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Outlook 2018: Yet Another Menagerie of Dubious Investment Ramblings

Michael Reid, CFA
Dec 19, 2017
Blockchain, bitcoin, and artificial intelligence

It’s getting on towards late December and the shrink-wrapped tins of chocolate covered pretzels and canisters of gourmet popcorn that miraculously appear just before the winter solstice have been pretty well picked over in the company lunchroom. Deprived of the opportunity for mindless holiday nibbling, I'm starting to go just a bit stir crazy. 

Clearly, it’s time to spice things up. Since I'm temporarily unable to find anything more productive to do, it seems like a fabulous time to join the parade of econometric forecasters, market prognosticators, and other sundry financial charlatans to spew out my own half-baked vision of exactly how things are going to be in the coming year. Forget your stocks, bonds, mutual funds, CDs, or any other dusty old-school investment. In a never-ending quest to uncover the next big thing, what’s about to be revealed here is unfiltered money-making genius. Believe me, it’s going to be HUGE!

1. Blockchain

Honestly, I don’t have the vaguest idea what blockchain is or how it works. Chances are neither do you. Here’s what I do know – it involves nodes, and ledgers, and algorithms, and these things called distributed information networks. Distributed information networks occur when information normally needed to complete a digital transaction is scattered and nobody knows who's in possession of all the bits and bytes.  Because your sensitive financial information is randomly chopped up and placed in the hands of anonymous gamers in uber-hip locales like the Russian Federation, Yemen, Paraguay, and North Korea, it’s going to take some kind of conspiracy for the security of your payments to be compromised. Given the cast of upstanding characters involved in this new technology, I just can't envision that possibility. How about you? Obviously, blockchain will be a massive improvement over federally regulated financial institutions and other greedy middlemen who levy unnecessary fees to cover trivial incidentals like FDIC insurance and external audits. Next year, whenever you find word “blockchain” featured prominently in the investment literature, you can be assured the opportunity is nearly bottomless. Honest.

2. Bitcoin

 Who among us wasn’t impressed with the parabolic rise in the price of Bitcoin during 2017. Imagine, $1,000 to $19,000 in less than a year. Here’s what you need to know: Bitcoin (and every other cryptocurrency) isn’t real money, it only costs real money. Unlike real money, it’s tasteless, odorless, and you can use it to acquire fun things not sold in stores. Things like black tar heroin, weapons grade plutonium, blood diamonds, and slaves. Best of all, Bitcoin is 100% tax efficient because most folks using the currency continuously engage in the commission of class one felonies and can’t report their transactions to the Internal Revenue Service. If you ever find Bitcoin is the preferred form of payment with a business partner, it’s a sure bet Homeland Security is only a hop-skip-and-a-jump behind. Still no need to be a prude; it’s never a bad idea to be short the morality trade. In the interest of full disclosure though, there is one significant threat to Bitcoin: Magnets. Carelessly set one next to your encrypted memory stick and the keys to your digital Swiss bank account in the cloud are gone for good. But don’t let that be a hindrance, you’ll still want to hurry up and get in before it's too late. After all, Bitcoin founder Satoshi Nakamoto (not his real name) made sure that supplies are limited. You can put that in the bank…or your e-wallet…or your i-purse, or wherever the heck you store these things.

3. AI

Artificial Intelligence (or AI for those of us in the know) is simply the latest word in disruptive technologies. I shamelessly predict anyone with a career in the knowledge business (including doctors, lawyers, engineers, teachers, accountants, and yes, investment advisors) will pretty much be toast in 2018 or shortly after. Investment bankers and private equity types will probably be spared because someone has to profit from owning the intellectual property. Augmented by Google’s core search engine and advanced forms of virtual reality, AI promises to satisfy consumer preferences, run your retirement account, find suitable life partners, deliver entertainment, drive cars, deliver food, administer medicine, and control the ambient temperature and relative humidity of our domestic dwelling pods. Like it or not, in the brave new world of AI, humans are relegated to cameo roles as the machines gradually take over. One thing AI won’t do (and trust me this is pure gold), is plunge stopped up toilets and clear clogged disposals. It might seem a bit counterintuitive, but you’re going to want to get in on the ground floor of the enormous consolidation that’s set to take place in the exciting field of residential plumbing. Think about it: A non-unionized & fragmented industry whose services cannot be delivered via WiFi or Bluetooth, a wealthy customer base with limited tolerance for manual labor and an extreme aversion to smelly microbes. Last but not least, plumbers have practically cornered a business model that harvests outsized profits with every overflow.  As far as investments are concerned, doesn't that just trump all?

How to Transition from Saving to Spending

Michael Reid, CFA is a Managing Director and Partner at Exchange Capital Management who just learned how to program a VCR. He deeply resents the disruption caused by Netflix and Hulu before having the chance to figure out  his TiVo digital recorder.  The opinions expressed in this article are his own.

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