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My thanks to a subscriber for this informative and topical article by Thomas Friedman for the NYT and IHT. Here is the opening:

In an essay, entitled "Making It in America," in the latest issue of The Atlantic, the author Adam Davidson relates a joke from cotton country about just how much a modern textile mill has been automated: The average mill has only two employees today, "a man and a dog. The man is there to feed the dog, and the dog is there to keep the man away from the machines."

Davidson's article is one of a number of pieces that have recently appeared making the point that the reason we have such stubbornly high unemployment and sagging middle-class incomes today is largely because of the big drop in demand because of the Great Recession, but it is also because of the quantum advances in both globalization and the information technology revolution, which are more rapidly than ever replacing labor with machines or foreign workers.

In the past, workers with average skills, doing an average job, could earn an average lifestyle. But, today, average is officially over. Being average just won't earn you what it used to. It can't when so many more employers have so much more access to so much more above average cheap foreign labor, cheap robotics, cheap software, cheap automation and cheap genius. Therefore, everyone needs to find their extra - their unique value contribution that makes them stand out in whatever is their field of employment. Average is over.

Yes, new technology has been eating jobs forever, and always will. As they say, if horses could have voted, there never would have been cars. But there's been an acceleration. As Davidson notes, "In the 10 years ending in 2009, [U.S.] factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs - about 6 million in total - disappeared."

My view - Because we are a clever species, the rate of technological innovation is increasing, often at an exponential rate. This will continue to replace workers, and not just in manufacturing. The trend started in developed countries but inevitably spreads throughout emerging economies as they also develop.

The march of technology is so pervasive that most adults can cite numerous personal examples of how it has transformed much of what we do, especially in the workplace. In my UK research business, commencing in 1970 I employed a team of up to ten skilled arts graduates who drew beautiful charts. Their production created a steady demand for art supplies, including fine pens, bespoke papers, cardboard backings, labels, liquid wax and even lighter fuel. If the process sounds Dickensian today, it was. The boards were bound into weekly books, creating a lucrative job for printers. The delivery of these chart books was good business for postal services. Today, we produce vastly more up-to-date graphics in Fullermoney's online Chart Library.

By eliminating numerous 'traditional' jobs in so many industries, technology obviously creates unemployment problems, not least in manufacturing. However, productivity increases also spawn new businesses, particularly in services sectors. Many of these will require more highly educated people as Thomas Friedman points out. They will also put a premium on social skills rather than muscle power. I would not be too pessimistic about long-term employment issues provided that our schools cater to the skills required.

Bernanke Makes Case for More Bond Buying - Here is the opening from this topical item reported by Bloomberg:

Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.

The Federal Open Market Committee "recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation," Bernanke said yesterday at a press conference in Washington.

Stocks and Treasuries rallied after policy makers said the benchmark interest rate would stay low until at least late 2014, pushing back a previous date of mid-2013. Fed officials also lowered their projections for economic expansion and inflation for this year and next.

"It was an unambiguous, aggressive statement," said Julia Coronado, chief economist for North America at BNP Paribas in New York. "My expectation is that we are going to get quantitative easing three in April," she said, referring to a third round of bond buying.

The U.S. central bank's "two main tools" to boost growth are asset purchases and communications, and bond buying is "an option that is certainly on the table," Bernanke said. "The unemployment level is elevated and the inflation outlook is subdued."

Policy makers yesterday set a long-term goal of 2 percent inflation, and forecast that price increases would fall short of that target this year and next. The personal consumption expenditures price index (SPX) climbed 2.5 percent for the 12 months ending in November.

My view - Some commentators have remarked that in suggesting it might keep interest rates low until at least late 2014, the Federal Reserve is signalling that the economic outlook is likely to remain perilous. While possible, and one should remain cautious about economic growth in a deleveraging economy, one should not be overly pessimistic, in my view.

Thanks to its outstanding multinational corporate sector - companies which Fullermoney describes as Autonomies - the US economy is clearly doing better than many economists expected, albeit with the help of the Fed's massive stimulus.

Mr Bernanke is addressing the unemployment portion of the Fed's dual mandate, as he should. With many businesses talking about uncertainties in the US economy, the Fed can at least offer reassurances that monetary policy will remain accommodative for so long as necessary.

No one knows what the economic environment will be like by late 2014. Meanwhile, the problem that Mr Bernanke hopes to delay indefinitely is the next widespread increase in inflationary expectations. By purchasing more US Government bonds he can keep long-term interest rates lower than might otherwise occur.

If low interest rates encourage more businesses to invest in the US economy, they might hire more people rather than just upgrading technology. Whether we agree with his policies or not, we cannot fault Mr Bernanke for effort.

Emails of the day (1 to 4) - On trading disciplines, which were discussed in Tuesday's Comment of the Day:

"Thank you very much for your comprehensive reply to my email on trading discipline. I will copy/paste and save it - and read it regularly to remind myself! Having lived 9 years in Vietnam and spent more than 2 years in India - I have no doubt that its only a question of time before both China and India will come back strongly."

And:

"Probably everyone who has traded, as opposed to invested, can relate to the comments of a fellow subscriber on Tuesday. I know I can and while I cannot claim to be a consistently profitable day trader in the S&P, my rate of improvement has increased significantly due to a number of actions. I would recommend the following approach: Read Mark Douglas's Book "Trading in the Zone" and adopt his "5 Fundamental Truths of Trading" and his "7 Principles of Consistent Trading", as fundamental pillars in your Trading Plan. Then identify your edge and back test over a long period. I used 6 months of 5 minute bar by bar testing. Know your edge so well that you can verbalise it exactly as it appears. Then practice trade live until you are comfortable. It is this "Deep Practice" that will help maintain discipline under stress. Then trade in small lots and leverage up very gradually. I also utilised a trading coach, who helped me in the early stages of my development. Trading should be simple in execution but it is not easy to learn."

And:

"In relation to yesterday's email on trading discipline I'd just like to add my own humble experience.

"I started spread-betting futures back in late 2009. I focused on the precious metals predominantly as gold was breaking through $1000 and the other metals were performing too. Fullermoney highlighted this daily. So I made some substantial profits (for me) right from the off and of course slipped into the mindset that this trading lark was a breeze and I'd be chucking in the 9-5 in a few months. However, I quickly learned an early win can be as dangerous as an early loss. My confidence grew and I have given it all back since, and then some.

"I suppose I've broken every trading rule in the book, in that time. Stop losses that were too tight/loose, trading on emotion (seeking revenge!), slavishly following tip sheets, and probably most egregious of all, not having a plan. Hell, I'd have consulted the Tarot cards if I thought they'd give me that ever elusive 'edge'.

"However, my one saving grace was I always respected leverage and traded within my available funds. So while my losses did sting, I wasn't wiped out. Like yesterday's subscriber, I consider those my tuition fees. I have since stepped back, but not abandoned, spread-betting and am now focusing on non-leveraged investments that follow the Fullermoney themes. They're small investments, but diversified, and most importantly, I'm sleeping at night. No more waking at 3am wondering if I put a stop on that quickly tanking EUR/USD long.

"My aim now is to properly know myself. You've spoken of this in the past David, and I must admit, at the time I did think it was bordering on psycho-babble. I now know it is easily the most important aspect of trading and all else falls behind it.

"To finish, the following quote, I think, sums up trading for many people:

"Leverage buys you a glimpse of a prosperity you haven't really earned."

"Taken from 'Boomerang', Michael Lewis' new collection of essays."

And:

"Trading Discipline: this is indeed a huge yet fascinating subject. I certainly appreciated the question and your response on Tuesday Comment of the Day. www.youtube.com/watch?v=LiE1VgWdcQM is a song by Ed Seykota which may be new and useful to some subscribers. From what I have read, Mr Seykota seems to be one of the most successful trend following futures traders in the last 40 years."

My comment - There is certainly wisdom in these emails and thank you for sharing your thoughts and experiences in the spirit of Empowerment Through Knowledge.

Additional commentary by Eoin Treacy

Equity strategy 2012: Fears and opportunities Thanks to a subscriber for this interesting report from GazpromBank focusing on the Russian market. The full report is posted in the Subscriber's Area but here is a section:

Our in-house view on the markets in 2012 is cautiously optimistic, as our base scenario does not envision a recession in the Eurozone, or its breakup, which will make markets pay more attention to fundamentals and valuations. From this angle, Russia looks extremely cheap with P/E 2012E at 4.9x. This is 31% lower than 7.1x in the troubled Greece, which, in our view, is unjustifiable. Still, we expect very high volatility in 2012, especially in the first half of the year.

We see the fair levels of MICEX and RTS Indices at respective 1,919 and 1,962, which imply 39% and 41% upsides from the current levels of 1,378 and 1,387. However, we stress that these ¡§fair levels¡¨ could only be reached under the ¡§normalized¡¨ markets situation, which has a considerable chance not to materialize in 2012.

In Russia, we would recommend to concentrate on liquid dividend stories and special situations, such as preferred stock of Rostelecom. In terms of sector allocations, we anticipate oil & gas sector to outperform the market on the back of expected sector performance catch-up to oil price. We also note the sector¡¦s stronger resilience to macroeconomic volatility compared to other sectors, due to taxes linked to the oil price and flexibility of ruble denominated costs.

My view Russia has persistently traded at lower valuations than one might superficially expect, not least because of uncertainty surrounded governance and the treatment of minority shareholders. One of the defining characteristics of the Russian market is that it is viewed as a high beta proxy for the energy and industrial metals sectors.

This section continues in the Subscriber's Area.

More Firms Enjoy Tax-Free Status Thanks to a subscriber for this well-illustrated article by John D. McKinnon for the Wall Street Journal. Here is a section:

By some estimates, more than 60% of U.S. businesses with profits of $1 million are structured as pass-throughs, the highest rate among developed countries. Their popularity is one big reason why federal corporate tax collections amounted to just 1.3% of GDP in 2010, well below their mark of 2.7% in 2006 and far beneath their peak of 6.1% in 1952.

Almost everyone in Washington appears to agree that the Byzantine corporate tax code needs a revamp. But on this point, the business community is split, presenting perhaps the biggest obstacle to any overhaul.

Many Democrats as well as some Republicans are willing to consider taxing the largest pass-throughs. It is a matter of fairness, they argue, and would also raise new revenue to help offset the cost of cutting tax rates.

On the other side, a Republican-backed coalition including building contractors, beer distributors, auto dealers and funeral directors argues that changing the rules will inhibit entrepreneurship, as well as hit their pocketbooks.

My view Proposals to tax pass-through corporations have been circulating for some time without gaining a great deal of traction in Washington. The more companies that adopt these favourable tax strategies, the more attention they are likely to attract from a revenue hungry federal government. In an election year where the incumbent looks set to run on a fairness platform and the challenger likely to take a business friendly tack, the pass-through sector could attract further attention. (Also see Comment of the Day on June 8th 2011).

This section continues in the Subscriber's Area.

Email of the day on US Treasuries and visiting Chicago:

I send you the attached letter to use as you like. 

"Separately, I would like to revisit today's Fed announcement and the subsequent bond market reaction.  I would have thought an announcement regarding asset purchases would be a cause for investors to buy long term dated government bonds, not solely the continuation of ZIRP. You and David have covered many of the fundamental demand drivers of bonds as well as the technical picture.  Have you both discussed what the unwinding might look like, and the degree of the financial damage?  For me it makes sense to think it will be more like the NASDAQ of 2000 than the housing market of 2007.  The former was unwound in three years because you only had to hit a button to end the misery.  The latter continues to be a complicated and fractious transaction that had the twin detriment of wrecking lives on a grand scale.

Thanks for your reply.

Finally, any plans on stopping in Chicago between Los Angeles and New York?

My comment Thank you for this interesting letter which rhymes with our view of the upside potential among the globally oriented consumer related companies which we have dubbed Autonomies. I don't have plans to visit Chicago on this year's trip to the USA but plan to return in 2014 and Chicago will definitely be on my schedule then.

Yesterday's Fed announcement did not include a commitment to additional purchases as far as I know. However, the Fed has an interest in keeping yields low and may well be preparing the ground for QE3. The perception that the US Treasury market is infallible has gained credence following a more than 30-year bull market. This perception belies the risk of paying historic highs for ever lower yields. One would need to believe that the USA is heading the way of Japan to justify such purchases beyond the motive of short-term momentum.

This section continues in the Subscriber's Area.

Speaking engagements in the USA - I have accepted an invitation to speak to the Los Angeles chapter of the MTA on April 11th. The venue has yet to be confirmed but will be in the Long Beach area. Non-members are welcome to attend. The topic will be "To Hoard or to Horde: risks and opportunities from participating with the crowd."

I have also accepted an invitation to speak to the San Diego chapter of the MTA in the first week of April. A date and time has yet to be fixed but it will take place in the Del Mar area.

I still have some space available on my itinerary. If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.

The Chart Seminar 2012 - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year. Please be aware that the early booking rate for non- subscribers at the US seminars expires on January 31st.

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com.

The date and venues for my seminars so far in 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

Please note David is away today but will return tomorrow.