The Real Tech Boom Is Under Way

 | Jul 18, 2013 | 4:00 PM EDT
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Last December, I wrote about the potential for biotechnology and other technology stocks to advance rapidly in the column "The Real Tech Boom Is Just Beginning" and followed that up with a review last April in the column "The Real Tech Boom Is Still Just Beginning." Given the substantial positive performance this year in the stocks discussed, this is a good time to assess the situation again.

Since I last discussed this issue about four months ago, the two exchange-traded funds listed in the column, the SPDR S&P Biotech (XBI) and iShares Nasdaq Biotechnology (IBB) have each advanced about 20%.

Of the individual stocks listed, Amgen (AMGN) is up about 16%, Celgene (CELG) is up about 20%, Biogen Idec (BIIB) is up about 30%, Teva Pharmaceutical (TEVA) is unchanged, and Synageva BioPharma (GEVA) is down about 8%.

That's a wide range, but within the past few years, with the exception of TEVA, these stocks are up anywhere from 100% to 400%, leading to the natural concern to whether the sector has advanced beyond its immediate potential. In short, I believe it has and a negative correction of up to 50%, and perhaps more, is probable soon. As with the correction in gold prices of the past few years though, I expect that this will be a cyclical bear market within a secular bull market.

The fundamental growth prospect of the industry and technology more broadly is still in its early phases and represents, as a sector, the greatest growth opportunity for speculators and investors over the next decade versus other sectors.

On an even broader basis, however, I want to look again at structural unemployment. Structural unemployment at its core is the result of the obsolescence of human labor as it is replaced permanently by technology. The social, economic and political ramifications are enormous.

Federal Reserve Chairman Ben Bernanke most recently addressed this issue briefly in his Q&A session with the House Financial Services Committee Wednesday, in which he downplayed concerns about structural unemployment. (For those interested, he addressed this issue in more detail last year in a speech to the National Association for Business Economics.)

I would caution investors, though, that the sanguine nature of the chairman's remarks concerning the potential for structural unemployment to be an ongoing or growing concern is not universally accepted any longer. There is a growing body of evidence that the elevated levels of unemployment is caused by technology being used to displace more work that would have been performed by humans in the past than it creates. That is structural unemployment. (MIT Technology Review published an excellent article on the subject last month.)

Just as a decade ago the media was filled with stories of U.S. manufacturing managers and line workers training the Chinese employees who were taking their jobs to China, technology today is making it possible to bring those jobs back to the U.S. and give them to robots and "smart systems."

Bernanke's lack of concern about this issue is probably more reflective of the old management logic of lead publicly and manage privately. There's nothing to gain by admitting that structural unemployment is real, but there's nothing the Fed or other regulators can do about it.



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