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The Ricks Report – October 16, 2017

The Ricks Report
October 16, 2017

Numbers of $ignificance

  • EXPANDING ECONOMY – The US economy has been growing for the last 99 months (i.e., no recession), an expansion exceeded in length only 2 times since 1900 (source: National Bureau of Economic Research).
  • DECADES PASS WITH FEWER REFINERIES – The United States has 141 operable oil refineries in 2017, 78 fewer than the 219 refineries that America had in operation in 1987 or 30 years ago (source: Energy Information Administration). 
  • MORE YEARSLife expectancy at birth for an American has increased 6.9 years over the last 40 years, i.e., life expectancy at birth is increasing by 1 year every 6 years (source: National Vital Statistics Report).

Winning at Life with Gregory Ricks
Tune in every weeknight from 7:00 pm to 8:00 pm and every Saturday from 10:00 am to 1:00 pm We are now on News Talk 99.5 WRNO and News Talk 104.9 WBUV, as well as Facebook LIVE, Periscope (GregoryRicks) and the iHeart app.  Gregory Ricks and James Parker will be live in studio talking about some great current events and financial solutions. This week’s guest will be Jude Heath, CPA and member of the Total Wealth Authority. Remember, you can listen from any smartphone or computer through iHeartRadio.

The Markets

There’s a new kid in town: narrative economics.

Last week, Richard Thaler was awarded the Nobel Prize in economics1. His work in behavioral economics and finance recognizes not all economic and financial decisions are made after rational reflection. In Nudge2, he wrote:

“The workings of the human brain are more than a bit befuddling. How can we be so ingenious at some tasks and so clueless at others?…Many psychologists and neuroscientists have been converging on a description of the brain’s functioning that helps us make sense of these seeming contradictions. The approach involves a distinction between two kinds of thinking, one that is intuitive and automatic, and another that is reflective and rational.”

Yale professor Robert Shiller, another Nobel laureate in economics, is exploring a field of study related to Thaler’s. It’s called narrative economics. Narratives are the stories we share with each other. They are fuel for conversation and popular narratives often become viral. During a presentation at the University of Chicago, Schiller explained narrative economics is “the study of [1]
the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations.”3
Today, a popular narrative in financial circles focuses on Professor Shiller’s cyclically-adjusted price-earnings (CAPE) ratio, which suggests the market may be overvalued. Barron’s4 reported,

“The CAPE, which is based on average inflation-adjusted earnings over the trailing 10 years, stands at 31, versus 32.5 in 1929 and 44 in late 1999.”4

If stocks are overvalued, why do investors keep buying shares? It’s a question narrative economics hopes to help answer in the future.

1 III, Frank Armstrong. “Richard Thaler, A Giant In Economics, Awarded The Nobel Prize.” Forbes, Forbes Magazine, 13 Oct. 2017, www.forbes.com/sites/frankarmstrong/2017/10/13/richard-thaler-a-giant-in-economics-awarded-the-nobel-prize/#7080f263a107.
2 Thaler’s Book, Nudge: Improving Decisions about Health,Wealth, and Happiness.
3 The UChicago Business Journal, www.uofcbusinessjournal.com/single-post/2017/02/26/With-Narrative-Economics-Shiller-Seeks-to-Broadens-the-Scope-of-Economic-Analysis.
4 Norton, Leslie P. “Who Says This Stock Market Is Overpriced?” Barron’s, 14 Oct. 2017, www.barrons.com/articles/who-says-this-stock-market-is-overpriced-1507956689?mod=trending_now.

 

Data as of 10/13/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 14.0% 19.7% 10.8% 12.1% 5.1%
Dow Jones Global ex-U.S. 1.7 21.3 21.8 5.0 5.4 -0.9
10-year Treasury Note (Yield Only) 2.3 NA 1.7 2.3 1.7 4.7
Gold (per ounce) 3.0 12.1 3.1 1.9 -5.6 5.5
Bloomberg Commodity Index 2.4 -1.8 -0.4 -10.3 -10.0 -7.1
DJ Equity All REIT Total Return Index 1.6 8.4 8.8 10.4 10.3 6.1

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Self-driving cars, life-like robots, artificial intelligence, and video phones. Millennials and members of Gen Z may find the original Blade Runner movie a bit dated. After all, many of the tech innovations imagined have become a part of our daily lives and others, like mood organs, are in the works.5

Mood organs were among the human enhancements imagined by Philip Dick in Do Androids Dream of Electric Sheep? (The book upon which Blade Runner was based.) A recent c|net.com article explained:

“Dick doesn’t describe the design of the mood organ or how it works, only specifying that it can stimulate or sedate the user’s cerebral cortex. Users simply dial up the emotion they want, such as 481 (awareness of the manifold possibilities open in the future) or 594 (pleased acknowledgement of a spouse’s superior wisdom).”5

Neural implants are a reality already, although they’re not used to control human emotion. Thousands of people with Parkinson’s have implants to manage tremors and applications to help with epilepsy and depression are being explored, according to IEEE Spectrum.6

Medical treatments are not the only applications for neural implants. Elon Musk is developing ‘neural lace,’ a brain-computer interface (BCI) that may be injected into the human body, travel through the bloodstream, and settle over the cerebral cortex.6 While neural lace someday may be used to treat or diagnose neurological issues, The Economist7 reports Mr. Musk has argued, “human beings need to embrace brain implants to stay relevant in a world which, he believes, will soon be dominated by artificial intelligence.”

Musk is not the only entrepreneur pursuing brain interfaces. IEEE Spectrum7 reported Mary Lou Jepsen, an MIT alumnus and tech executive, has founded a company which is working on non-invasive BCIs “for imaging and telepathy (the latter could conceivably be done by reading out thought patterns in the brain).”

It’s possible the idea of humans with superpowers may seem quaint to future generations.

Weekly Focus – Think About It
“The real question is, when will we draft an artificial intelligence bill of rights? What will that consist of? And who will get to decide that?”8
–Gray Scott, Futurist philosopher

 5 Trenholm, Richard. “How real technology measures up to the ‘Blade Runner’ future.” CNET, 6 Oct. 2017, www.cnet.com/news/blade-runner-future-technology-ridley-scott/.
6 Eliza Strickland Posted 12 Apr 2017 | 21:15 GMT. “5 Neuroscience Experts Weigh in on Elon Musk’s Mysterious “Neural Lace” Company.” IEEE Spectrum: Technology, Engineering, and Science News, 12 Apr. 2017, spectrum.ieee.org/the-human-os/biomedical/devices/5-neuroscience-experts-weigh-in-on-elon-musks-mysterious neural-lace-company -.
7“Elon Musk enters the world of brain-Computer interfaces.” The Economist, The Economist Newspaper, 30 Mar. 2017, www.economist.com/news/science-and-technology/21719774-do-human-beings-need-embrace-brain-implants-stay-relevant-elon-musk-enters.
8“Gray Scott Quotes.” BrainyQuote, Xplore, www.brainyquote.com/quotes/quotes/g/grayscott776538.html

Best regards,

Gregory Ricks

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Gregory Ricks & Associates is a Registered Investment Advisor which offers services and charges fees as set forth in Form ADV, a copy of which you should obtain prior to investment. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index

Sources:
https://www.forbes.com/sites/frankarmstrong/2017/10/13/richard-thaler-a-giant-in-economics-awarded-the-nobel-prize/#7080f263a107

https://www.amazon.com/dp/014311526X/ref=rdr_ext_tmb (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_Nudge-Improving_Decisions_About_Health_Wealth_and_Happiness-Footnote_2.pdf)

https://www.uofcbusinessjournal.com/single-post/2017/02/26/With-Narrative-Economics-Shiller-Seeks-to-Broadens-the-Scope-of-Economic-Analysis

http://www.barrons.com/articles/who-says-this-stock-market-is-overpriced-1507956689?mod=trending_now_3 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_Barrons-Who_Says_this_Stock_Market_is_Overpriced-Footnote_4.pdf)

https://www.cnet.com/news/blade-runner-future-technology-ridley-scott/

https://spectrum.ieee.org/the-human-os/biomedical/devices/5-neuroscience-experts-weigh-in-on-elon-musks-mysterious-neural-lace-company

https://www.economist.com/news/science-and-technology/21719774-do-human-beings-need-embrace-brain-implants-stay-relevant-elon-musk-enters (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_TheEconomist-Elon_Musk_Enters_the_World_of_Brain-Computer_Interfaces-Footnote_7.pdf)

https://www.brainyquote.com/quotes/quotes/g/grayscott776538.html