Cash in on a Sure Thing in the Post-Crisis World
A month ago, I made some predictions about the bailout programs designed by the Federal Reserve and Congress.
All have been proven 100% correct.
No. 1: In this YouTube video, I predicted that corporate America and the financial sector would receive the biggest and fastest benefits from the bailout. As a result, they wouldn’t just avoid losses … they’d profit.
No. 2: By contrast, Main Street small businesses and workers would struggle to get anything out of the federal government.
On both counts … check.
No. 3: I also predicted that certain sectors would outperform the market over the coming weeks.
Specifically, that biotech, pharmaceuticals, internet companies and the technology sector would shine.
Again, I got that one spot on:
Total Gain, March 27 — April 24
|SPDR S&P Biotech ETF (NYSE: XBI)||28.49%|
|SPDR S&P Pharmaceuticals ETF (NYSE: XPH)||19.48%|
|First Trust Dow Jones Internet Index Fund NYSE: FDN)||18.94%|
|Technology Select Sector SPDR Fund (NYSE: XLK)||13.46%|
|S&P 500 Index||7.99%|
A lot has happened in the last month … And we’re starting to see the dim outlines of life after the COVID-19 pandemic.
Every major transition in the global economy produces winners and losers. The pandemic is no exception.
Some trends that were already happening, like 5G wireless, will continue.
But there’s another set of trends … changes that grow directly from COVID-19’s impact on the economy.
And it’s not too soon to position yourself to make profits from those trends now.
People Get Sick, So Don’t Hire People
COVID-19 appears to be accelerating workplace automation — a shift that’s likely to outlive the pandemic.
For example, Brain Corp., a San Diego company that designs software for cleaning-robots, says its customers have increased their use of robots by 13% compared to January. Sales inquiries have skyrocketed.
Similarly, Fetch Robotics says customers are jamming their switchboards with requests for information about their cloud computing product, which speeds up deployment of robots in warehouses and similar facilities.
Simbe Robotics is seeing increased demand for its shelf-scanning robot, called Tally, that audits inventory at grocery stores.
And those are just the latest “green shoots” of automation. They magnify a trend that you’ve probably already noticed … automated ordering kiosks and tablets in restaurants, automated check-in in airports and even automated hotels in Japan.
No Going Back
Businesses typically use recessions as an opportunity to replace workers with automation.
A recent study of recessions during the last three decades found that nearly 90% of jobs permanently lost were in routine occupations suitable for automation. The proportion of skilled workers per company increased, but overall employment per company fell.
I predict that businesses will use the COVID-19 crisis to restructure their workforces by replacing certain jobs with automation.
It’s clear that social distancing will remain with us long after the immediate emergency has passed. In-person businesses like restaurants, retail stores and even hospitals will try to eliminate real employees — who can transmit viruses — in favor of automation.
Market forces will ensure this outcome. Consumers will increasingly favor businesses that don’t require them to interact directly with real human beings. That will force entire sectors to increase their use of automation.
And it’s not just a question of real-time competition. Reducing headcounts also reduces the risk of having to close up shop in any future pandemic. Eventually, lenders will incorporate assessments of this kind of risk into their decisions about business loans.
As Always, A Double-Edged Sword
As an economic historian — and a guy who worked as a dump truck driver, farmhand and boatbuilder in his youth — my opinion of automation is conflicted.
It’s great when we figure out how to reduce the amount of labor required to produce what we need. But it comes at a real human cost in the short term.
Be that as it may, for investors, the goal is to be on the right side of history.
Being on the right side right now means investing in an exchange-traded fund (ETF) like the Robo Global Robotics and Automation Index ETF (Nasdaq: ROBO). It holds some of the most important companies driving today’s increasingly automated economy.
Investing in automation was a good strategy before COVID-19 … and I guarantee it’s an even better one now.
Editor, The Bauman Letter