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2015-03-Faces-BannerTematica Chief Macro Strategist Lenore Hawkins provides regular insights and musings into today’s markets, economics and politics, while fighting for liberty with great wine & music, scores of stilettos and an excessive love of dogs

 

 

The Datafication of Everything

The Datafication of Everything

Another aspect of our Connected Society is the datafication of nearly every aspect of our lives and the use of that data. As the cost of data storage and transmission rapidly slides towards zero and the cost of data collection devices also declines dramatically, more and more of our daily activities are being turned into opportunities for data collection.

A recent article on Bloomberg discussed how the aggregate number of mobile phone signals is being used to provide insight not just on consumer behavior, but on manufacturing plants and oil refineries.

While most geolocation data use has focused on consumer-facing businesses such as retailers, hotels and amusement parks, “valuable insights can be gleaned from the data by examining activity at specific manufacturing facilities,” said Octavio Marenzi, co-founder of Opimas LLC, a capital markets management consultant. Thasos Group has used the data to show increases in shifts at Tesla Inc.’s factory in Fremont, California, the Wall Street Journal reported.

As more and more data is produced from our every day activities and the devices that improve our lives, industries are developing to turn that data into actionable information. These are companies that sit at the intersection of our Connected Society and Disruptive Innovators investing themes.

Source: Oil Traders Are Now Watching Workers’ Phones to Spot Problems at Refineries

Airbnb outpaces Hilton

Airbnb outpaces Hilton

A recent post on Recode reported that,

US consumers spent more money on Airbnb last year than they did on Hilton and its subsidiary brands like DoubleTree and Embassy Suites, according to new data from Second Measure, a company that analyzes billions of dollars in anonymized debit and credit card purchases. Their Airbnb spending is even catching up to Marriott, the world’s largest hotel company, which added to its revenue by acquiring Starwood hotels in 2016.

Airbnb, which is expected to go public next year, sits at the intersection of our Connected Society and Middle-Class Squeeze investing themes and illustrates that while we continue to point out why investors need to we aware of rising risk levels in the stock market, there are still plenty of areas that are experiencing significant growth.

According to data from Second Measure, Airbnb experience 30% growth in the US consumer market, with much of that growth coming from travels who live in the heartland area of the US with only a third of US consumers coming from the coastal states such as California and New York.

Even more impressive is that while many of these tech unicorns have failed to breakeven, Airbnb has reportedly generated positive EBITDA for two years.

While the overall markets look to be overpriced relative to fundamentals and if history is any teacher, the overall outlook for equity returns in the coming years is likely to be grim. That being said, there are still plenty of areas that will benefit from the long-term and powerful tailwinds in our investing themes.,

Source: Airbnb just beat Hilton in US consumer spending  – Recode

Less Booze, More Kombucha?

Less Booze, More Kombucha?

We’ve all read the statistics on just how chubby Americans have become and all the lovely little health problems that come along with those extra pounds, from diabetes to heart disease not to mention the physical discomfort of lugging extra pounds around. Making healthier eating and drinking choices is part of our Clean Living investment theme and this week the Wall Street Journal ran an article discussing how as Americans increasingly lay off the booze, the world’s biggest brewers and liquor companies are having to push beyond their traditional fare and roll out teas, energy drinks, and nonalcoholic spirits.

As a confirmed wine lover who owns more wine fridges than I’m willing to publicly admit and who is also known to enjoy a great glass of scotch (travel tip British Airways offers Johnnie Walker Blue in first class)  or a gin and tonic, (new favorite gin is Darjeeling) I’m struggling to wrap my head around kombucha or spiked coconut water (who knew there was such a thing) to replace the heaven of pouring a glass of Barolo, but I applaud the effort by a nation that clearly has room for improvement on the health front.

According to the Wall Street Journal,

Americans’ consumption of ethanol, or pure alcohol, has declined sharply over the past couple of decades. Alcohol consumption stood at 8.65 liters per person in 2017—the most recent year for which data is available—compared with 10.34 liters in 1980, according to research firm Bernstein….

 

New data show that U.S. alcohol volumes dropped 0.8% last year, slightly steeper than the 0.7% decline in 2017. Beer was worst hit, with volumes down 1.5% in 2018, compared with a 1.1% decline in 2017, while growth in wine and spirits slowed, according to data compiled for The Wall Street Journal by industry tracker IWSR.

Way to go America!

From an investors standpoint…

IWSR forecasts low- and no-alcohol products in the U.S.—still a small slice of the market—to grow 32.1% between 2018 and 2022, triple the category’s growth over the past five years.

And this trend has legs…

Diageo Chief Executive Ivan Menezes said last year that adults opting for lower alcohol options was “an important trend over the next many years” and that the company was “putting a lot of focus behind it.”

The bottom line is as consumers look to make healthier choices, companies are forced to respond by altering their offerings. Those that recognize the change and take advantage of it are part of our Clean Living investing theme, those that don’t… well … remember Blockbuster?

For the entire article go to: As Americans Drink Less Alcohol, Booze Makers Look Beyond the Barrel – WSJ

Retirement Plans Disappear When Parents And The Kids Return Home

Retirement Plans Disappear When Parents And The Kids Return Home

A recent Wall Street Journal article points out that the American dream is further out of reach for a growing number as plans for retirement go up in smoke thanks to the needs of aging parents and their adult children.

A 2014 study by the Pew Research Center found 52% of U.S. residents in their 60s—17.4 million people—are financially supporting either a parent or an adult child, up from 45% in 2005. Among them, about 1.2 million support both a parent and a child, more than double the number a decade earlier, according to an analysis of the Pew findings and census data.

Rather than enjoying the fruits of their decades of labor, many are finding that their household burdens are growing as they enter their sunset years.

More Americans find themselves housing two generations simultaneously, just when they thought they could kick back and retire. Instead, they face the strain of added expenses, constant caregiving and derailed dreams.

This pressure is coming as our Aging of the Population investment theme sees more senior citizens with inadequate savings and a healthcare system that is unable to provide the care they need at a price they can afford. On the other end of the spectrum, adult children are struggling with student debt levels the likes of which this country has never before seen and years of lackluster wage growth.

The squeeze is coming from both ends. With lifespans growing longer, the number of 60-somethings with living parents has more than doubled since 1998, to about 10 million, according to an Urban Institute analysis of University of Michigan data, and they are increasingly expensive to care for. At the same time, many boomers are helping their children deal with career or health problems, or are sharing the heavy burden of student loans.

This helps explain why discount retailers are expecting their customer base to continue to expand. Those companies that are able to help consumers push their dollars further [such as Amazon (AMZN), Costco (COST), Walmart (WMT)] have a growing set of tailwinds supporting them.

Source: ‘I Was Hoping to Be Retired’: The Cost of Supporting Parents and Adult Children – WSJ

The Disruptive Tech in Down Dog

The Disruptive Tech in Down Dog

I’ve written a few times this week here and here about how disruptive technologies can upend industries, quickly tossing leading companies into the back of the pack. Given that it is Friday afternoon where I am in Genova, Italy and we’ve had a week of horrendous storms, I’m looking forward to a relaxing weekend that will see me spending a decent amount of time curled on the couch working through my required weekly reading. That brings me to the subject of this post, the disruptive technology of yoga pants.

Yoga pants? Seriously? Yep. I just read an article in Bloomberg entitled How America Became a Nation of Yoga Pants.

I personally think that all clothing ought to have at least some sort of stretch so yoga pants are right up my alley for everything from down dog to walking the dog to lounging when I’m dog tired and loving some doggone good wine. But I digress. How can yoga pants possibly reflect disruptive tech you ask? Bloomberg answers.

In 2014, teenagers began to prefer leggings over jeans. Then people started wearing athletic clothing (or athleisure, but it’s mostly just yoga pants) to run errands. Now they’re wearing yoga pants to the office. U.S. imports of women’s elastic knit pants last year surpassed those of jeans for the first time ever, according to the U.S. Census Bureau.

To be fair, this preference for “elastic knit pants” may have some correlation to the health challenges of the American public resulting in expanding waistbands. But part of the shift in preferences is also reflective of our Clean Living (focusing on living a healthier lifestyle) and Guilty Pleasures investing themes. If you’ve seen the price of Lululemon Athletica (LULU) clothing you understand the guilt.  Bloomberg reports that,

Yoga pants have similarly managed to plunge denim into an existential crisis, threatening Levi Strauss & Co. so deeply that it had to scramble to adapt. The company added stretch and contouring to its jeans while hoping to retain some of their rugged essence.

So where is the disruptive tech involved?

“Consumers expect a lot more,” said Sun Choe, chief product officer at Lululemon. “They’re washing their garments more and more, and from a quality standpoint, it needs to stand up. They’re expecting some versatility in their product. They expect to be able to wear that pant or tight to Whole Foods or brunch.”

Ok, so that doesn’t sound terribly impressive, but then there is this.

Now there are fabric labs, especially in the athletic-wear space. Lululemon’s research arm does motion-capture testing and uses pressure sensors that allow researchers to test how garments work as they move. The team can even test “hand feel” to help it figure out how to “engineer sensations” for that critical commercial moment when you feel the fabric for the first time, said Plante.

 

Those labs have a large customer base to impress.

What was once a simple stretchy legging, it seems, has become an engineering marvel. Not too surprising, though, when you realize that about $48 billion is being spent on activewear in the U.S. every year.

Those yoga pants account for a large portion of that spend.

Active bottoms and leggings are now a $1 billion industry, according to NPD Group analyst Marshal Cohen.

With a phenomenal range of available options.

These days, there are more than 11,000 kinds of yoga-specific pants available at retailers worldwide, according to data from retail research firm Edited, across both men’s and women’s apparel.

The bottom line is that no industry, business model or product is immune from the threat of disruptive technology.

Source: How America Became a Nation of Yoga Pants – Bloomberg

Is that a Robot on Isle 9?

Is that a Robot on Isle 9?

We’ve all heard endlessly about the death of brick and mortar, (we discuss how that death is overstated in our podcast with Katherine Cullen of the National Retail Federation next week) as online retailing continues to gain market share and is nearly equal that of brick and mortar as a percent of consumers’ spending. While online retailing has made enormous gains, brick and mortar is far from dead, but rather is evolving and disruptive technologies are part of that evolution, even in your local grocery store. A recent Wall Street Journal article revealed that an enormous amount of capital is being invested in improving the way the grocery industry operated, (emphasis mine).

Grocers are stocking their warehouses with robots and artificial intelligence to increase efficiency as competition for consumer spending on food picks up. Robots are relatively new to the food industry, where customer interaction is common and many goods like fruit are fragile and perishable. Startups are vying to sell supermarkets an array of robots that perform different tasks. Venture-capital firms have invested more than $1.2 billion in grocery technology this year, according to PitchBook, a financial-market data provider, double the total for 2017.

Online groceries retailing has been a relatively weak area for growth in online retail, despite the early efforts of now-defunct Webvan and HomeGrocer. But that looks like it will be changing as investments in disruptive technologies are increasing.

Altogether, spending on technology by many of the biggest U.S. food retailers could accelerate the adoption of online ordering for groceries. Deutsche Bank expects online orders to represent roughly 10% of the $800 billion grocery market by 2023, up from 3% today.

Learning from those who tried in the early dotcom era and failed, the WSJ article reports that according to Narayan Iyengar, senior vice president at Albertsons Cos., the second-biggest U.S. supermarket chain,

“We have to find a model where we can deliver groceries to customers’ homes and do it in a more profitable way,”

Beyond robotics, companies like Kroger are also getting into delivery.

Kroger also is testing a driverless grocery van with autonomous vehicle company Nuro Inc., and it entered the crowded meal-kit distribution market through a $700 million deal with startup Home Chef. The deals are expected to advance Kroger’s online prowess, but have hurt the company’s profits and weighed on recent earnings.

The bottom line is those disruptive technologies can and have upended all aspects of our lives. Our Disruptive Technology investing theme focuses on those companies providing the technologies that completely change the way we communicate, shop, eat, work, exercise and even play.

Source: Grocers Enlist Robots to Chase E-Commerce – WSJ

Kroger going the way of the Jetsons with robots

Kroger going the way of the Jetsons with robots

One of our investing themes is focused on Disruptive Innovators, those companies that are utterly upending the way the world works. This week we saw more signals concerning the major changes taking place in an industry infamous for its brutally low margins, grocery stores…. and it entails robots.

Kroger (KR) is working on improving its operations, and defending itself against Tematica Research all-star Amazon (AMZN), which in turn ought to translate into better cost management by replacing people with robots – a trend that is occurring across a wide range of industries and geographies. A recent article on Reuters reported that

Through the deal with its largest partner, Ocado will ratchet up its delivery business by building robotically operated warehouses for Kroger in the United States, raising the stakes in the battle with Amazon.com Inc. The Kroger deal is Ocado’s biggest yet, exceeding all of the warehouses the firm has built or plans to build with Morrisons in Britain, Casino in France, Sobeys in Canada and ICA Group in Sweden. … Kroger is expected to order 20 CFCs over the first three years of the agreement. Ocado shares rose as much as 6 percent on Tuesday, taking gains over the last year to 195 percent.

Source: Kroger set to place warehouse order with partner Ocado

Failing Infrastructure Costs Dozens Their Lives in Italy

Failing Infrastructure Costs Dozens Their Lives in Italy

 

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Successful investing requires distancing oneself from emotion and from political biases, letting the data do the talking while attempting to be as objective as possible in assessing the potential risks versus rewards. This week I am failing miserably at this.

This week my second home since 2012, Genoa, Italy, made headlines around the world for the worst of all possible reasons. At least 39 people died because a bridge I have traveled across countless times crumbled. Many of those who were on the bridge fell 150 feet to their death and those below the bridge when it collapsed, I cannot even imagine what they experienced. When I think of what it will be like to see that pile of rubble when I return, I alternate between wanting to throw up and scream at the top of my lungs at those who I hold responsible. This should never have happened. The loss of life was thankfully less than it could have been given that a good portion of the city’s residents had already fled the heat during the August holiday period.

Today politicians in Italy are doing what politicians all over the world do after a tragedy, engaging in a public covering of their own backsides while angrily pronouncing that those at fault will be discovered and held accountable. The same old song as it were.

Here is the situation as I know it, which I am sharing as it helps to understand the challenges with infrastructure investment, something that the U.S. is failing at as well.

The Morandi bridge was completed in 1967 and along with much of the surrounding toll roads, (the route from the A10 onto the A26 and the first part of the A7) is operated by Autostrade per l’Italia which is 88% owned by Atlantia (ATASF:OTC), a company that also manages highways in India, Brazil, and Chile, airports in France and Italy, and jointly controls a Spanish toll-road operator. Atlantia is in turn effectively controlled by the Benetton family, the largest shareholder at over 30% of the outstanding shares through the SPV (Special Purpose Vehicle) Sintonia. An oddity of the Italian markets is that often you will have a publicly traded company’s traded shares represent only a non-controlling stake in the company, with the control remaining in the hands of one or more of the wealthier families. While the shares are publicly traded, investors have no real say in the public entity’s governance.

It turns out that the bridge’s designer, Riccardo Morandi may have been a brilliant architect, but not so great of a civil engineer. This bridge has had problems from the beginning and has required much more maintenance expenditures than is typical. This is where things get ugly. For years and years many qualified engineers have been warning of the bridge’s imminent collapse. It’s operator, Autostrade per l’Italia, has proposed alternatives to reduce stress, meaning traffic, on what was known to be a faulty bridge. All efforts were to no avail.

Enter the awkward coalition between the 5-Star Movement, (Movimento 5 Stelle) and Lega. Two political parties that joined forces to gain a controlling majority in Italy, but whose positions often are at extreme odds. Forza Italia, the Democrats and most importantly Lega have all been in favor of La Gronda. La Gronda is Genovese (Genoa’s regional dialect) for eves, such as you would have on a house. La Gronda was a project that was to connect the port at Voltri directly to the A26. Voltri is the container terminal where those big metal containers you see go to/from ships to/from (mostly) trucks and then get onto the A7. The 5-Star Movement has been vehemently opposed to La Gronda, calling it “La favoletta,” the big fairy tale, with a formal “No Gronda” campaign in 2013. La Gronda was one of the biggest conflicts between the two parties.

Previously policy statements concerning Genoa (Genova in Italian) and La Gronda were on the 5-Star Movement’s website. That was changed quickly immediately following the bridge’s collapse, but thanks to the beauty of the internet being forever, archived versions of those pages can be found. One such copy can be viewed here. There is a lovely video of Beppe Grillo, (the founder of the 5-Star Movement) railing against La Gonda in 2009 on YouTube. The start of this video has a charming little Italian girl carrying one of the “No Gronda” flags. Pretty sure her parents aren’t feeling so great these days. If you enjoy reading from irate Italians, I also recommend searching for #NoGronda on Twitter. Very few nations can do rage quite like Italy. So far Lega is wisely keeping quiet as 5-Star hangs themselves scrambles, yelling and screaming about how they were never really against La Gronda. I’m telling you, this stuff would make Pinocchio squirm.

This week Atlantia (the owner of the operating company for the bridge) is handling the situation so poorly that I’m nearly speechless – not an easy task as anyone who knows me can attest. The press releases on the company’s website as of August 16thought to be an utter embarrassment to the management team and the Benetton family and a business school case study in precisely what not to do when tragedy strikes. Alitalia shares fell 22% in Milan on Thursday, their worst-ever decline. The company has lost around $6.2 billion in market cap since the bridge collapsed. This is likely only going to make the recovery process longer and more painful.

Italy, a nation with the eighth largest economy in the world, has had public spending account for around half of the nation’s GDP over the past decade yet its infrastructure spending has been well below that of its neighbors. Take a look at a topographical map of Italy and one of France, then look at the infrastructure spending of the two. Argh! Italy is pretty much all mountains and valleys so roads are all about bridges and tunnels. France is a pancake in comparison yet they spend more on all those flat roads! Taking into account the percent of GDP that the government spends, clearly this isn’t an issue of a government not having enough funds, the question has been where is it spending?

Infographic: Italy Has Notably Cut Investment In Infrastructure | Statista You will find more infographics at Statista

The challenge is that infrastructure is basically the IT department of government. Rarely does anyone from the C suite walk down to the IT department of a company to say, “Good job, no hackers were successful today and all our tech ran smoothly.” Politicians get reelected by making people happy. Maintenance of existing bridges and roads doesn’t make for great photo ops and is often met with resistance by the electorate – NoGronda!

Think this kind of thing can’t happen in the USA? Think again. In August 2007, the I-35W Mississippi River Bridge in Minneapolis collasped, killing 13 and injuring 45. A decade later, things haven’t improved.

Infographic: Thousands Of American Bridges Are Falling Apart | Statista You will find more infographics at Statista

 

What happened in Italy, yes it did happen here and could happen again.

Infographic: Could The Genoa Disaster Happen In The U.S.? | Statista You will find more infographics at Statista

 

It isn’t just our bridges that are endangering the nation. Our airports, dams, schools, sewer treatment facilities, energy grid, waterways, levees, ports, parks, roads, drinking water, and hazardous waste facilities are all in need of investment with the nation’s infrastructure getting a D+ in 2017 from the American Society of Civil Engineers.

Hopefully, the current administration and/or those in Congress will use this tragedy to focus on America’s infrastructure needs. We’ve heard a lot of talk out of the current Administration about just this, and I hope this serves as a catalyst for the country. A weak infrastructure is a significant headwind to the economy while a modern and robust one becomes a tailwind. This is an area of great opportunity for those in D.C. to do what is necessary, for investors when we see this issue get the attention it deserves, which is the basis for our Rebuilding America index, and for Americans who would reap benefits across many aspects of our lives including less time wasted commuting to and from work or in air travel, less wear and tear on our cars, and lower prices for the things we buy thanks to reduced transportation costs.

Personally, it would be really nice to be able to drive around my other home base in San Diego, California without regularly blowing tires and soaking my car seats with coffee thanks to the ubiquitous craterlike potholes.

 

Fed Interest Rate Face-Off

Fed Interest Rate Face-Off

Before the Federal Reserve’s announcement this week concerning rates, Lenore Hawkins joined The Long and The Short on Cheddar TV to discuss how Wednesday’s decision will impact the market. While the current administration has been looking to keep this economic cycle going much longer and even accelerating, the Federal Reserve is concerned that the cycle may be getting overextended and overheated, putting the central bank in a tough spot as it attempts to apply some interest rate brakes while fiscal policy lays on the accelerator. Click below to watch the video.