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Amazon, Google moves highlight robotics wave: Schiff

Yahoo Finance
Yahoo Finance

Editor's Note: The following is a guest post provided by Euro Pacific Capital.

The "robots are taking over the world" concept has been a staple of science fiction for generations. However, the reality of automated production lines and self-propelled disc vacuums has thus far proved much less intimidating. But the next generation of robots will likely be much more significant. And while we feel that financial markets remain highly distorted by excess liquidity, and that growth stocks always involve higher risk, it is undeniable that transformative innovations can present opportunities.
Recent moves by Google (GOOGL) and Amazon (AMZN) highlight the wave in robotics. In 2013, Google purchased eight startups focused on robots, and this year it unveiled dramatic improvements to the driver-less car concept that it first introduced in 2012. Recently, Amazon made a big stir on "60 Minutes" by introducing an internet-controlled air drone delivery system. Although some dismissed it as a stunt, Amazon founder Jeff Bezos insisted that the project was for real.
With the costs to build and develop robots declining, more companies are looking to use robots wherever they can. This is especially true in high cost, high regulation economies like the United States where the costs and benefits of employing humans for routine tasks are becoming less and less compelling. If successful, popular moves to raise the minimum wage in this country to an unrealistic $15 dollars per hour could kick the robotic industry into a much higher gear. And why not? Robots are willing to work longer hours for no pay, and they don't goof off, take sick days or require health benefits.
Already, the fast food industry is experimenting with much greater automation, both in the cooking and in customer interaction. The day when a Big Mac can be produced with no human involvement may be much closer than most people realize. In June, The Netherlands said it plans to start testing driver-less trucks next year and it intends to have them on public roads within five years.
Last year, an all-time high of 179,000 robots were sold world-wide, a 12% increase over 2012, according to the International Federation of Robotics. Between 2008 and 2013, U.S. robot sales increased an average of 12% per year. In terms of annual sales, China is the biggest market, as well as the fastest growing. Japan is the second largest market as well as one of the biggest producers of robots. Currently, Japan has the most industrial robots in the world, more than 300,000.

The main drivers of growth are the automotive and metal industries. Between 2010 and 2013, both industries increased robot investments by an average of 22% per year. Military consumers are also leading early adopters.
Experts predict robots may eventually replace flesh-and-blood soldiers on the ground. Admittedly, the eyebrow-raising concepts introduced by many defense contractors do seem to be much closer to science fiction than to current reality. Apart from taking life, robots are also being designed to preserve it with some companies designing automated systems that can act as full-time caretakers for the aging population that predominates in advanced economies.
While we cannot offer specific advice on particular companies, the robotics sector may be one to look into.
Of course investors should not feel as if robotic companies are somehow responsible for displacing workers or causing unemployment. Labor saving devices, such as fork lifts and steam drills, have always been accused of putting people out of work, but instead they have just increased productivity and allowed workers to find jobs that are more suitable for humans. Remember, the job of an economy is not to create jobs, but to create stuff. If we could produce all that we needed to consume with no human labor, humanity would be much better off. Too bad economists can't figure that out. Maybe they should be replaced by robots.

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