Schindler Financial Newsletter Q2 2020

Aaron Schindler

Aaron Schindler

The Velocity of Your Money: Investing in Logistics. Not Tactics.

Parts I-III

By Robert Lovenheim & Aaron D. Schindler, CFP ®

Copyright 2020 Robert Lovenheim and Aaron D. Schindler CFP, All Rights Reserved

Part I

May 2020 – There is an old saying in the military, “amateurs talk about tactics, professionals talk about logistics.” As stock and bond market investors, we could apply that to the moment we now find ourselves in as we struggle towards whatever is coming. The “tactics” are the ever-evolving shorter-term ideas and band aids to lessen the pandemic and quickly return to a “normal” economy. “Logistics” focus on the longer-term outlook and action plan to potentially benefit from new, different and investable American and global economies.

This is a moment where we’ve hit “pause” and the real benefit is a chance to roll out a 21st century New Deal with logistics-based “velocity of money” strategies where one dollar invested generates at least three dollars. As your investment advisor, I am looking for macro-economic policies, industries and companies that will:

  • Employ Americans for manufacturing at home
  • Create local supply chains
  • Protect our environment and invest in green energy.

The big question is: Will the U.S. government’s rush to restart the economy ignore the future and try to reinstate the past? Keep in mind that during the 2009 financial crisis, the American Recovery and Re-Investment Act of 2009, or ARRA, helped more than 6 million Americans from falling into poverty by extending the period in which unemployment checks were issued.1 But the U.S government did not stipulate nor provide New Deal style retraining programs.

Currently, businesses are being offered loans conditioned on paying many employees for not working. Yes, as a shorter-term tactic! Part of understanding tactics vs logistics is wrestling with longer-term strategies to put people back to work, make America a manufacturing power with its own supply chain, and go green. We will identify three main logistical areas where America can focus its efforts.

U.S. Manufacturing & Supply Chains:

Let’s remember that the reason domestic manufacturing exited the U.S. was the cost of labor. Robotics could recalculate both the cost and social distancing labor equations, at least in longer-term industries. The future may belong to industrial plants that employ a variety of robotics and 3-D printers to turn out a number of products with fast turn-around time and minimal supply chain disruption. The concept of a “factory” that makes many products, depending on who rents it and for how long — is certainly possible.

Business Wire reported in February that between 2020 and 2022 two million units of industrial robots are to be installed in factories around the world.2 The majority of these are made in Germany, Switzerland, Japan, and South Korea.  Why can’t the U.S. government offer U.S. companies incentives to invest in U.S. robotics?  Why can’t we be a world leader in employing American engineers and workers to build and export robots?

One area where American venture capital is investing in American-built robotics is the recycling industry. The recycling industry is a textbook example of a high rate of velocity of money. Discarded consumer products are processed by an industry that reduces them to commodities that become feedstocks to manufacture new products that consumers buy.

An area of American innovation that is currently publicly traded is medical assist robotics. Accuray (ARAY), Intuitive Surgical (ISRG) and Stryker (SYK) are potential bets to move into other areas if the demand for sophisticated robotics climbs. The benefits of germ-free medical robots to be used in surgery or patient care are a timely advantage.

Part II: Communications & Telecom

In our Q4 Newsletter entitled Investing in Streaming Wars & 5G: Making Gigabytes Vs. Megabytes, we discuss how much press has been lavished on the “streaming wars” between Netflix, Disney, ViacomCBS, Apple, Hulu, and other companies. However, we stated our belief that the real competition isn’t between content producers. It is competition for space on the superfast 5G networks. They are the pipelines of the future that will allow us to choose to work from home versus commute or compete in e-gaming from our own living rooms with players in Asia and Australia.

Delivery of signals across the 5G railroad relies on another tier of companies that specialize in the equipment necessary to send and route data around the world. Datang Telecom, Ericcson, Huawei, Nokia, Qualcomm, and Cisco are some.

We published our Q4 newsletter five months ago. Fast forward to today and look at the increasing demand for communications and telecom equipment. Which companies should one invest in and at what price?

Interestingly, The Wall Street Journal recently reported that the Trump Administration is speaking with chip makers, such as Intel, regarding opening manufacturing facilities in the U.S. so as not to rely on foreign companies and protect supply chains.3

Part III: Energy, Environment, & Your Fitness

Oil and gas have been the energy pump of the world for over 100 years. The first smog attack in Los Angeles occurred in 1943. Since that time, environmentalists have fought a rear-guard war to alleviate atmospheric pollution, all the while seeing it accelerate into a global problem replete with side effects such as global warming and health crises. The clear skies of the last few months over major world cities, a result of “sheltering in place,” have given us a window to what could be — with alternate energy sources. So the “tactic” is to restart our carbon fuel economy.  The “logistic” is to push towards alternate energy as quickly as possible, creating new professions and new wealth along the way. Why are the Chinese (solar panels) and Danes (wind turbines) leaders in alternates, not U.S. companies?

One proposed political solution is a carbon tax to fund new energy sources, be they wind, solar, or nuclear. Perhaps this is the moment. The price of oil and gas is now so low that a tax would not be burdensome to consumers (if noticed at all). Such a tax could provide the trillions to convert our nation to new, clean energy. Interestingly, major forces promoting this change are the biggest players in the current oil economy: big utilities and big traditional oil and gas energy suppliers. Exxon is an example (wind and solar). NextEra Energy (Florida Power and Light solar subsidiary) is another.

For the investor who believes that politicians have the courage to roll out a new New Deal, attention might be paid to infrastructure companies that are vital but less known, such as SNC-Lavalin (SVCAF) and AECOM (ACM). Both are giant engineering firms, that along with Michael Baker (not publicly traded), provide for engineering services around the world.

And with many of us worried about contagion on public transportation, bicycling might be the new alternative mode of commuting allowing for cleaner air and better fitness. Several world cities, including New York and Barcelona, have used the pandemic-emptied streets as a time to quickly build more bike lanes and a greater share of right of ways to pedestrians.4

The fact that must be faced is that the U.S. economy needs both paid workers and consumers. Workers need to earn paychecks to consume. The value of giving out unemployment checks and business loans should be dependent on training and employing citizens to manufacture or create real things. Any stimulus plan should have a minimum intermediate- and long-term “velocity of money” metric.

This is the time for logistical thinkers and investors. As your investment advisor, I’ve always considered ROI, or Return on Investment, when building investment portfolios. While there are few guarantees in life, everything short of that is just a finger in the dike.

For comments, questions or to schedule a meeting, please contact Aaron D. Schindler, CFP at aschindler@wagllc.com or 917-715-2233

1Stimulus Keeping Six Million Americans Out of Poverty in 2009, by Arloc Sherman, Center on Budget and Policy Priorities, Sept. 9, 2009.

2Top Trends in Robotics 2020, by Carsten Heer, Business Wire, Feb. 19, 2020.

3Trump and Chip Makers Including Intel Seek Semiconductor Self-Sufficiency, by Asia Fitch, Kate O’Keeffe, Bob Davis, The Wall Street Journal, May 11, 2020.

4Our Cities May Never Look the Same Again, by Oscar Holland, CNN Style, May 2, 2020.

Copyright 2020 Robert Lovenheim and Aaron D. Schindler CFP, All Rights Reserved
Not for reproduction without permission and consent by Lovenheim and Schindler

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Aaron D. Schindler is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Ave, 9th Floor, New York, NY 10017, (212) 541-8800. Securities products/services and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Wealth Advisory Group LLC and Robert Lovenheim are not affiliates or subsidiaries of PAS or Guardian.

2020-101300 Exp 05/22