The AI, robotics and VR technologies will grow into the major innovative players of the 21st century.

A while back I wrote about a new sector—artificial intelligence, robotics, and virtual reality and how these innovative technologies were set to transform numerous aspects of modern society—manufacturing, labor, health, energy, leisure, and of course transportation. 

I suggested that the low-priced ETFs—ROBO and BOTZ—were a more conservative way and my choice to trade the companies that introduce these technologies. My preferred ETF was ROBO, thanks to its slightly higher volume.

Since that post, ROBO has been racing to new highs with the other major technology sectors. Correspondingly, like the others, it has declined in the last couple of weeks. 

The run from June lifted ROBO about 25 percent to $42.50. So far, the decline has brought it back about 4 percent. In contrast, SMH, the semi-conductor ETF, is down about 11 percent.

The AI, robotics and VR technologies (along with renewable energy) will grow into the major innovative thrusts of the 21st century. The impact on the modern world will be tremendous, with huge potential for good or bad. Already, the talk is about taxing robots. New companies with breakthrough technologies will become major corporations as the sector grows. 

Until the companies in this sector mature, and the enviable shake-out occurs, I prefer the ETFs. At this moment, price is short-term oversold, and testing its breakout zone between $40 and $41. If it finds support, there’s a chance for a year-end rally.

How does a money manager reconcile all of the various prognostications he hears on a daily basis? Simple – ignore them.

From Galapagos, circa 1985:

The thing was, though: When James Wait got there, a worldwide financial crisis, a sudden revision of human opinions as to the value of money and stocks and bonds and mortgages and so on, bits of paper, had ruined the tourist business not only in Ecuador, but practically everywhere…Ecuador, after all, like the Galapagos Islands, was mostly lava and ash, and so could not begin to feed its nine million people. It was bankrupt, and so could no longer buy food from countries with plenty of topsoil, so the seaport of Guayaquil was idle, and the people were beginning to starve to death…Neighboring Peru and Columbia were bankrupt, too…Mexico and Chile and Brazil and Argentina were likewise bankrupt – and Indonesia and the Philippines and Pakistan and India and Thailand and and Italy and Ireland and Belgium and Turkey. Whole nations were suddenly in the same situation as the San Mateo, unable to buy with their paper money and coins, or their written promises to pay later, even the barest essentials. ..They were suddenly saying to people with nothing but paper representations of wealth, “Wake up, you idiots! Whatever made you think paper was so valuable?”

The financial crisis, was simply the latest in a series of murderous twentieth century catastrophes which had originated entirely in human brains. From the violence people were doing to themselves and each other, and to all other living things, for that matter, a visitor from another planet might have assumed that the environment had gone haywire, and that people were in such a frenzy because Nature was about to kill them all.

But the planet a million years ago was as moist and nourishing as it is today – and unique, in that respect, in the entire Milky Way. All that had changed was people’s opinion of the place.

The trend is still up. Stocks breaking out to new highs, new leg up. Enjoy the ride.

Commodity markets offer a wide set of alternative risk premium opportunities. These opportunities have improved with the end of the long-term super-cycle downturn. The dominate cycle factor has ended and has allowed more balanced investment opportunities.

The general framework for alternative risk premium can be divided into a number of categories:

Carry/Term/Backwardation - (Backwardation/Contango) - There is more variation in backwardation across commodities and through time than what can be found in other markets given the sensitivity to inventory changes, supply shocks, and hedging pressure. The changing supply dynamics and demand for hedging creates a greater number of "carry" opportunities.

Momentum - (Time series/Cross-sectional) - Given the inelastic demand and supply for many commodities, there is likely to be greater price responses to any shock. The use of futures as a hedging tool means that many trades are not done for profit maximization but risk considerations. This creates trend and momentum opportunities.

Value - (Long-term price levels) - More so than other markets, long-term price can be serve as a value indicator. As often commented by market pundits, the solution to high (low) commodity prices are high (low) prices. Extended periods of low prices will lead to supply reductions which will serve as the mechanism for future price gains. Extend periods of high prices will lead to new supply and future price declines.

Seasonal - (Market situational) - More so than other asset classes, there are distinct seasonal patterns that lend themselves to changing risk premium.

Volatility - The volatility risk premium is present like other asset classes; however, these premiums are more diversified relative to other asset classes given the low correlation across commodity markets.