Last week, the eyes of the world were on Davos, Switzerland as the political and corporate elite gathered to mingle and pontificate about the future. However, if you really want to understand what lies ahead, you should focus instead on Seattle, where Amazon just opened its first cashier-less store.
Last week, Amazon introduced its Amazon Go store, where customers can simply swipe their smartphone when they enter, pick up their goods, and walk out of the store without having to go through the traditional checkout process. Easy peasy. OK. Maybe not so easy, as it took Amazon a year longer than expected to work out all the bugs.
But from this point on, their learning curve accelerates really quickly. And only a fool would underestimate Amazon's ability to constantly tweak the technology and eventually scale this concept store into multiple locations around the country. This is yet another example of why we have our stuckflation theme, as the market fails to grasp the underlying productivity and deflationary force of technological developments like the Amazon Go store.
There are 3.5 million cashers in the United States. It is the second largest job category. And it will not be growing over the next 10 years. The optimists will say that old jobs get destroyed and new ones get created. The problem is that the old jobs are being destroyed quickly and the new ones might actually go to robots rather than people.
At a minimum, the automation alternative to labor will keep a check on wages, even with record low unemployment. The Amazon goes toward not only needs fewer workers, it frees up time and increases productivity for its customers. That is equally deflationary over time. So what does this mean for investors? Well all this is another example of why we believe structural forces will keep inflation low and that they will dominate the cyclical factors which might cause temporary upticks in inflation.
The market will continue to be surprised at the true productivity of technology and how quickly automation can efficiently create supply in the economy. Furthermore, there is no imminent great bear market in bonds. While we believe the Fed will raise interest rates in March and bond yields will edge higher, it is more likely that we are nearing the end of the tightening cycle rather than the beginning of it. However sharply higher rates are not a threat to the equity markets. We therefore continue to remain overweight global equities.