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The Independent Investor: The Rise of the Robots in Banking

By Bill Schmick
iBerkshires Columnist

If you think the human factor is rapidly disappearing from the workplace, you may be surprised to know that Skynet has arrived and even C-3PO and R2-D2 are being left behind.

Nowhere is this change more apparent than in the nation's banking system.   

Automation, robots and artificial intelligence is on the rise. At the forefront of this change is the nation's banking system. One of the reasons I know this is because my sister, Cassie, is in the banking industry. No, she is not in the corner office or hanging out in the executive suites.

Since 1965, she has worked as a teller and other front office jobs in her bank's branch offices.

She knows the business from soup to nuts and regularly interfaces with her bank's retail

"Fortunately, I'm fairly senior, otherwise, I would have been phased out a long, long time ago," she says, "Tellers and practically any other jobs performed by humans today will be phased out in this business."

What is driving this change is the opportunity for the nation's banking system to reduce costs and at the same time (hopefully) improve the customer experience. Although robots and automation have long been a factor in the nation's factories and even in areas such as space exploration and other dangerous or difficult environments, the promise of more advances in intelligent robots and artificial intelligence has not kept pace with expectations — until recently.

Breakthroughs in information processing and digital sensors, among other technologies, have vastly improved the capabilities and future potential of intelligent robots. That's not to say that you can expect robots in human form greeting you at your local bank door anytime soon.

The frontline benefits thus far have been in automating processes where human error is high due to high volumes of repetitive transactions.

Speed, accuracy and the efficient handling of large volumes in areas like the processing of thousands of checks and ATM transactions on a daily basis is where robots and automation comes into its own. As time goes by, experts say that banking jobs that could be most susceptible to this wave of change are tellers, loan officers, mortgage brokers, insurance claims and underwriters as well as claims adjusters, bookkeepers, tax preparers and accounting clerks.

"Knowing bank culture as I do," says my sister, "makes me believe that some functions, like loaning money to customers, for example, will remain in the human domain."

That may be so but replacing humans with robots, even in the front office has already started. At the flagship center of one of the Japan's largest banks, a customer service humanoid robot was introduced in April. The robot, developed by a French company, speaks 19 languages, employs various gestures, and analyzes facial expressions and behavior. It can and does deliver appropriate responses to typical client questions that a human receptionist would field.

In the U.S., two robots were introduced to local branches of Sterling Bank & Trust in the Los Angeles area. They are test models undergoing "training" as greeters. They also amuse customers by dancing, showing off some martial art moves and handing out banker's business cards to the delight of the bank's customers. In areas such as wealth management, investors can already opt to invest in robo-portfolios where software programs devise and invest money for reduced fees.

For Generation X and Millennials, who already do much of their banking via computer or mobile device, the age of robots may seem a logical and overdue development. For those of us who are still balancing our check books by hand, however, the era of robots in banking may be a bit of a jolt.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: Why Wall Street Is Worried About Trump

By Bill Schmick
iBerkshires Columnist

Normally, Wall Street loves GOP presidential candidates. Historically, Republican presidents have been good for business, tend to cut taxes, and slow the rate of government spending. So why does Donald Trump give them the willies?

For starters, the investment community worries that Trump is an unpredictable wild card. Remember, that investors can accommodate the good or the bad, as long as the future is articulated in clear terms. For example, Hillary Clinton, the Democratic front-runner, is going after predatory pricing in the biotech sector. That's bad for biotech so Wall Street sells or shorts biotech stocks until that risk factor is resolved. Another politician says we need a stronger defense capability. So investors buy aerospace stocks on that policy.

What investors can't accept is uncertainty. As such, some of Donald Trump's statements have been so outrageous, politically incorrect and economically dysfunctional that Wall Street does not know which way to turn. He cannot be pigeon-holed ideologically.

At times, he appears pro-business only to contradict that assumption by slamming the financial sector on other issues. His statements tend to worry those who believe he could lead the country into a new era of isolation. Attacks on China, Mexico and all things Muslim are just some of his agenda that have given Wall Street a fit.

Trump's strong populist message seems to resonate with those who are not part of this country's one percent. It is truly remarkable that a billionaire, real estate developer who resides in the city of one percenters, could dominate among voters in cities that are economically-challenged and where incomes are the lowest. Although the two are poles apart politically, the populist appeal of Donald Trump and Bernie Sanders is similar.

They appeal to a silent majority of voters who have suddenly found their voice. After decades of hopelessness, declining voter participation, and almost universal disgust for both Wall Street and our government, these two men have harnessed that sullen anger and the results have been both unexpected and unpredictable.

It also helps that neither candidate is beholden to either the traditional corridors of political influence or Wall Street money (Super PACS) that has become the basis for our political system. And what Wall Street cannot control, it abhors. Unlike Mrs. Clinton, a traditional (and predicable), slightly, left of center Democrat, Wall Street and Washington is threatened by Bernie Sanders, a self-proclaimed socialist and Donald Trump, an unorthodox deal-maker with little use for ideology or the status quo.

As the election draws closer, Trump's standing in the polls and wins among GOP delegates increases, the Wall Street/Washington cabal is pulling out all the stops to prevent Trump's ascendency. Mitt Romney, the GOP's quintessential "company man" and Washington insider, has now joined the fray in earnest. In a speech on Thursday in Utah, the erstwhile Republican candidate for president called Trump a "fraud and a phony" while exhorting Republicans to vote for anyone but the Donald.

Let me be clear, I am an independent so I'm not picking sides in these primaries. As for the individual policies of the Democratic and GOP candidates, there are some things I agree with and some I don't. But what I do approve of is the populist movement that Trump and Sanders have triggered in this country. Make no mistake, you may not agree or like Trump's racist statements or Bernie's arguments for wealth distribution, but a lot of Americans do. That is clear in the polls.

And that's part of what a democracy is all about. Granted, I wish every American could be just like me, rejecting prejudice of either religion or race, advocating the end of political and Wall Street influence, addressing the income inequality gap, etc., etc. but I am realistic enough to understand that our political system has always made room for every view and opinion. In a populist election, the best and worst of us come to the forefront.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: Social Security Update & Other Tidbits

By Bill Schmick
iBerkshires Columnist

Over the past few months there have been some changes to social security rules as well as an on-going effort to provide increased protection from brokers managing your IRAs. Here is an update to those topics.

Readers may recall a column I wrote as a result of last November's budget. Several changes were instituted to shut down some social security loopholes that could impact certain retirees. Prior to the new budget changes, a growing number of couples, 66 and older, could delay claiming benefits based on their own earnings record, while collecting a spousal benefit based on your spouse's earnings. This was costing the taxpayer millions and generating lifetime benefits for some retirees that amounted to tens of thousands of dollars.

These strategies called "file and suspend" and "restricted application" were altered and the final version of who can or cannot take advantage of these strategies is now official. The new rules would allow those turning 66 or older by April 29 to still file and suspend, but they must request that voluntary suspension on or before that date. Any who fail to take action (either because they are younger than 66, or miss the deadline) can still file and suspend but it won't provide the same benefits. The Social Security Administration will no longer allow relatives to submit a new claim for spousal or dependent-child benefits based on a suspended benefit.

There is also a longer phase-out of the "restricted-application" strategy. Normally, when married couples apply for retirement benefits, they are deemed to have filed for both their own benefits as well as a spousal benefit. They receive whichever is higher. Restricted applications allow you to have a choice to get one and then switch later to the other. Only those who turned 62 before Jan. 2 of this year can still file a restricted application. The good news is that anyone already using one or the other of these retirement strategies is grandfathered. That means their benefits won't change due to the new legislation.

On another subject, the plan to curb potential conflicts of interest among brokers who dispense retirement advice is still bogged down. The SEC is obstructing the legislation while trading accusations with the labor department. Readers might remember a column I wrote last year on the subject. The Department of Labor introduced the "Fiduciary Rule," which would require brokers to act in a client's best interests when advising on their Individual Retirement Accounts.  

The DOL has been trying to push through this additional consumer safeguard for over five years, but has been stymied by the Republican Party (and some Democrats), Wall Street lobbyists representing all the brokers and banks, as well as governmental organizations like the SEC and Treasury. The Fiduciary Rule received a welcome shot in the arm when the White House and its Office of Management and Budget backed the DOL's efforts.

Clearly, I come down on the side of the consumer, who needs all the protection they can get from the financial community. The rule would require brokers to act as a fiduciary in respect to tax-deferred investment advice. It is something that I think is long overdue and would be a much-needed check and balance in this $7.3 trillion segment of the industry.

P.S. my opinion makes me extremely unpopular within my industry and that is fine with me.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: OPEC's Poker Game

By Bill Schmick
iBerkshires Columnist

The news this week that some OPEC members have at least agreed to talk, and possibly freeze production, had traders covering their oil shorts, sending crude up over 15 percent. But why should simply freezing production at multi-year levels stem oil's price decline?

Naysayers are right when they argue that holding production where it is does not solve the oversupply problem in world energy. At the present rate of production, an additional 330 million barrels of oil (or about 1 million barrels/day) of unneeded oil is flowing onto world markets.

That oversupply has been building for a year or more. It is being stored in spare oil tankers, storage tanks and wherever else suppliers can find to stockpile the stuff. And storage capacity is close to being filled, despite the winter weather in the U.S. At most, freezing production solidifies an extremely negative supply imbalance.

As usual, not all is what it seems when reading the headlines, especially when it comes to the politics of OPEC and the Middle East. Remember that up until now, OPEC's largest producer, Saudi Arabia, as well as Russia (the largest non-OPEC producer) have not even discussed global energy oversupply. The fact that they are now willing to talk and possibly freeze production could be an important first step in a possible solution to the firestorm of falling prices that has done damage to both countries and their finances.

Bears point to the fact that oil producers like Iran have no intention of freezing production. The global embargo on that country's energy exports, imposed over Iran's nuclear program, has only now been lifted. Prior to 2012, Iran's oil production amounted to about 2.5 million barrels a day. It now produces about 1.1 million a day. The country's government is dead set on regaining that lost one million barrel a day production as fast as it can. Energy experts believe it will take the country six to 12 months to achieve that goal.

It is here that the plot thickens. Let's, for the moment, believe that the big producers are serious about stopping oil's decline. Talk of freezing production might accomplish that on its own. However, boosting prices is going to require production cuts. Iran won't go for that and everyone knows that the Saudis and Iranians have larger problems than oil.

Syria has become a powder keg between these two opposing forces. Sunnis and Shiites are lining up for what could possibly be armed conflict in that country. If a deal could be worked out to both parties' satisfaction in energy, could that also be a first step in reducing tensions elsewhere?

How could this be accomplished? Since it will take Iran at least until the end of the year to rev up production, could Saudi Arabia persuade Iran to slow down its capacity drive for a few months in exchange for higher prices? The Saudi's, along with other nations, could cut production in exchange for a few, newly-found "production delays" by Iran.

For the world's energy producers a cut would only require each of the top producers to reduce their output by 100,000-200,000 barrels a day or so in order to balance global supply and demand. That could easily lift price levels to $40 or so per barrel. In that scenario, everyone wins.

Clearly, investors are praying for such a deal. The price of oil and the level of the stock market are connected at the hip, so where oil goes, so goes the stock markets. Any deal, however, is not going to happen in the short-term.

Given the extremely short time horizon of traders, I would expect that the oil price will fall again when a deal isn't announced this week. That is unrealistic, in my opinion, but if we do bounce off the lows again, I think my thesis and OPEC's poker game may have merit.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: Is a Recession Looming?

By Bill Schmick
iBerkshires Columnist

The funny thing about declining stock markets is that when they last more than a couple of weeks, talk of recession starts to percolate among investors. It is no different this time.  

I have written before that the stock market has erroneously called six of the last 13 declines as recessions, meaning that weak stock prices do not necessarily herald a weak economy. There have been instances in the past where a prolonged decline over a year or so has contributed to a recession but even then the data is not conclusive.

There is no evidence thus far that the U.S. economy is rolling over. Economic data continues to be spotty, which is consistent with a moderately growing economy. Unfortunately, how that data is interpreted depends on the mood of the investors. When sentiment is extremely bearish (as it is now), every disappointing data point becomes fuel for those predicting a recession.

When markets are up, investors take a "cup half-full" approach and focus instead on the positive statistics. There is no question that our present growth rate (when compared to past recoveries) is below par, running at a moderate 2.25 percent rate. Historically, we should have expected a year or two of 3.5 to 4 percent growth by this time — five-plus years into this recovery cycle. But those expectations have not been met.

There are several explanations for why this economy has had such a mediocre recovery.

Some argue (including the Federal Reserve Bank) that although the Fed did all in its power to stave off depression and grow the economy, without help from the government in the form of fiscal stimulus, they were fighting with one hand behind their back. History and noted economist Paul Krugman would agree with that explanation; also recall that for at least the last six years, Congress has been cutting spending, not increasing it.

Then there is the demographic argument, which says that the Baby Boomers are retiring and therefore both productivity and economic growth are slowing as a result. In exchange, younger workers, who are less skilled and some say less productive, are not qualified to fill these vacant, high-paying skilled jobs. As a result, there are more minimum-wage workers earning far less than their parents. These new workers, so the theory goes, simply do not have the wallet-power to propel the economy to a higher growth rate. Since consumer spending is such a large part of our economy (over 70 percent), they have a point.

There is also the argument that 2008-2009 was no ordinary recession but rather a credit recession similar to the Great Depression of the 1930s. As such, the economy requires a much longer period to get back its mojo. Recall that the Depression required 10 years and World War II to recover fully.

Others argue that the end of monetary stimulus and the Fed's actions to tighten interest rates will cause a moderate economy to weaken and ultimately fall into recession. They point to the previous quantitative easing efforts that worked only until the Fed discontinued their use.

Each time the economy weakened (as did the stock market), and this time won't be any different. Time will tell if they are correct, but so far the evidence does not bear out their concerns.

There are several other arguments, including a hard landing in China that will drag the rest of the world's economies with it, but none of this appears to be showing up in the data.

Instead, we are roughly at full employment with further job gains expected. The world economy continues to grow, again moderately, but growing nonetheless, as is the United States economy.

What might change my mind is the one variable that has signaled a recession 100 percent of the time — an inverted yield curve in interest rates.

Normally, interest rates are higher the further out you get in the bond world. A 30-year bond has more risk (and therefore a higher reward in terms of interest rate) than a 10, 5 or one-year security.

Recessions have always been preannounced when short-term interest rates climb higher than long-term rates. There is no evidence of that. And until we see it (if we do), I would advise you to ignore all this noise about a possible recession.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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