion wired households is only marginally greater than streaming it to a million homes. Information is not conserved, the way that material and energy are. Digital information can be copied and multiplied for almost nothing. This radical change in the economy continues to disrupt business models, from record stores to hotels and restaurants to airlines. There’s a lot less need to travel when videoconferencing is almost like being there in person.

This has profound investment implications—from Fed policy and bond yields to business models, profit margins, and stock prices. Although difficult for monetarists to confront, the data from the last 20 years seem conclusive: inflation is—at least partially—real.

Douglas R. Tengdin, CFA

Chief Investment Officer

Our Fibers, Our Selves

What do our clothes say about us?

Illustration from “The Penny Magazine,” 1843, Source: Wikimedia

For millenia, clothes have inspired new technology. Cotton has been spun, woven, and dyed since prehistoric times. Marco Polo pioneered the Silk Road and the Age of Exploration. Spinning mills in England and New England were at the center of the Industrial Revolution. Demand for “Basic Black” fashions stimulated the chemical industry in the 20th century.

Everyone’s excited by the latest smart watch or FitBit, but clothes are the original wearable tech. Whether it’s sweats or jeans or khakis, our clothes now combine natural, synthetic, and micro-fibers to make them more comfortable, cheaper, and better looking. But we don’t think of high fashion as high-tech.

Apple watch. Photo: Igor Ovsyannykov. Source: Pixabay.

But tech and textiles have been interwoven ever since the Athena was considered the goddess of both wisdom and weaving. Textiles illustrate a general point about technology: the more we use something, the more we take it for granted. We love and hate our smart-phones, but flat screen TVs are ho-hum.

In the future, we should expect more interaction between our garb and our gear: shirts with biometric sensors built in, or clothes that use our own motion to generate electricity, where the material becomes a wearable textile circuit. These new technologies will arrive because we want them. And they don’t need a massive government program to become reality.

A century ago, a young Oliver Hardy was in a silent film entitled, “The Clothes Make the Man.” Today we might say, “Fashion is the future.”

Douglas Tengdin, CFA

Charter Trust Company

[category Global Market Update]

Rationally Optimistic

The case for pessimism seems strong, doesn’t it?

Global Real GDP, 2010 dollars (Log scale). Source: Bloomberg, World Bank

Secular stagnation in the economy, nationalistic anti-trade political parties growing, and jihadist terrorism rising: it’s easy to have a grim view of the future. But when you look at long-term economic growth, these concerns—although legitimate—seem short-sighted. The large-scale trends that have fueled global growth since World War II haven’t stopped. More people are gaining access to new, productive technologies than ever before. More people are engaging in free, mutually beneficial trade than ever before. Fewer military conflicts roil the world’s waters.

The world’s average well-being is triple what it was 60 years ago. And, if anything, that measure understates how much better off people are. Global per-capita economic growth has increased at a fairly consistent 2% rate—a little slower in the ‘80s, a little faster in the ‘90s—driven by advances in trade and technology. But the technology that facilitates economic growth has also made our lives much better. Life expectancy in the US has risen from 70 to almost 80 years. In China it’s risen from 43 years to 76 years. In parts of Africa, life expectancy has almost doubled. And advances in communication technologies mean that these people are far more productive for far longer than has ever been imagined before.

Source: Bloomberg, World Bank, US Census Department

In part this is due to visionary direction by leaders like Deng Xiaoping and Rajiv Ghandi, who realized that economic competition doesn’t mean that one nation wins and the other loses. Comparative Advantage allows global trade to make everyone who participates more productive, as long as the transition to a new regime is gradual enough for displaced workers to adjust to different, more globally competitive jobs.

But in part this is the inevitable progress of technology. Some feel that all the obvious technological advances have been made—that the introduction of electricity, automobiles, and sanitation are unlikely to be matched ever again. But I believe that having 3 billion more human minds working on the grand challenges of our time—like economic inequality and environmental degradation—will ultimately lead to solutions that benefit everyone.

I’m not saying we aren’t facing near-term problems. But with technology racing ahead, it seems that reports of the economy’s stagnation have been greatly exaggerated.

Douglas R. Tengdin, CFA

Chief Investment Officer

Fashioning the Future

What do our clothes tell us about technology?

James Gilray, “Following the Fashion.” Source: Library of Congress

For centuries, clothes have inspired trade and technology. The silk road gave us Marco Polo and the Age of Exploration; the Industrial Revolution gave us spinning mills in England and New England; Intense, basic black fabrics in the early 20th century stimulated the chemical industry; synthetic fibers like rayon and nylon made wrinkle-free clothes possible and built the DuPont company.

Everyone’s excited by smart watches and FitBits, but clothes are the original wearable tech. Whether it’s sweats or jeans or khakis, our clothes now combine natural, synthetic, and micro-fibers to make them more comfortable, cheaper, and better looking. But we don’t think of high fashion as high-tech.

But tech and textiles have been interwoven ever since the Athena was considered the goddess of both wisdom and weaving. Textiles illustrate a general point about technology: the more we use something, the more we take it for granted. We love (and hate) our phones, but flat screen TVs are ho-hum.

In the future, we should expect more interaction between our garb and our gear: shirts that have cellular antenna fabric woven through them, or clothes that use our own motion to generate electricity, where the material becomes a wearable textile circuit.

Shakespeare once noted, “The apparel proclaims the man.” Today we might say, “Our fashion is our future.”

Douglas Tengdin, CFA

Charter Trust Company

The Mosquito Coast

What if we found a way to eliminate malaria?

Photo: James Gathany. Source: Center for Disease Control

I hate mosquitoes. When I was growing up in Minnesota, we joked that it was the “Minnesota State Bird.” Mosquitoes suck your blood and make you itch. And they carry a lot of diseases, including Malaria.

Malaria kills half a million people every year, mostly children in tropical Africa. References to the disease have been found throughout history and around the world, from ancient China, to Greece and Rome, to 19th century Europe and America. It has been controlled by a combination of medicine and public health measures. It’s still a major problem in Africa.

Malaria Life Cycle. Source: NIH

But a new technology is being developed that has the potential to almost totally eradicate the disease. Using a form of genetic engineering, it sterilizes the mosquitoes that transmit the parasite to people. And it could help with other problems—saving Hawaii’s disappearing native birds, or stopping the spread of dengue fever and the Zika virus.

But it raises lots of issues: would removing some species of mosquito upset ecosystems? Is it ethical to eliminate an entire species? Could we risk a genetic epidemic if the altered DNA jumps to another insect? And could the technology be used by terrorists to create a designer plague? Some think the research ought to be classified, although it’s probably too late for that.

This is reminiscent of the questions that arose in the ‘70s when recombinant DNA first started to be used. At that time, scientists declared a voluntary moratorium on new research projects while professional and ethical guidelines were worked out. Since then, hundreds of different uses for the lab technique have been found—from synthetic human insulin to rennet-free cheese.

Our understanding is always advancing, and species continually adapt and compete with one another. Chances are, if we eradicate malaria-carrying mosquitoes, other mosquitoes will spread and take their place in the ecosystem. But eliminating malaria carries huge potential—on an economic as well as humanitarian basis.

Technology is what has made large populations possible. And large populations are what makes technology possible.

Douglas R. Tengdin, CFA

Chief Investment Officer

Autonomous Autos?

Are self-driving cars in our future?

Photo: Steve Jurvetson. Source: Wikipedia

I sure seems like it. Self-driving cars have been in the news. Honda, Toyota, and Nissan all recently announced that they plan to sell cars with automated highway driving functions by the year 2020–the year of the Tokyo Olympics. Traditional automakers are trying to get ahead of tech firms like Google, which has been testing a prototype. There are also reports that Apple is studying the technology.

Inventors have been experimenting with autonomous vehicles since the 1920s—when radio controls and servo-motors allowed a remote operator to direct a car through the thick of New York City traffic, up and down Fifth Avenue. In the 1990s an Italian Lancia traveled over 1,000 miles in northern Italy in fully autonomous mode. Now there are dozens of projects around the world, with governments, universities, and corporations holding competitions and offering prize money.

Photo: Steve Jurvetson. Source: Wikipedia

The potential benefits are huge: increased energy-efficiency, fewer accidents, less demand for parking, increased car-sharing—even reduced law-enforcement, since the cars would naturally be programmed to follow all traffic regulations. Of course, a lot of other issues would need to be worked out: liability, privacy concerns, and software security. Hacking could be a serious problem. On the other hand, hot-wiring will be pretty hard. Passwords and cryptography will become even more important.

Still, for all these concerns, self-driving cars seem inevitable. Transportation is a basic human need. And once we build a machine, we want it to go somewhere. We just need to be sure it goes where it’s told.

Douglas R. Tengdin, CFA

Chief Investment Officer

Falling Up?

What’s a “Bloomberg”?

Source: Wikipedia

Most people have never seen one. They may have heard about Bloomberg News, or read about Michael Bloomberg, the former mayor of New York. But there aren’t many computing platforms launched in the early ‘80s that are still around. There’s the Windows PC, which comes from the IBM PC, introduced in 1981. There’s Apple’s Mac—famously announced in 1984. And there’s the Bloomberg Terminal, which came out in late 1982.

In 1981 Michael Bloomberg was forced out of equity trading at Salomon Brothers, where he was a general partner, and into systems development. When Philbro Corporation bought the partnership Bloomberg was fired and given a generous severance bonus. He used the money to start a new venture that would provide current market data to professionals in as many forms as possible.

They started with just 22 terminals and were limited to their financial partner, Merrill Lynch. But Bloomberg quickly realized the tremendous growth potential, and Merrill lifted that restriction. The service began to grow 20% to 30% per year, supplanting Quotron, Telerate, and other market information products. They were a scrappy, nimble start-up with no legacy issues.

Bloomberg Terminal keyboard circa 1990. Source: Fastcompany

They now enjoy the network effects of 325,000 subscribers worldwide in tens of thousands of varied financial firms, from hedge funds to mega-banks. It’s hard to buy or sell a bond without exchanging Bloomberg-generated screens, and risk-managers and regulators rely on their reports. In hindsight, 1982 was the perfect time to start the new service. Global stock exchanges had just gone electronic, the recession had put many talented engineers out of work, and financial markets were booming.

In retrospect, getting fired from Salomon was the best thing that ever happened to Michael Bloomberg. The former investment banker is now a media mogul and is worth over $30 billion. Bloomberg’s success reminds us of the line by Walt Whitman: “Keep your face toward the sunshine, and shadows will fall behind you.”

Douglas R. Tengdin, CFA

Chief Investment Officer

Fashioning the Future

Where are textiles taking us?

Source: Good Free Photos

For centuries, textiles have inspired trade and technology. The silk road gave us Marco Polo and the Age of Exploration; the Industrial Revolution gave us thread-producing mills in midlands-England and water-rich New England; aniline dyes created intense, basic black fabrics in the early 20th century and stimulated the chemical industry; synthetic fibers like rayon and nylon made wrinkle-free clothes possible and build the fortunes of the DuPont family.

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