The Death of...

This week, I happened upon a WSJ article about the 'death of the electric guitar'. For Boomers, , who've been raised on the guitar heros of the 60's... Clapton, Page, Beck and above all Hendrix... this is heresy, (especially for certain retired PMs with guitar collections)! But, sadly, the data show a steady decline in the sales of electric guitars over the past decade.

I believe pop music today has been depersonalized by modern computer-driven production techniques. ProTools, auto-tune, sampling ...are mandatory elements skills of musicians and producers who dominate the popular music of today. Learning the latest guitar riff is so-o-o-o 1974.

Drake; the mega-popular hip hop star is a case in point. His music has been propelled by his collaboration with a computer/musician genius, Noah "40" Shebib. Together, from their state-of-the-art studio in Etobicoke, they pump out songs that are produced from an array of computers linked to electronic instruments. A few mouse clicks and a single microphone and there is your "music". The beat, the instruments and even the vocals are often derived from sampled computer generated sounds that are bereft of human feel. Mistakes can be easily edited out by massaging the data, removing the last traces of any humanness.

Without Shebib, Drake would probably still be a struggling actor, surviving on his "Degrassi - The Next Generation" residuals.

Most of the musical offerings of today's Billboard Top 100, are a synthetic melange that sound robotic, antiseptic, and unapproachable to those raised on guitar based rock. But it sells. Sadly, it sells. Hard rock music, in decline for years is now, largely absent from the popular music charts.

Kind of reminds me of... oh, I don't know...the death of active portfolio management.

The ubiquitous computer, accelerated by the internet, has changed the business of money management. Passive funds and Robo ETF investing has mechanized the process of risk taking, supplanting individual portfolio managers as decision-makers. Algorithms designed by financial "Shebibs" are driving the fund business, increasingly replacing such things a judgement and experience. As in music production, the resultant paradigm shift from the emotional, imperfect past to a mechanistic future is well advanced. The portfolio management"mistakes" that were so viciously laid bare in the 2008-09 market collapse are held as proof that humans are not to be trusted with other people's money. Bring in the Machines!

The resulting pendulum swing to passive, low volatility income and growth funds is creating a self-sustaining crowding of money flows into the "winning" trade. Look at the chart below for the evidence. Active strategies are now as popular as a guitar solo at a Bieber concert (there aren't any).

Unfortunately, active money managers are under the same disruptive pressures from technology as the fading rock stars of the past.

There is one distinct and important difference however.

Unlike U2 fans, who are apperantly satisfied with a band touring behind a 30 year old album, investors don't want to hear the same old tune.

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FUND FLOWS - Cumulative $TRN

Source: BofA Merrill Lynch