The Tech Sector Is Leaving the Rest of the US Economy In Its Dust (theverge.com)

Yesterday afternoon, the S&P 500 closed at a record high, and is up over $1.5 trillion since the start of 2017. "And the companies doing the most to drive that rally are all tech firms," reports The Verge. "Apple, Alphabet, Facebook, Amazon, and Microsoft make up a whopping 37 percent of the total gains." From the report: All of these companies saw their share prices touch record highs in recent months. This is in stark contrast to the rest of the U.S. economy, which grew at a rate of less than 1 percent during the first three months of this year. That divide is the culmination of a long-term trend, according to a recent report featured in The Wall Street Journal: "In digital industries -- technology, communications, media, software, finance and professional services -- productivity grew 2.7% annually over the past 15 years...The slowdown is concentrated in physical industries -- health care, transportation, education, manufacturing, retail -- where productivity grew a mere 0.7% annually over the same period." There is no industry where these players aren't competing. Music, movies, shipping, delivery, transportation, energy -- the list goes on and on. As these companies continue to scale, the network effects bolstering their business are strengthening. Facebook and Google accounted for over three-quarters of the growth in the digital advertising industry in 2016, leaving the rest to be divided among small fry like Twitter, Snapchat, and the entire American media industry. Meanwhile Apple and Alphabet have achieved a virtual duopoly on mobile operating systems, with only a tiny sliver of consumers choosing an alternative for their smartphones and tablets.

Comments

Bubble

[Anonymous Coward]

I'm going to cash out my stock options and ESPP as soon as they vested. Tax penalties be damned. I'd rather lose 20% of the value to taxes than 80% of the value to a crash.

Re:Bubble

[unixisc]

Of all the above, Apple is the only company that actually manufactures, and can bring jobs back to the US. The others - Alphabet, Microsoft, Facebook & Twitter, don't make squat (okay, Alphabet does a bit w/ the Pixel). And it's just as easy for them to offshore work as it is to hire within the US, since most software jobs now are remote jobs that can be done on 'the cloud'.

You could try shorting Snap, Inc stocks: those are definitely overvalued, and given that their main selling point is that kids love them, kids can just as easily do to them what they did to MySpace. But I thought that the value you'd lose to taxes would be more like 27% or thereabouts.

Re: Bubble

[SuperKendall]

Those types of jobs are in fact coming back, for good reasons - Apple wants somewhere closer to home to make more things so they can contribute leaks.

Apple may be at the forefront but MOST manufacturing is going to go local in the next decade or so.

How can it come back? Greatly increased use of automation means you don't have to hire nearly so many expensive U.S. workers, so automation actually makes more locally sourced manufacture more desirable again.

There will not be as many jobs, sure, but they will be there and they will be better than what came before.

Re:Bubble

[Beau1080p]

Here, Beau, a few links.

HOUSING BUBBLE REPLACED BY STUDENT, AUTO LOAN BUBBLES
Dollar Slumps To 6-Month Lows As Stocks Do Something They Haven't Done Since 1969

...and so forth...

--Beau

Re: Bubble

[Anonymous Coward]

I assume you are saying so for political reasons? Perhaps you are merely repeating a mantra espoused by a certain ideological subset?

Do you work in manufacturing? I doubt it. I do as a welder. No problems finding work. In fact, certain manufacturing companies in my city are expanding their production. One is set to become the second largest employer in the state once they are at full production capacity. That is currently projected in about 1 year.

But keep on repeating your mantra. It's just another reason among many why working class non politically affiliated independents such as myself are keeping away from the "democratic" party with a 10 ft pole.

Re:Bubble

[Hognoxious]

It sounds better in French.

Re: Bubble

[Opportunist]

I wouldn't be so keen to see these jobs coming back. If unskilled jobs come back, it only means that the income situation is completely FUBAR in the US, because it means that wages in the US can compete with wages in a Chinese sweatshop.

And you don't believe that working conditions in the US would be any better than in a Chinese sweatshop if you can compete with it on salaries.

Re: Bubble

[peragrin]

Manufacturing local isn't what makes manufacturing good for an economy.

It is the lots of middle class jobs that manufacturing employs. If you pay 10,000 people decent wages. Then you have. 10,000 people or more buying things, going to the movies, eating out etc. If you can do the same manufacturing output with just 2,000 people and robots the economy then can only have 2,000 people going out, etc.

Which is greater for the economy? 10,000 people or 2,000 people spending money.

What is going to happen to the other 8,000+ people? They have to find new work. What will end up is that they will work for small companies that pay less. So the boost to the economy is smaller,. However small companies are going to make a come back. Leaner and able to compete with less overhead, and manufacturing and distribution that could rival a company ten times their size but 20 years ago.

Such a diversafied economy will be more resistant and adaptable to swings in econmic changes as o email company going down won't wipe out entire regions. This is what happened to Detroit and Michigan. CR manufacturing changes wiped out the region.

Re: Bubble

[PPalmgren]

Microelectronics have more than just labor cost blocking their resurgence in the US, so automation is only part of the solution. The biggest issue is the location of the resources used for manufacturing. Unless Apple decides to spend its cash hoard on vertical integration and starts mining and producing the components in the US, they aren't going to save any money producing here. The components will still need to be shipped from China where they're produced, near the resource mines which avoid environmental regulation and cost significantly less than domestic.

Re: Bubble

[Comrade Ogilvy]

I am certain that Apple does not expect to save a dime with local manufacturing, and knows it will cost them more than a few dimes in the short run. What they hope to achieve is the saving of time in development feedback loops, and getting to final product to the most valuable market sooner. That will make Apple more profitable, even if it will not save them money per se.

Once you get past the business of running scared that a competitor will steal your customers by charging a few pennies less, you will notice that some of your products would be more profitable if only you could get the latest and greatest models into the hands of customers sooner. Fast to market not only is kinder to your capital costs, but makes you more responsive and effective at iterating your product to compete for future customers. Apple, as a company that own the most profitable swath of a very valuable luxury market, can win big by not pinching pennies, if done judiciously. Apple is hardly the only company that has noticed that a little more cost is acceptable if you can shrink the time scale of your product life cycle, and thus can compete more effectively for the more profitable premium markets.

Digital advertising

[Anonymous Coward]

Digital advertising isn't an industry.

At best it is a digital parasite.

Re:Digital advertising

[Anonymous Coward]

If you would stop clicking on the spam mail promising to increase your penis size by taking a pill, a pump, or a secret diet then they'd stop. I blame you for all the crappy digital spam.

Re:Digital advertising

[elrous0]

We should be fine as long as the advertisers never realize that no one has any actual money.

Re:Digital advertising

[Opportunist]

I have money. The problem here is more that I intend to keep it rather than throwing it at the parasites.

This isn't surprising

[rsilvergun]

The #1 cost of most things are the raw materials needed to product followed by the labor (and their benefits). Tech needs almost nothing to produce since it includes software and even then needs a fraction of the employees of most sectors. Tech has amazing ROI because you just plain don't need to invest very much.

The trouble is that a lot of tech is either useless (Twitter) or evil (Uber).

Re:This isn't surprising

[Anonymous Coward]

Not Surprising?!?!?????

I'll tell you what's surprising.....

These tech companies are all being successful due to two very simple reasons...

1) Selling you stupid bleeding edge shit you don't really *need*.

2) Selling your soul out to the devil via datamining your ass 24x365 live in realtime via all microphone video chat gps purchases habits photos *including* the last time you jacked off to Britney Spears. They buy, sell, and have it *ALL*, your entire LIFE on their backend. Ruling over and engineering you is a total greenfield.

AND YOU FUCKING IDIOTS FUCKING GAVE IT TO THEM, ALL OF IT, WITHOUT SO MUCH AS ASKING FOR A PENNY OF THE PROFIT AND EVERLASTING CONTROL THEY NOW HAVE OVER YOU.

Fucking idiots.

Re:This isn't surprising

[Kiuas]

Tech needs almost nothing to produce since it includes software

Uhm... what? You do know that increased demand for tech has caused the demand for raw materials involved in making tech, such as rare-earth minerals, to skyrocket?

Take, for instance, one of the world’s fastest-improving technologies: silicon-based semiconductors. Over the last few decades, technological improvements in the efficiency of semiconductors have greatly reduced the amount of material needed to make a single transistor. As a result, today’s smartphones, tablets, and computers are far more powerful and compact than computers built in the 1970s.
Nonetheless, the researchers find that consumers’ demand for silicon has outpaced the rate of its technological change, and that the world’s consumption of silicon has grown by 345 percent over the last four decades. As others have found, by 2005, there were more transistors used than printed text characters.
“Despite how fast technology is racing, there’s actually more silicon used today, because we now just put more stuff on, like movies, and photos, and things we couldn’t even think of 20 years ago,” says Christopher Magee, a professor of the practice of engineering systems in MIT’s Institute for Data, Systems, and Society.
“So we’re still using a little more material all the time.”
The researchers found similar trends in 56 other materials, goods, and services, from basic resources such as aluminum and formaldehyde to hardware and energy technologies such as hard disk drives, transistors, wind energy, and photovoltaics. In all cases, they found no evidence of dematerialization, or an overall reduction in their use, despite technological improvements to their performance.
“There is a techno-optimist’s position that says technological change will fix the environment,” Magee observes. “This says, probably not.” - -

“[Technology] will get us to a sustainable world — it has to,” says J. Doyne Farmer, a professor of mathematics at the University of Oxford who was not involved in the research. “I say this not only because we need it, but because there is only so much we can suck out of the Earth, and eventually we will be forced into a sustainable world, one way or another. The question is whether we can do that without great pain. Magee’s paper shows that we need to expect more pain than some of us thought.”

Chips don't grow on trees. This is a classic case of the Jevon's paradox which has been noticed since the very beginning of industrialization: as you increase the efficiency of a technology, whether it's coal plants, internal combustion engines or microchips, the demand for said technology goes up.

We have a limited amount of raw-materials in the ground and the extraction of the remaining resources will grow increasingly difficult and expensive with time, which means recycling of old electronics more efficiently is the only sustainable option in the long run. Same goes for plastics: we currently dump billions of dollars worth of plastic to dumps and the oceans but as the cost of oil keeps rising and plastics become more expensive, we should start to see the market turn towards a greener economy not because they care about the environment but because picking floating plastic out of the sea and reprocessing it will at one point (hopefully soon) become more cost-efficient than making new plastics out of a perishing resource.

Re: This isn't surprising

[Opportunist]

Old German proverb: The knave thinks (others are) the way he is. Now take a wild guess why your manager thought you were bullshitting him when you told him it will take the time it will take.

What idiot...

[Nutria]

conflates the "stock market" with "the economy"????

Oh, right: journalists. I'd be unhappy as hell if my kids became lawyers, but kill the one that becomes a journalist.

Re:What idiot...

[swillden]

Good point. It would be worth comparing gross revenues of various sectors of the economy and see the long term trends. I would bet that tech would weigh in quite well, especially when growth trends are considered. But the stock price is really the wrong place to look.

I looked at BEA numbers and found that the "Information-communications-technology-producing industries" grew by 3.05% between 2015 and 2016, while all industries grew by 1.62%. So "tech", very broadly and loosely defined, grew nearly twice as much as the rest.

However, it's also much smaller. Goods-producing industries generated $8T in 2016, services industries almost $20T, while tech was less than $2T.

Bubble?

[thogard]

The reason those stocks are increasing is that millions of people have their 401K investing in "tech stocks" The people who manage some of those get a billion a week that they are obligated to invest before the next billion shows up next week. The result is the tech stocks are over valued and the price keeps going up as the game continues.

This gets worse when they go to prove their investment works. Say they bought a billion in shares in GOOG 5 years ago at $300. They can sell them this week for $950 or so they make a 2.16 billion profit which they can keep for weeks since it was a result of a sale of stock. Next week they dump another billion into GOOG stock at say $1000 and they other 3.16 billion from last weeks sale may go to something else like IBM and MSFT just after the investment firm reports wonderful profits.

There is a class of investment in the UK that is limited to something like 60 tech companies and there are retirement funds that are limited to those 60.

The high speed computer traders know this and have been gaming the system for decades.

Re:Bubble?

[swillden]

The reason those stocks are increasing is that millions of people have their 401K investing in "tech stocks"

All evidence suggests that you're completely wrong. Tech stocks are soaring because tech revenues and profits are soaring, not because their prices are being artificially bid up.

If your argument were correct, we should expect to see crazy P/E ratios in those tech stocks, as they're bid way up ahead of earnings growth. The three you mentioned, GOOG, IBM and MSFT have P/E ratios of around 30, 12 and 30, respectively. The GOOG and MSFT numbers are slightly higher than is normal, but seem totally justifiable given that the companies both still have excellent growth prospects (rational stock prices should represent the net present value of future income). Now, if you want to look at an inflated P/E, AMZN is about 180... but that's only because AMZN chooses to keep its profits low, reinvesting instead to increase shareholder value a different way. Everyone knows that Bezos could decide to flip a switch and start generating profits an order of magnitude larger, instantly dropping his P/E to 18, where AAPL's is.

P/E is just one measure. You can do the same analysis on several others, and you'll find exactly the same thing.

Re:Obsession With The New

[Opportunist]

And until the not so recent past, that was a pretty sensible attitude. New was better, and free was actually free. Yes, TANSTAAFL does apply, but I do remember people who would host parties for the only reason that they enjoyed being party hosts and invite friends over. Without any actual ulterior motifs.

And new did actually mean better. Think back the last 100 years and you'll see that every generation of something that came out was in some way better than its predecessor. Faster. More reliable. Safer. More convenient.

Only recently this has changed dramatically. Newer technology isn't really better than its predecessor. Actually, again and again we had to learn that newer generations of something took things away from us. Cars get harder and harder to repair yourself with every generation having more and more technical bullshit baked into its vital parts (I'm not talking about passenger entertainment, I'm talking about operation). Phones are actually losing features instead of gaining some (with the headphone jack only being the tip of the ice berg).

And you don't want me to compare Windows 10 to ANY of its predecessors, including ME...

Not

[zifn4b]

Wages have been stagnant for almost 10 years even for the A players and unicorns.

There are slightly higher paying jobs (5-10%) you could take but they require twice as much work if not more. Not worth it especially if you have a family. We're still due for a correction because of the recession like everyone else.

Re:Obsession With The New

[houghi]

Yes cars are harder to repair than before. You know how many I repaired before? Less than 1. They also became more relaiable. I needed to change my oil less because of all this.They became ore fuel efficient and safer.
And you can still repair cars if you want. There are plenty of ways if you are willing. It just included electronics.

For the majority of people what newer means is cheaper, not better. I can buy a 50+" TV for 500EUR fullHD. Compare that to the TV I could repair myself. Paid 4 months wages when they came out.

So yes, please think back 100 years what was available then for the public and what is now.