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And You Thought it was Over

Good Morning,

 

Come on - I am just playing with you.  Seriously, when you read that title of the morning note in your subject line, I have a hunch your heart fluttered - the nightmares of old corrections came rushing back - fears of market plunges dancing in our heads. 

 

Not even close my friend. 

 

I just wish one thing - and only sometimes:  I wish I had 100 years left to watch what is coming at us unfold.  I look at Max today and I can only smile - not just because he is by miles and miles, the very greatest thing I ever did (other than being blessed enough to marry my wife) - but because of the unbelievably exciting world that is rushing his (our) way. 

 

It is all happening right under our noses. 

 

...and at a far faster pace than we can imagine.  It will drawf what we think.  Life and its ensuing benefits and opportunities for growth and expansion will be so siginificantly better than we can fathom today that it is mind-bending to even try to think it through. 

 

In a nutshell:  Imagine walking back to your friends when you were both 30 years younger and explaining an iPhone to them - or the cloud - or the internet. 

 

Then, take that perception and geometrically increase it by 10 - or 100...they will both come up short of where we are headed.

 

I try to suggest we think this way because it truly pains me to see that 4 trading sessions ago, we saw the average investor set a terrible record - more selling of ETF's than ever in history in a one week period (the red dot below). 

 

You may remember this first chart - if not - read it again...and let it sink in that no matter how much things improve looking forward, we will ALWAYS face temporary setbacks in the markets - it's all emotion folks - and it's all short-term in the larger picture.

 

Sadly, what followed this mini panic? 

 

An up week - sitting still and being patient was just fine as it almost always is.

 

 

The second chart is a repeat too - on purpose.  Let it burn into your brain.  Orange is bear - blue is bull.  Simple rules:

 

a) There will be more orange ahead - somewhere, tomorrow or 20 years from now.

 

b) The orange color on this chart is a tiny space of time and a short distance.

 

c) The blue in this chart is what has birthed more wealth for investors than any other tool on Earth - ever. 

 

If you knew nothing else about anything, you would know this:  stop sweating the orange stuff....its part and parcel to the game, included in the package - an appetizer if you will - for the main course.

 

Focus on the blue - and just take more TUMS during the orange, or a walk on the beach, or laugh with your kids, or sail the ocean or listen to the waves or the wind - and be thankful for what's coming after the orange.   

 

A Departure of Sorts....

 

We have talked enough this week about numbers and markets and earnings.

 

I wanted to share with you some crazy, mind-bending thoughts, which become more clear if we accept the breadcrumbs which are falling on the ground (unnoticed) and let them lead us to a better way of thinking about the future...

 

(these are all just opinions and feelings - and you are welcome to disagree...but hear me out if you will...)

 

Thanks to the gigantically talented generation of kids headed our way - set to change the world - one little step was missed by many last week in the midst of the all-entrenching, "end of the world" panic over rates going up 30 basis points.

 

Here is that you missed - the launch of SpaceX Falcon Heavy Rocket. 

 

Watch it here for a second - and then let's talk below....(do yourself the favor of watching the entire video - and get this - if you don't need a box of kleenex as you watch from about T-minus 15 seconds on, well, I would consider that you may not be connecting with how big this really is....)

 

Now lot's of people have lots of opinions of Elon.  I have one too and here it is:  the change he will bring to mankind through his SpaceX team will make Tesla look like a tiny gnat on the universe. 

 

I bring your attention to the cutaway a few moments into the video after launch - into the room of people cheering - the workers of Space X - not an old guy in the joint. 

 

To try to understand the ripples of this event would take many many morning notes. 

 

Suffice it to rely on this:

 

This was all done by kids...no NASA, no government - all young engineers with an ability to imagine a future that it more like Star Trek than we may be willing to comprehend.  Those boosters came back to Earth - landing within inches of their planned spots - right on time - along with the main rocket.  Think NASA could have done that?

 

Watch at 8:14 of the video -

 

"The Falcons have Landed..." - chilling...and cool.

 

Those words will become as life changing and memorable as the first words from Neil Armstrong on the moon, "That's one small step for [a] man, one giant leap for mankind."

 

I don't say this for Elon - I say this as a hunch that this was not just a launch -

 

It was the test of a piece of software if you will.  

 

A process which can be repeated - just like installing the first Microsoft operating system diskette.  Where does it take us?  Well, it sure makes these words not seem so far-fetched anymore right:

 

"Space, the final frontier.  These are the voyages of the starship Enterprise.  Its 5-year mission:  to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before."

 

Let that sink in - and recognize this launch will end up being a fuse lit to many new companies, new technologies, new opportunity in every area of our lives in the future.  

 

If you have time, watch this video too...it's the next step in the SpaceX plan - much farther along than almost anyone realizes:

 

Call it nutty if you will - but that's the way everything starts. 

 

The 20 and 30-year olds are not thinking its too crazy - and those are the engineers you saw in that first video watching their technologies and mind-bending advancements just begin to come to life.

 

Even Nuttier?

 

Back to Earth things for a second...I read a great piece over the weekend from Dr. Ed on the next thing in computing - also happening with in front of us - and being missed by most who (like last week) quickly assume we are doomed.  

 

Now that everyone mostly thinks the cloud is the future...get ready to be, um, surprised again - in a good way.

 

It's the edge.

 

Edge Computing

 

This will require a few extra cups of coffee...but I will try not to make it too confusing - it was a bit for me...but it's all good:

 

Data processing may be about to exit the clouds and move onto the “edge.” In edge computing, data processing occurs on or near a device that’s collecting data instead of sending the data up to the cloud for processing and then returning it to the device.

 

The dramatic change is being prompted by the sharp drop in the price of sensors, which is allowing them to be placed on more and more objects that will collect data and transmit that data over the Internet. 

 

And we were worried about inflation? 

 

Get this:  Gartner Research estimates that the number of devices connected to the Internet will hit 20.4 billion by 2020, up from 8.4 billion last year. 

 

(By the way, Gartner is the same group that in 1992 projected that "the most mobile phones we see being ever utilized in the market was 575 million.") 

 

So, don't be surprised if they are a tiny bit short in these projections as well.

 

However, not all data collected by sensors needs to be processed or stored in the cloud or in a company data center.  Indeed, the data created in the future of "things" may be so voluminous that not all of it can be processed in the cloud. As such, adaptation and speed are needed.  Shortcuts - there's Gen Y again.  So it’s widely expected that in the future much of that data will be processed closer to the sensors that created it, in what’s referred to as “edge computing.”

 

"Edge computing" will be set to unfold in a device or a micro data center that has computing power, storage, and is connected to the Internet. It may also occur on the object that has the sensor, like an autonomous car, or it may be sent nearby to a processor located on a cell phone tower.

 

The edge computing market is expected to surge from $1.5 billion last year to $6.7 billion in 2022, a compound annual growth rate of 35.4%, according to an October item from research firm MarketsandMarkets. Likewise, Gartner predicts that by 2021, 40% of enterprises will have an edge computing strategy, up from 1% last year.

 

And we thought we were out of ideas for growth, expansion and opportunity?

 

“As you go from a couple of billion connected devices to one hundred billion or a trillion, you are going to generate incredible quantities of data,” said Michael Dell, CEO of Dell Technologies, during The Channel Company’s Best of Breed conference in October.

 

“We are seeing a boom in edge computing that is driven first by embedded intelligence. When we look at the companies that make things, they are putting in sensors that is going to require all kinds of computing, [artificial intelligence], machine learning close to those edge devices.”

 

To that end, Dell set up an IoT (Internet of Things) Solutions division last fall that will use hardware and software from across Dell to build products for the IoT edge. Dell is far from alone in pouncing on this new market.

 

Companies displaced by the cloud and the cloud providers themselves are all offering up products and services for this developing market. Here are a few items to think about in the future from Dr. Ed's team of really smart people on the element of the "edge":

 

(1) It’s speedier. One of the prime reasons to use edge computing is that it’s faster to send information from the sensor to the edge and back to the object than it is to send information from the sensor to the cloud or a company data center and back to the object. The difference between the two setups may only be a matter of milliseconds, but milliseconds count when an autonomous car is driving or in other situations that require real-time decision making. 

 

Meaning?  

 

Think the future - AI and Virtual Reality demand will be key drivers.

 

“The edge can be a hospital bed. The edge can be a jet engine. It can also be a factory floor. Real-time decisions are going to need to be made at the edge. You can’t tolerate the latency that it takes for the data to go back to a data center and then come back to a factory floor or a jet engine. You need those decisions being made in real time,” said HPE CEO Meg Whitman at the Best of Breed Conference.

 

(2) It reduces traffic. Edge computing can also sift through information created by sensors to determine what information should be sent to the cloud and what information can be discarded or held for an end-of-day report.

 

For example, an oil rig in the ocean may have thousands of sensors that generate data on how that pump is working 24/7. If the systems are working properly, all of that data are not needed instantaneously. It could go to the edge computer, which could discard all normal readings or package the normal readings in a report sent to the cloud or company data center once a day, explained a 9/21 article in Network World.

 

In that example, edge computing might occur in equipment on the rig. However, if the sensor was on equipment on land, the information could be sent to edge computing equipment that’s expected to be set up near wireless towers.

 

(3) Solves connectivity problems. If a device has poor Internet connectivity, it may not be efficient for the device to be constantly connected to a cloud or data center, the Network World article explained. So the data could be processed, held on the edge, and sent to the cloud just a few times a day.

 

(4) Questions on safety. Processing data on the edge could be considered safer because the data aren’t traveling as far nor does it need to depend on the security of the cloud provider. However, edge devices could be more vulnerable depending upon where they’re located.

 

Peter Levine, a general partner of venture capital firm Andreessen Horowitz, warned in a 12/2016 presentation titled “The End of Cloud Computing” that the explosion in data from sensors will “kill” the cloud, though not completely: He continues to see learning and data storage occurring in the cloud while data processing moves to the edge.

 

“There’s a big disruption on the horizon,” Levine says. “It’s going to impact networking. It’ll impact storage, compute, programing languages, security, and of course management. So, for all of you, I’d encourage you to get ready for one of the biggest transformations to occur on the computing landscape. It’s happening right underneath our eyes.”

 

So me here again - get this - many people will tell you this is all bad.  Your slapstick answer? 

 

"That’s certainly something to put you on edge."  Cheers.

 

And More Good News...

 

That thing we told you about not enough houses available for when the 86 Million Gen Y kids finally start buying - as they have just begun to do? 

 

Well, you get beats of expectations like this one this morning:

 

Many will call this a negative too - they will tell you rates will rise more.  Just remember, for most of the last three years, the very same crowd was telling you that rates were too low for a healthy economy and that lack of inflation showed we were not growing fast enough.

 

Now they get both and there are problems with that result too?

 

Laughable.  Sort of like back in early 2016 when cheap oil and gasoline were bad for us - and in summer of 2008, when expensive oil and gasoline were bad for us.   We made it through both oddly enough.

 

It's the Weekend

 

As noted for you, with the latest bout of panic hitting markets, the one-year forward P/E ratio is now under 16, only slightly above its long-term average.

 

The prayed for correction has begun and is working through the system.  As is always the case, opportunity is hidden.  For long-term investors, time to start looking.

 

This will sound completely nutty - but be grateful for the panic.  

 

The wall of worry has been rebuilt nicely...though chop and churn as aftershocks are always likely - and normal.  

 

Demogronomics keeps you on the leading edge of change but there is a cost:  it requires a much larger, more patient and disciplined view of the elements at work.

 

It's the long-term currents we need to invest upon - not the short-term waves which will assuredly always roll ashore to block the horizon - just as they are now, causing doubt in the minds of millions once again. 

 

Those waves are the noise too many will likely continue to be lost in...and the reason the long-term game is so hard to win based on fearful activities.  

 

Have a great weekend friends...

 

In the end, like it or not, long-term investors have learned this: 

 

Demographics Rule The Long-Term Game

 

Until we see you again - may your journey be grand and your legacy significant.

InvestingMike Williams