Weekly Bot Brief on Robotic Research and Investment Review 7-20-2018

"There is no force on earth more powerful than an idea whose time has come" -Victor Hugo

Bot Index Highlights:

There was not much to garner investor excitement in trading this week within either the bot realm or the general market. The Bot Index did gain a bit over six-tenths of a point while the S & P 500 came in at .018 percent. Despite the relatively benign indices report, there were a number of companies that experienced spectacular results on each end of the spectrum. Ekso Bionics led the bot gainers as it has experienced a see-saw trading twist over the past several weeks. For five consecutive weeks, shares of EKSO have noted gains or losses exceeding 5%. This past week’s 9.19% increase comes on the heels of the prior week’s 12.12% decline. Certainly, the low price of the stock is a contributing factor on the percentage volatility, however, the company has failed to provide consistency in its dealings with Wall Street. Following Ekso in the leaderboard was United Technologies. The shares rose 5.79% of the strength of a number of favorable engine placements and a Yahoo Finance article that noted that the company’s July 24^th earnings report will beat expectations. Rounding our winning companies were shares of ABB Ltd. who rose 3.19% and Faro Technologies noted a 3.11% improvement. ABB reported earnings that came in at $.38 for the quarter, which was 5.6% better than expected and Faro made an acquisition of an Italian 3-D printing firm.

Of the weaker performers during the week the worst was Hiwin Technologies who fell 12%. Like Ekso, Hiwin’s trading has been a rollercoaster but with a more downward trajectory. Since Mid-April when the stock traded at $505, the company’s shares have declined to $310 for a 38% value subtraction. IRobot fell 7.83% in advance of its earnings report as investors remain concerned about the lack of success the company has experienced outside its floor vacuum products. Consistent with recent experience, several Japan-based corporations continued their market erosion. Yaskawa Electric fell 5.71%, Cyberdyne declined 4.23%, Fanuc Corp. slid 4.17% and Keyence waned another 3.43%.

Two Weeks Ago the Bot Brief Interviewed Dr. Arthur Laffer. Below is the Transcript of That Interview:

Bateman: Art, we want to thank you for today’s interview with the Bot Brief. While you need no introduction, it is noteworthy that your experience in economic thought as the father of Supply Side economic theory and a member of President Ronald Reagan’s economic team, is important as we try to ascertain the impact of robotics on our society. So, you recently published a piece on productivity where you indicated that productivity could expand to as much as 2 ½ %, having profound implications to our economic growth. Please expand?

Laffer: In fact, about 8 or so years ago it was 3.2% annual rate and is now only about ½%. I think it has a lot to do with the fact that incentives to produce had been placed aside under the Obama Administration. And with the tax cuts now, I think the incentives will promote the labor participation rates to expand as it makes more sense for people to want to work. Productivity is bound to increase because it is more profitable to be more productive at lower tax rates than at higher rates.

Bateman: Productivity goes hand and hand with capital expenditures and those expenditures have been quite lackluster for several years.

Laffer: With half the capital spending stock on housing, with the remainder on a variety of expenditures on machinery and P & E. If you look at it, we’ve had the lowest 10 years of housing starts per 10,000 population in the last 70 years. However, with the latest market driven interest rates and tax cuts I think you are going to see capital spending go right through the roof, which is really wonderful. And that will lead to aiding productivity a lot.

Bateman: There is no question that robotics will be adding to productivity…augmenting labor sources but in some cases, perhaps, supplanting labor. Please tell us how you view spending on robotics.

Laffer: I think robotics are very important to the economy. If you look even at the very simple robotic applications such as hamburger flippers. You have all these devices that are replacing labor and the reason they are viable is the minimum wage is making it unattractive to hire some lower echelon workers and robots may do a better job. You are going to see a lot of these situations evolving. My gosh, even my car does all forms of safety applications even if I am not aware. That’s the form of robotics, some of which I hate, that improve safety. Soon, very soon, you are going to get driverless cars and then you will have a world that is really primed for good economic growth.

Bateman: Elon Musk, Bill Gates, the late Stephen Hawking were all concerned about what might happen with robots’ impact upon the income of labor. We have been, at the Bot Brief, apprehensive about the concept that all these luminaries have espoused regarding a ‘universal income’. What is your thought on the matter?

Laffer: I think it is very humorous that you ask me about this when we have the lowest unemployment in decades. With the right incentives, the participation rates will increase substantially. I think you will have the labor productivity expand and add measurably to economic growth. I think that labor loss fears are way over-blown. These fears have a huge history. You might recall way back when in the industrial revolution there were workers who would throw their shoes (called sabos) into machinery to halt production. They became know as saboteurs, and that is where the name came from. We’ve had those fears forever. There is no reason why you need a universal income. It’s silly. Why on earth would you give someone an income when they don’t work. It rewards all the bad things. If you tax people who work and pay people who don’t work, don’t be surprised if you find a lot of people not working. This concept of a universal wage makes no sense.

Bateman: One of the things we have looked at in the Bot Brief has been the new frontiers of space and ocean exploration due to robotics. Are there employment opportunities in these areas?

Laffer: We have always used robots for all sorts of dangerous tasks. It is exactly what robots are good for. I just love the idea of robotics. I think it is fantastic for humanity and really puts the price of human life ahead. The more advanced and wealthy a society becomes, the more cherished is what life really is about and robotics give us a beautiful way of doing that. The fact that medical procedures can be coordinated using robots is just wonderful. I don’t buy into the argument that robotics will cost jobs, it may just open the door for more economic growth of labor opportunities. It will enhance jobs and enhance the treasure of what we call human life.

Bateman: We currently have a number of governmental programs for student loans, farm subsidies, trade incentives. Is there any justification for an entrepreneurial assistance program to promote robotic application?

Laffer: NO! It doesn’t make sense for governmental support of any of those subsidies. They reward all the bad behavior you can think of. Why subsidize entrepreneurs who don’t entrepreneur well. Let markets do it…. low tax rates, expense 100% of capital expenditures and get out of the way. Then real entrepreneurs will create the prosperity and advances that we want them to do. Don’t get the government in there to mess things up.

Bateman: The current environment with regard to robotics can be equated to the agriculture and industrial revolutions, the Renaissance and other major advances in civilization. Do you think that robots will have the same implications that those major upheavals had on society?

Laffer: The whole concept of robotics is so capable of enhancing the quality of human life. I just hope that I can live long enough to see the manifestation of robots on the world. Hey, with this robotics maybe it will keep me alive forever! Let’s do it!

Bateman: We interviewed Mike Lewis, our Chicago economist from Free Market Inc., a couple of weeks ago regarding productivity and how robotics will impact the statistics. He noted the significant lag time between when cap ex occurs and when the results of an increase in productivity is noted.

Laffer: I think you are dealing with a concept of productivity at a very high level of GDP and you deal with robotics in a very specific lower level where the micro and macroeconomics don’t mesh too well. When incentives at the corporate level occur, productivity will follow. All the previous economic advances, like the industrial revolution, were all prefaced by incentives. I think we are on the beginning stages of a huge increase in productivity and robotics will play a major role in economic growth. If you can leave the economy with reasonable regulation, sound money, free trade, controlled spending, you will get massive expansions in production and that will solve so many problem and robotics will be a major participant in the solution. Why can’t we use robotics to educate kids? Why can we use robots to reduce crime? These are issues that have held certain segments of the population from bettering their lives.

Bateman: Do you think politicians are ahead of the curve with regard to conducting legislation regarding robotics?

Laffer: They are neither ahead or behind…they just want to steal the technology and tax and regulate the industry. We must allow entrepreneurs to be able to run an open field. They are going to make some mistakes and some things will go wrong, but that is just a part of the game. You can’t have profits without losses. When you have a technological revolution, if you criticize every slip, you’ll never get the steps forward. And if you prohibit companies from having losses, you’ll never have profits. We need to have a risk-reward mentality going forward in this new revolution. Take Elon Musk, he is sending rockets up in space as an entrepreneur. We don’t need to have NASA to perform all these activities under government auspices. Let people get up and do their stuff, you’ll see this world advancing enormously. The people who are involved in robotics are doing a huge service to us all.

Bateman: You were part of President Reagan’s Administration and undoubtedly the cornerstone of his economic policies. I have always felt that it was our economic superiority that led to the fall of the Soviet empire. President Reagan’s announced ‘Star Wars’ defense initiative virtually forced Chairman Gorbachev to capitulate and when implored to ‘Tear down this wall’ he had no real choice. Now we have the current administration issuing a similar outer space defense commitment. Will it have the same impact?

Laffer: Absolutely! Let me tell you a little story. We were having lunch at the Beverly Hills Hotel. It was 1979 with the governor who was to become president, and there were about 8 or 10 of us including Dick Allen who was the National Security Advisor. Governor Reagan asked Dick what our policy in the post-World War II era was. Dick responded, ‘we have been harassing our friends and cajoling our enemies.’ Governor Reagan said, ‘My goodness, what has been the consequences?’. ‘Well sir’, was the reply, ‘we now have no friends and have lots of enemies!’ Reagan then said, ‘Dick, I guess we will just have to reverse those policies, now aren’t we?’ I took this to mean that we’re going to help make our friends stinking rich and scare the begjivers out of our enemies with Star Wars. And what Donald Trump is doing is following the Reagan plan almost exactly. When Reagan said that at that luncheon, I knew we had won the Cold War. We basically destroyed the Soviet Union because we understood incentives and they did not. Trump really does understand incentives of this nature and frankly this type of program, the space effort, is really important to the world, to us and to science.

Member: American Economic Association, Society of Professional Journalists, United States Press Association. Institute of Chartered Financial Analysts, Robotic Industries Association.

The Bot Brief is a weekly newsletter designed for economists, investment specialists, journalists and academicians. It receives no remuneration from any companies that may from time to time be featured and its commentaries, analysis, opinions and research represent the subjective views of Balcones Investment Research, LLC. Due to the complex and rapidly changing nature of the subject matter, the company makes no assurances as to the absolute accuracy of material presented.

Balcones Investment Research can be reached at its website BalconesInvestmentResearch.com and is headquartered in Florida; with offices in Texas and North Carolina, United States

Cover photo courtesy of The Mirror, UK