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Not Your Grandfather’s Robot Overlord

Hey John,

Recently, I wrote about how automation is increasingly becoming a part of our lives. I’m ultimately bullish on automation in cars, not so much for my beer-drinking experience.

Computers and robots have pervaded our lives at an ever-increasing rate – not always for the good. Regardless, the concept of automating just about everything is gaining steam.

Many predict that in just a few short years, much of the work we humans do will be performed instead by “artificial intelligence.”

A 2017 report by McKinsey Global Institute forecast that half of today’s work activities could be automated by 2055.

Buzzwords always crop up around the new – “disruptive” technologies, for instance.

But a particular phrase attached to the automation trend really bothers me.

“Surplus humans”…

That’s both sad and scary. It feels like our robot overlords are just steps off scene.

As machines clock in on the factory floor, humans get pushed aside.

The problem is humans have mortgages, energy bills, health insurance, student loan debt, food to buy, and other humans to rear.

Robots don’t.

My grandfather worked for General Motors. He had three children and a stay-at-home wife. He owned a home and a car. There was food on the table. Life was not extravagant. But his family was comfortable.

He and my grandmother, both products of the Great Depression, saved their money, too. In their later years, it led to a comfortable existence. They were self-sufficient.

Those days are over for most people.

It’s possible there’s too much of good thing. You don’t have to be a card-carrying communist to think that as humans get displaced, the risk of civil unrest rises.

Automation might, in fact, make the world a much more dangerous place.

Enter Amazon.

The company recently announced an initiative to allow humans to run a service of up to 40 vehicles and deliver packages from 75 Amazon stations. A relatively small $10,000 investment is all that’s required.

I’m sure the devil is in the details.

However, if a company has “surplus vehicles,” it might make sense to work with Amazon to generate revenue when they otherwise would be sitting in the parking lot not making money.

Score one for the humans!

Back to autonomous driving…

I’m bullish on the sector, ultimately. While I wouldn’t have much confidence in the technology today, it is improving rapidly. Over the long haul, we may be much safer and more productive with self-driving vehicles.

In the upcoming issue of Hidden Profits, I highlight a hiding-in-plain-sight stock with a unique technology that’s gaining traction in the space.

In fact, I once shorted the stock and made a substantial return as it cratered. Despite that dive, it’s still very much unloved by Wall Street.

Now, I like its prospects – for very different reasons than the rationale for my bearish bet a few years ago.

It just goes to show there’s no room for emotion in investing. And, when the facts change, change your mind.

A company can be a disaster waiting to happen one day, only to emerge as a leader in a new industry the next.

(Let’s just hope “leader” doesn’t turn into “we welcome our robot overlords.”)

Good investing,


As Appeared In The Rich Investor

New Regulations Guarantee a Market Thrashing

Dear John,

Here we go again!

Earlier this week, when I noted the market’s bad breadth suggests lower returns ahead, I mentioned that this is occurring at the same time regulations are getting rolled back.

Human nature is a funny thing.

It’s almost as if our behavior never changes, and we forget (or ignore) all the bad stuff that happened just a few years ago.

That’s why 100-year storms in the market happen every 10 years. Once it looks like we’re in the clear, we allow the same problems to punch us right in the face all over again.

In the meantime, we insist “this time it will be different.”

“This time” is never different.

Most of the regulatory rollback has been in the gutting of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This was a key campaign promise that Donald Trump ran on during the presidential election.

Dodd-Frank was passed in 2010. It was aimed at limiting the damage from banks deemed “too big to fail.” It was also meant to protect consumers from having to bail those banks out again. There haven’t been any Lehman Brothers or Bear Stearns disasters since, so now must surely be the time to loosen up the rules, right?

Congress just voted to soften up the rules a bit to help out small and mid-sized banks. We’re talking banks with less than $250 billion in assets. They get a reprieve from rules they thought were expensive and onerous. These rules include stress tests, increased cash requirements, and more reporting, to name a few.

While most of the story has centered on Dodd-Frank, the devil’s is in the details.

The rollback of this legislation is just the first step in a broader effort to weaken the administrative state. It’s the next round of deregulation that could pose huge threats to our financial system.

The Federal Reserve is getting ready to ease up on rules that allow banks to use other people’s money – your money – to make huge, risky bets. That’s the real story. Not Dodd-Frank.

This type of trading works until it doesn’t. Then, the bankers walk away with millions of dollars, and Joe Sixpack gets caught holding the bag.

This is where the deregulation is headed next. It could do a doozy on the economy.

Banks have no business taking on massive leverage to make risky trades. The great investor Warren Buffett aptly calls these trades “financial weapons of mass destruction.”

There are plenty of rewards for traders when things go well, such as million-dollar bonuses, but few, if any, traders go to jail when they flush the financial system right down the toilet with risky bets.

We’ll end up right back where we started.

Actually, we’ll end up worse off in the end.

A major bank failure is practically assured. The market will implode with it. Trillions of dollars in bailouts will be given to folks that took excessive risk. It wasn’t fun the first time around, and it won’t be fun this time around.

Due to the massive Federal Reserve liquidity bubble created by low interest rates, the next bear market will be one for the history books.

Good luck out there,

John Del Vecchio

*Originally published in the Rich Investor

How to Deal With Bad Breadth

The U.S. markets are nearly back to all-time highs. Does that mean it’s time to pop the corks and celebrate?

Well, if you’re keeping track of market breadth, you’re probably still chilling the Moët & Chandon right now.

What is “market breadth,” you ask?

Think of it as the number of individual stocks that advance alongside broader market indexes like the S&P 500.

When the market is at new highs, “good breadth” means lots of individual stocks are hitting new highs all at the same time. Thousands of stocks should be hitting new highs on days when the indexes are doing the same. That’s a healthy market.

We want to see stocks move in the same direction. It makes everyone happy. (…So long as that direction is “up.”)

It’s also a sign of “good breadth” when equity indexes tank without a lot of individual stocks hitting new lows.

It means many stocks may have already bottomed and are set to turn back up. If your portfolio is holding up well amid market turmoil, chances are that breadth is healthy.

Bad market breadth is the opposite.

It’s bearish when the market is riding high on the strength of just a few stocks. It means stocks are weak, despite the indexes suggesting a healthy market. Once the overall market turns, it’s already been a nasty ride for the average stock.

Unfortunately for investors, that’s the situation we find ourselves in today.

A 10-week average of new highs versus new lows suggests that market breadth is at levels consistent with poor market returns.

By this measure, market breadth is at its worst level in nearly three years.

According to Ned Davis Research, when market breadth is at today’s levels (or worse), the annualized returns are -5.90%. This happens about 20% of the time, so it’s not all too often that we have this many stocks lagging the market. Walking into a 6% loss is a clear warning sign to hold off on allocating fresh capital to stocks.

One of the dangers to the market is that weakening market breadth is occurring as complacency creeps back into the market.

For example, the government is rolling back Dodd-Frank rules. You know, the rules designed to help prevent “too big to fail” situations that practically vaporized the worldwide economy for years.

Banks are also making plans to gear up proprietary trading. That’s the kind of trading that led to trillions of dollars in losses in the mortgage crisis.

I bring this up because the sense of complacency stems from the misconception that we’re finally out of the woods. After all, the markets are near their highs! What could go wrong?

Well, a lot.

The breadth of the market suggests plenty of stocks are already showing weakness. Put another way, there’s a good deal of rust forming under the hood of this historic bull market.

It may already be showing up in your portfolio. The market may be near new highs. But are the stocks in your portfolio keeping pace?

If not, don’t put good money after bad. The odds suggest lower stock prices until breadth begins to improve!

Good trading,



This post was originally published on the Rich Investor.

Tesla’s Conference Call Smelled a Little Musky

Tesla’s recent quarterly conference call set the internet ablaze after the company’s founder, Elon Musk, complained about dry, boring questions from short-selling analysts. He said they were “killing him,” and he even threatened to take questions from YouTube!

The tough-guy attitude did not go over as he probably hoped.

The stock got hit hard, and $2 billion in market value was immediately erased. But the biggest laugher wasn’t even Musk’s performance on the call. Try this one: The company lost a record amount of money, an amount which nonetheless was better than expected.

That’s how counterintuitive the Tesla situation is at the moment.

The stock has rallied and recovered its losses. However, Musk is at it again, tweeting/promising/threatening a “short burn of the century coming soon”.

A little personality can go a long way, but ranting on Twitter against short-sellers is a far bigger red flag for me than expressing a lack of interest about a couple of questions on a conference call. It’s not a good look, and it’s disrespectful to shareholders and, more importantly, debt holders.

Frankly, if you don’t like to deal with quarterly conference calls, then don’t be a public company. Or, better yet, have someone else do that function. Steve Jobs was way too busy changing the world to deal with financial analysts. Apple CFO Fred Anderson conducted the calls.

I’ve listened in on more investment calls than I can count, and Musk’s attitude isn’t even close to the worst I’ve ever experienced. That prize goes to Jeff Skilling, the president of Enron, who once called an analyst an “asshole” when he was quizzed on why the company couldn’t produce a balance sheet with its quarterly financials.

We know how that ended.

A few months later, Enron rolled over, went bankrupt, and wiped out tens of billions of dollars of perceived wealth. And a few executives landed in jail.

Do I think Tesla will go bankrupt or Elon Musk will become a convicted felon because he doesn’t hide his dislike of analysts? No, probably not.

However, such an attitude shows a lot of arrogance at a time when the company faces loads of competition. Jaguar, Mercedes, Porsche, and BMW will all have premium offerings in Tesla’s arena within the next year or two. The window of opportunity for Tesla is small, and it’s closing.

Good stewards of capital don’t pick fights with short-sellers. Neither do they call analysts seven-letter words.

Instead, they focus on moving forward, deploying capital profitably, returning capital to shareholders when needed, and navigating the bumps in the road that all companies face.

While Tesla’s stock is back up in the short term, this sort of behavior is a long-term warning sign to watch closely. The real bozos in this situation might be the debtholders. They’re loaning this company beaucoup bucks at interest rates that don’t nearly justify the risks.

When Musk comes back into the market for ever more billions of dollars to plug the holes in his leaking ship, I’m sure his attitude will be much nicer. Hell, Tesla might even be a big winner from here on out.

But let’s face it. There are thousands of stocks to invest in, more than a few of them are winners, and there’s no need to entrust your money to someone who has no respect for you.

Good investing,


Is Automation Too Much
 of a Good Thing?

I’m all for progress.

But, sometimes, you can have too much of a good thing.

Take automation, for example. It’s a hot topic these days, and the trend has gone way beyond automated factories.

The juicy stuff is new technologies that impact our everyday life. Self-driving cars are a big one. It sounds pretty cool, and I can imagine sitting in the car doing something productive while the machine takes me to and fro.

Of course, someone can get run over and killed by a self-driving car while they’re legally crossing the street. It’s happened before, it’ll likely happen again.

But aren’t computer-driven cars supposed to be better than humans?

I’m sure, over time, these mechanical issues will be worked out, and driving will become safer. For now, though, I prefer to drive my own car, thank you very much.

Money is pouring into the automation and connectivity space. A company called IFTTT (not the most memorable brand name) just raised $24 million from the likes of and IBM. IFTTT has created a platform that allows developers an easy way to connect apps across different devices. It’s trying to connect everything.

The company has 14 million registered users and 75 million applets (a program that’s much smaller in scope than an app) have been developed. Over 5,000 developers are hard at work creating software to connect disparate apps.

I’m skeptical because this was the company’s first round of fresh capital in four years and there’s a bit of mystery surrounding its operations. Also, once you connect all of your devices, you don’t know who’s watching. Our privacy will soon be a thing of the past (if it isn’t already).

In addition, when it comes down to it, I don’t want “constant connectivity!” Rather, I want to get away from too much technology. I recently started reading real books again – you know, real print, paper, and binding… Unmovable words are welcome relief from “always on” screen time.

There are other areas of automation that concern me. Recently, the travails of automation bubbled up in a sacred place: my beer glass.

Let me back up a moment. The gang here at Dent Research gets together in person about once every three months to talk about the markets and our products and to strategize and build camaraderie. After one of these meetings, at a nice downtown Baltimore hotel, we were given a card that allowed us to go up to a wall of beer taps to pour out a pint of our choice.

It was right out of The Jetsons: You set down your glass, swipe the card, press the button, and next thing you know there’s a nice cold IPA.

In theory.

The problem is that it didn’t work very well.

What you thought might be an IPA turned out to be a stout. The root beer spilled all over the place. Other taps ran out of beer half way through the pour. And, with no people around, it was hard to fix the problems.

It was an interesting concept that was a disaster in reality. I like having a bartender. I want a real, live person pouring my drink. I also want to converse with real, live people at a bar. It’s a social place.

It’s also part of one of my better business strategies.

I travel quite a bit for work. Prior to my departure, I scope out a good restaurant that serves food in its bar area. I prefer to eat there and hang out. I’ve made good business contacts by hanging out at a good restaurant’s bar, talking to actual people, and being served by a live bartender. This has happened too many times to count.

When all of our social experiences are eliminated due to automation, and we’ve completely succumbed to the seduction of our phones and other connected devices, society will be in big trouble.

It’s already happened to a large degree. Children don’t even learn cursive in school anymore. Why learn to write when you can hammer out an email?

I believe the key to success in business and life is communication. I don’t mean by typing out an email. I mean real interaction with real people.

While a lot of our communication at Dent Research is over email (and Slack, and Skype, and Zoom, and Box, and…), some of the best work gets down with folks sitting in a room together, figuring out what the next move is. Problems get solved more effectively and new ideas pop up more freely.

If we automate this, we’d be watering down our capacity for innovation and growth.


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