We’re Sending You Back to the Future
October 26th, 1985 marks the date that Marty McFly first travels back in time to 1955 in the original Back to the Future movie. October 21st is the date in the second film when Marty McFly and Doc Brown travel to the future of 2015 in their flying DeLorean time machine. While we do not have time-traveling cars and re-hydrating pizza, a number of technological predictions have come to pass, though maybe later than predicted. One key tenet of the Back to the Future series of films is that small changes can have lasting and significant effects in the future, many times with unintended consequences. Also, technology advancements are cumulative, and the future is difficult to predict the further out you go. The cumulative impact of high-speed graphical processing semiconductor systems and memory technology, artificial intelligence software and renewable power generation are driving economic activity, but raising overspending and potential overcapacity concerns. Self-driving Waymo cars are convenient, but may replace drivers. Amazon’s# robots are efficient, but may replace pick and pack workers.
The Back to the Future films of thirty years ago predicted voice-activated home environment controls, which are now commonplace with devices like Amazon Alexa and Google Home. Doc Brown checked the weather on a wrist device, resembling modern smartwatches. The use of fingerprint recognition to unlock doors, as seen in the films, has become a standard security feature in smartphones and smart home systems along with facial recognition technology. The concept of making payments electronically has been realized through mobile payment apps like Apple Pay and Venmo. And finally, the Chicago Cubs were predicted to win the World Series, which they did 31 years later in 2016. While flying cars are just getting started currently, at around $300,000 each, and small modular nuclear reactors are in the works, we are still waiting for hover boards to arrive.
Great Scott
The government shutdown has created somewhat of a data vacuum near term. We will get September Consumer Price Index (CPI) data on Friday, which is needed to make Social Security cost of living inflation adjustments. The Fed’s rate-setting committee will meet next week, and the probability is high that we will get another quarter point cut in interest rates. On the tariff front, President Trump is expected to meet with Chinese President Xi in coming weeks with hopes for de-escalation on rare earth minerals and technology restrictions. While the government shutdown continues, we have seen decent earnings reports from the major banks such as JP Morgan# and Bank of America#. Consumer spending continues at a decent pace on the higher end, with some deterioration at the lower end of consumers. General Motors# reported higher auto deliveries, lower inventories and less expected impact from tariffs. Lam Research# posted a good report and outlook for its semiconductor manufacturing equipment. The bulk of Magnificent 7 (including Apple#, Amazon#, and Meta#) company earnings will be reported next week. Magnificent 7 earnings overall are expected to increase by about 14% in the third quarter, but well below the average 30% growth rate over the past year. The Magnificent 7 stocks still account for about one-third of the weighting of the S&P 500 index and about 40% of returns, so still have an outsized impact.
Save the Clock Tower
1.21 Gigawatts! What’s a Gigawatt? A single gigawatt is the typical output of a large nuclear reactor. It is enough to power roughly 750,000 to one million homes. A bolt of lightning can produce 1.21 gigawatts, and often produces even more. However, lightning’s immense power is delivered in a fraction of a second, making it impossible to capture and use for practical energy needs (unless you knew exactly where and when it was going to strike). In the meantime, significant electricity production will be required to power all of this new technology, with some estimates suggesting over 50 gigawatts of additional power needed just for the AI boom over the next five years.
Amazon is pushing automation further with robots. After more than tripling its workforce since 2018 to nearly 1.2 million, Amazon believes it can avoid hiring 160,000 people it would otherwise need by 2027. This could save $0.30 on each item the company picks, packs and delivers. The company also believes it is on the cusp of replacing about 500,000 jobs with robots, with the ultimate goal to automate 75% of its operations. This feeds directly into concerns about structural pressures on the labor market from AI and automation.
Time travel has not been invented yet, but 2015 probably looked as foreign to those living in 1985 as 2055 will look 30 years from now. Increased computing power and speed have led to new use cases for artificial intelligence. Automation using robots, self-driving cars and quantum computing are the result of the cumulative effects of technology, but may have unintended consequences. Nike# Air Mag sneakers with self-tying laces are finally available in limited quantities, so we are hopeful. As Yogi Berra said, “The future ain’t what it used to be”.
Christopher Lloyd (“Doc” Emmett Brown of Back to the Future fame) turned 87 yesterday. Ryan Reynolds turns 49 and Weird Al Yankovic turns 66 today.
Christopher Crooks, CFA®, CFP® 610-260-2219