In the Headlines – November 20th, 2015

In The Headlines

Are Robots Taking American Jobs?

Robots as WorkforceOne central bank has some frightening predictions when it comes to job stability in the future. A Bank of England (BoE) official warned that 80 million jobs in the United States are at risk of being taken over by robots in the next few decades. With U.S. data showing that total nonfarm employment hit 142.6 million in October, that is roughly over half of the total jobs at risk. And the U.S. is not the only country that would be at the mercy of the mechanical hands. In a speech at the Trades Union Congress in London, the bank’s chief economist, Andy Haldane, said that up to 15 million jobs in the U.K. were at risk of being lost to an age of machines, which is almost half of the currently employed population.

To come to its conclusion, the Bank of England (BoE) conducted a U.K. study which organized occupations into three categories: high, medium, and low probability of automation, and demonstrated the share of employment these jobs represented. It based its survey on research by Oxford professors Dr. Carl Benedikt Frey and Dr. Michael Osborne, who projected a similar change in the workforce over the course of the next few decades within the U.S. Thus, the BoE’s own predictions suggest these developments could also materialize over the next 20 to 30 years.

Jobs with the highest level of being taken over by a machine in the U.K. included administrative, production, and clerical tasks. Haldane gave two contrasting examples of risk, with accountants having a 95% probability of losing their job to machines, while hairdressers had lower risk, at 33%. With robots being more cost-effective than hiring individuals in the workplace over the long term, jobs with the lowest wages were also at very high risk of going to the machines.

However, Haldane did admit that these projections might be too pessimistic. “The lessons of history are that rising real incomes have ridden to the rescue, boosting the demand for new goods from new industries requiring new workers,” he noted, adding that in the past, workers have moved up the income escalator by “skilling up,” therefore staying one-step-ahead of the machine.

Haldane suggested that society may have an edge against machines in jobs which require high-level reasoning, creativity, and cognition, while AI (artificial intelligence) problems are more digital and data driven. The chief economist suggested that even if the study was accurate, a change in how society works may be underway. People may opt towards working in more tailored businesses Haldane argued, adding that there are already early signs of a move towards more flexible working roles and temporary contracts.

“The smarter machines become, the greater the likelihood that the space remaining for uniquely-human skills could shrink further. Machines are already undertaking tasks which were unthinkable, if not unimaginable, a decade ago. Algorithms are rapidly learning not just to process and problem-solve but to perceive and even emote.”

Haldane is not the only one speaking out against this threat. Nobel Prize-winning economist Robert Shiller noted earlier in the year that there is an “increasing fear of technology” in all its different forms. Technology seems to be leaving questions of what life and people will be like in 30 years. Billionaire Jeff Greene also echoed these comments, saying that people in the workplace could go the same way as the “horse-and-buggy” did—out of business—due to the “exponential growth of artificial intelligence.”

Citations – CNBC

Intel Faces the Limits of Moore’s Law

IntelIn May, at a San Francisco talk to mark the 50th anniversary of Moore’s Law, Intel Co-founder Gordon Moore said he was surprised chipmakers have kept it going for so long. Two months later, Intel Chief Executive Officer Brian Krzanich said on an earnings call that the pace is indeed slowing—doubling chip density now takes closer to two-and-a-half years, rather than two years.

That trend has huge consequences for the $300 billion semiconductor industry, as the process that has regularly delivered exponentially better computing power for less money may be approaching its physical limits. Some of the layers of microscopic circuits etched into materials on disks of silicon measure just a few atoms across, so thin that their conductive properties would break down if they got any thinner. Many circuit lines are narrower than the wavelengths of light used to create them. “At some point the equipment, the technology it takes to make the wafer, gets more expensive,” says Dan Hutcheson, head of VLSI Research. “That’s when Moore’s Law fails.”

The cost of keeping pace with Moore’s Law is rising, and fewer companies are willing to pay up. Building a state-of-the art plant costs as much as $10 billion and that plant will be obsolete within five years. Three companies—Intel, Samsung Electronics, and Taiwan Semiconductor Manufacturing (TSMC)—will account for about half of the $32 billion in spending on new chip plants and equipment next year, estimates investment adviser Stifel Nicolaus. A decade ago, the top five spenders accounted for 40 percent of the industry’s capital expenditures.

For Intel, the industry’s high-table stakes have been an advantage, a way to force out those who could not spend enough to keep up. The company’s remaining rivals have not seriously challenged its 99.3% market share in server processors or its 89% of PC chips. But PC shipments are on course to fall below 300 million this year, from a 2011 peak of 360 million. The next logical step for giants such as Facebook, Google, and is to consider designing their own chips for their data centers.

Despite more than a decade of trying, Intel has yet to win a significant piece of the mobile market, and the decline of Moore’s Law may make it even tougher to break in. TSMC and Samsung have invested heavily in their mobile chip-production facilities to compete for orders from Apple and market-leading mobile chip designer Qualcomm.

Samsung says it is less worried about Moore’s Law. “It is fair to say that semiconductor scaling is becoming more difficult,” the company said in an e-mailed statement. “But at Samsung, we are constantly challenging the limits of what was once considered impossible.” Intel’s Krzanich, when asked what his prediction of a tempered Moore’s Law meant for his company’s competitive position, said the true measure of success will remain output. “We’re talking about millions of units and large volumes,” he said.

“Intel has been positively unstoppable” as a leader in chip-production technology, James Hamilton, the chief architect of Amazon’s cloud services hardware, wrote in a blog post. Ultimately, though, a slowing of Moore’s Law could give TSMC and Samsung more time for their mobile chips to catch-up to Intel’s PC and server models. “There is definitely a narrowing of the gap,” says Jim McGregor, head of advisory firm Tirias Research. “Samsung and TSMC can get there. They have the industry support and investment.”


1. – Bloomberg
2. – Wall Street Journal

The Good News Is . . .

Good News• U.S. producer prices dropped in October for a second straight month and the cost of services fell, pointing to subdued inflation pressures that would argue against the Federal Reserve raising interest rates next month. The Labor Department said its producer price index (PPI) fell 0.4% last month after falling 0.5% in September. In the 12 months through October, the PPI fell 1.6%. A strong dollar and tepid global demand have dampened price pressures, leaving inflation running well below the Fed’s 2% target.

• Clorox Company, a leading multinational manufacturer and marketer of consumer and professional products, reported earnings of $1.32 per share, an increase of 20.0% over year earlier earnings of $1.10 per share. The firm’s earnings topped the consensus estimate of analysts by $0.14. The company reported revenues of $1.4 billion, an increase of 2.8%. Management attributed the company’s results to strength in its U.S. business segments and expanded margins across all of its business units.

• The British drug maker AstraZeneca said on Friday that it had agreed to acquire ZS Pharma, a California-based biopharmaceutical company, for $2.7 billion in cash. The transaction is expected to improve AstraZeneca’s pipeline of treatments for cardiovascular and metabolic diseases. ZS Pharma’s signature drug is ZS-9, a treatment for high potassium levels, which are typically associated with chronic kidney disease and chronic heart failure. ZS-9 is being reviewed by the Food and Drug Administration, with a decision expected in May. Sales of ZS-9 are expected to exceed $1 billion annually, according to AstraZeneca.


1. – Reuters
2. – CNBC
3. – Clorox Company
4. – NY Time Dealbook

Planning Tips

Considerations for Investing in Municipal Bonds after a Rate Hike

Municipal BondsMunicipal bonds are debt instruments issued by state or local governments to fund various projects or finance government needs, such as the construction of schools, roads, bridges or other infrastructure projects. There are a few different types of municipal bonds, such as general obligation, revenue, and conduit that carry varying levels of risk. With the Federal Reserve now considering a hike in interest rates, municipal bonds may offer conservative investors some advantages. A few of these are outlined below. All investments entail risks, so consult with your financial advisor to determine whether municipal bonds are appropriate for you.

Higher coupon rates – The most obvious benefit of investing in municipal bonds after a rate hike is that coupon rates on newly issued bonds are substantially higher than current bonds. New bonds issued after rates rise generate more interest income each month relative to previously issued securities, making them lucrative investments for those looking to supplement their annual income. Longer-term bonds still carry higher rates than short-term securities because of the increased inflation and credit risk. However, long-term municipal bonds, especially general obligation bonds, can be quite safe if issued by a highly rated municipality. Holding long-term municipal bonds with high coupon rates is much less risky than holding a long-term bond with rock-bottom rates.

Greater selection of bonds – Another benefit of purchasing municipal bonds after the Fed hikes interest rates is that the number of bonds on the market is likely to increase, giving investors a greater number of options. When interest rates are low, the cost of borrowing money from banks, through loans and lines of credit, is often cheaper than the cost of issuing bonds. In fact, analysts have noted a drastic decrease in municipal bond issuances and an increase in direct borrowing in recent years. However, once interest rates rise and the cost of borrowing increases, bonds become the more attractive financing option because they require less of the issuing entity. When a municipality issues bonds, its only responsibility is to repay investors according to the terms of the bond. Conversely, there can be numerous strings attached to money borrowed from banks. Banks can impose stringent limitations on how the borrower can use funds, whether the borrower is allowed to acquire additional debt and what kinds of financial transactions can be executed during the loan term.

Potential for appreciation if rates decline – In addition to their healthy coupon rates, bonds issued after the rate hike are likely to increase in value down the road. Interest rates change in cycles. If interest rates decline a few years into the future, the value of bonds issued when rates were at their peak is higher, giving investors the option to sell their bonds on the open market for a tidy profit rather than waiting for them to mature.

Lower prices on existing bonds – Though municipal bonds issued after a rate hike carry higher interest rates than current bonds, this means older bonds become extremely affordable. In fact, given that interest rates have been at historic lows for several years, existing bonds are likely to be purchasable at bargain-basement prices to compensate investors for the opportunity cost of investing in lower-yield bonds. However, this could provide an opportunity for investors to purchase highly rated municipal bonds cheaply. While the interest payments are not impressive, holding these discounted bonds until maturity could generate a tidy profit.

Greater tax savings – The chief benefit of investing in municipal bonds at any time is they earn interest that is not subject to federal income taxes. In addition, if you purchase bonds issued in your state or city of residence, your earnings may also be exempt from state or local taxes. If you purchase municipal bonds after interest rates rise, the amount you save on income taxes is even greater. Even long-term gains earned on investments held longer than one year are subject to capital gains rates of up to 20%. Ordinary income tax rates go up to 39.6%, so earning investment income that is not subject to federal taxes can mean a significant boost in after-tax returns.


1. – Bankrate
2. – CNBC
3. – Investopedia
4. –
5. – CNN Money

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