• The Tesla Semi could be a trucker’s best friend
  • The “Never Been Cheaper” list
  • Can The Perceptron conquer the commodities market?

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.

If you have a question you’d like answered in a future edition, please submit it right here.

Now, let’s turn to the mailbag.

Will self-driving trucks destroy jobs?

Jeff, you seem very happy about doing away with truck drivers. Is Brownstone Research going to feed their families? Who is going to buy the goods when there are no jobs left?

– Frank S.

Hi, Frank.  I think I understand your point, but to be clear, I’ve never suggested or even implied that I’m happy or that it would be a good thing to do away with truck drivers.  Our economy simply couldn’t function without them.

I have however written about how around 94% of all deaths in vehicles are caused by us, the drivers.  Drivers get tired, distracted by all sorts of things, do stupid things like text or e-mail on their phone, or even worse they drink and drive.

Ironically, the same was true for commercial aircraft.  Almost all accidents were caused by pilot error until commercial aircraft started employing autonomous technology.  Most people don’t realize this, but pilots only fly a commercial aircraft for a few minutes on takeoff and landing.  The rest of the flight, the plane basically flies itself.  Once that transformation took place, deaths caused by commercial flights almost disappeared.

And the reality is that there is a massive shortage of truck drivers, but the demand for goods delivered by trucks continues to increase.  What are we to do?  That’s where technology comes into the picture.

The real question that you’re alluding to is, won’t advanced technologies lead to mass unemployment? The short answer is that I don’t believe it will. I’ll explain why below.

For any readers who missed the story, on Tuesday, we discussed some recent announcements surrounding Tesla’s all-electric semi-truck.

After years of little news, Tesla confirmed that it has started production on the first of the Tesla Semis. Pepsi is the first customer, ordering 100 trucks for use between Modesto and Sacramento, CA. Here’s what the trucks look like:

Tesla Semi

Source: Tesla

And because these vehicles are coming from Tesla, they’ll come equipped with Tesla’s full self-driving (FSD) technology. This is a perfect application for this technology. While Tesla has the best autonomous technology on the market, there are still situations where the software needs human assistance.

But semi-trucks spend most of their time traveling slowly down interstates. That’s an environment that Tesla’s FSD mode could easily handle. But will this lead to mass unemployment for truckers?

It’s true that advanced technology has always replaced jobs that humans simply aren’t well-suited for. The invention of the printing press made human scribes obsolete. In the 18th century, the automated loom meant we no longer needed human weavers. Each time, there were fears of mass unemployment.

But the reality is these fears never materialized. And today, we couldn’t imagine living without these technologies.

The truth is that jobs won’t disappear. But they will change. Every technology has changed the nature of work.

Technology has historically replaced the menial or dangerous tasks that are less desirable for humans. A more recent example is Amazon. It’s a company that has been innovating with robotics for years.

Today, most of the menial work of picking and sorting products in Amazon warehouses is largely autonomous. At the same time, Amazon is an amazing job creator.

And when it comes to semi-truck drivers, I actually believe the mass adoption of autonomous trucks could be a great opportunity.

It may surprise us to know that there are approximately 350,000 owner operators of semi-trucks in the United States. These are people that either own or lease their vehicles and work under contract with a freight company.

But these owner operators have always had one big problem: They can only drive one truck at a time. It’s simply not possible to own multiple trucks to scale their business and earn more money (without hiring more employees of course).

But imagine a scenario with autonomous trucking. These drivers could buy or lease a Tesla Semi, have it work on their behalf, and use the proceeds to purchase more vehicles to grow their business.

Other tech and logistics companies are also envisioning that professional truck drivers will soon work in a control facility where they oversee a fleet of self-driving trucks.

Perhaps a driver monitors 5 – 10 trucks that are on the road and if any one of them gets into a difficult situation, the driver can “teleport” into the cab, take control of the vehicle and drive the truck until it is able to get back into self-driving mode. Navigating a tricky docking/undocking situation is a perfect example of why a human driver will come in handy.

And we should also keep in mind that the world is in the midst of a massive truck driver shortage. According to the American Trucking Association, The United States alone is short approximately 80,000 drivers to meet current logistics demand. Tesla’s trucks, and other autonomous semis, could fill this gap.

This could turn into a win-win situation. Global supply chains will have the trucking that’s needed, and owner operators will have a better quality of life with the ability to make the most of their assets.

This transition towards adopting this kind of technology won’t happen overnight.  And there are a lot of regulatory approvals that need to take place as well before this kind of autonomous technology becomes commonplace.

And that’s exactly why I research, explore, and share my findings with my readers.  Technology is advancing at a rapid pace whether we like it or not. 

One of my goals is to help my readers be better prepared for what’s coming.  We can do that by learning about these technologies and imagining their impact on the economy, society, and jobs and adjust accordingly.

The “Never Been Cheaper” List…

Hey Jeff, as a Brownstone Unlimited subscriber, I truly appreciate the depth of the research and information you provide. It is all very thorough and insightful, giving us readers many fantastic investment opportunities. However, sometimes it feels slightly like information overload, and I assume other readers likely feel the same. 

[…]

As a younger investor (30 years old) and someone who hasn’t delved much into the Exponential Tech Investor branch of your research, I was curious to what you would rate as the best "Buys" from that portfolio at this time, in your expert opinion.

This could be near-term due to important milestones with trials/tests, or long-term simply due to other factors. Those companies appear to be where us readers with a modest amount of capital to deploy right now could get serious bang for our buck. Thanks for your time and keep up the great work good sir!

– Brett C.

Hi, Brett. Thanks for writing in. It’s always great to hear from some of our younger subscribers. For an investor like you—somebody with a decades-long time horizon for investing — I fully understand the urge to go “bargain shopping.”

Your timing is very good for this question. On Monday, we published our latest edition of Exponential Tech Investor. At the bottom of the issue, I published what I’m calling the “Never Been Cheaper” list.

This is a list of high-growth technology companies that are trading at—or near—all-time low valuations. And they’re all fantastic companies. Please feel free to review that table at the bottom of this page.

Out of fairness to my paid subscribers, I can’t reveal the full list here. But I will profile one company that is a classic example of how discounted some of these growth stocks are.

Zuora (ZUO) is a company that helps businesses solve the complexities around pricing and packaging subscription services.  

Recurring subscriptions are one of the most desirable and well proven business models in high tech.  We usually see this in the shape of a software-as-a-service business model. High profile products like Adobe Creative Suite, Box, and Microsoft Office have all made the transition to subscription models in recent years.

And Zuora abstracts away all the complexities of designing and implementing this model. And there’s a lot to like about Zuora.

  • The company has grown revenue from $168 million in fiscal year 2018 to $371 million today.

  • The business operates with 60%+ gross margins

  • It’s the clear leader in the billings management systems industry

I really like what Zuora is doing. And the stock is historically cheap. Zuora has traded at an average EV/Sales of 6.3 since its IPO.  Yet today, it trades at an EV/S of about 2.  That’s absolutely insane.

Please note that Zuora’s fiscal years end on January 31 of each year. So, Zuora’s FY 2022 is basically calendar year 2021.

Now, I’d offer an important caveat. Just because companies like Zuora are at all-time low valuations does not mean that this market can’t punish them further. The Federal Reserve seems hell-bent on driving us into a recession and punishing our retirement accounts.

So, if we decide to take action on any of the companies in the “Never Been Cheaper” list, we should do so knowing that markets will be volatile for at least the next six to nine months.

But looking a few years in the future, I’m virtually certain that all these companies will be trading multiples higher from today’s level. If we’re comfortable weathering the current volatility, this list could be a great resource for long-term investors.

Unleashing the Perceptron on commodities?

Last week, I asked subscribers what area of financial markets they’d like to see The Perceptron target next. This week, one subscriber had an answer.

I would love to see The Perceptron applied to commodities and equities markets, especially on a short time frame for day trades and swing trades of 1-21 days in length.

This is fairly consistent with the type of time frame currently being applied to the cryptocurrency market. More specifically, I’d like to see use of the futures market for the actual trading instruments, such as the E-mini futures contracts (ES, NQ, etc.) and/or (CL) for crude oil futures.

This idea is highly intriguing in my view, with tons of liquidity for subscribers to execute trades. This could be very realistic in the 1-21 day time frame.

The biggest challenge would seem to be selection of risk management, but this is solvable if The Perceptron is able to achieve a positive track record of winning trades (expectancy).

This type of strategy could potentially include short trades very easily with some modifications to The Perceptron. The array of futures contracts for equities and commodities are very appealing for this idea.

I’m sure you may have evaluated this concept, but I’d love to see and hear more from you along these lines. I’d also be willing to participate in any form of beta test to help prove efficacy.

Sincerely,

– Rob B.

Hi, Rob. Thanks for your feedback. And I agree. A neural network like The Perceptron would thrive in the commodities and futures market.

And your instincts are great because that’s exactly what we’ve been working on.  We’ve been performing a lot of analysis with the energy complex and soft commodities.  These are great markets for the application of artificial intelligence.

What makes these markets also interesting is that there are several potential ways to trade off a strong signal. 

As you suggested, there are futures contracts, there are also futures options, as well as individual equities that are highly correlated to the underlying commodities. 

Part of my process and analysis is to determine which assets are the best way to gain exposure to a trade on a risk-adjusted basis.  I also have to account for liquidity and potential trading volume.

The time frame is also part of the analysis.  In the case of digital assets, we found that The Perceptron consistently provided the best predictive results with a 60 day look ahead.  That 60 day time frame tended to outperform 30 day or 120 look aheads.  That may not be the same though in the commodities space.

To your point, I’d love to have an even shorter, more frequent trading window like 30 days, 21 days or even 14 days.  We’ll see what the best window is for the asset class and then we’ll build upon that.

I’m looking at a couple more asset classes and trading strategies as well that I’m also excited about. As we’ve all been working through these tough market conditions, I’ve been deep in research mode to develop strategies that will function well in volatile markets and also provide downside protection.

I’m excited about what we’ve got “cooking in the oven”, but I won’t take it out until it’s great… Right around the corner…I’ll leave it at that.   

That’s all the time we have this week. Remember, if you’d like me to answer one of your questions, please send me a note by writing to [email protected]. I’ll do my best to get to it in a future mailbag.

Regards,

Jeff Brown
Editor, The Bleeding Edge