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Here Comes 5G!

What Is It, and How Will It Impact Consumers and Investors?

David D'Amico, CFA

David D'Amico, CFA

Dave is COO and Portfolio Manager at Argent Wealth Management, LLC

You may have heard or seen headlines about something called 5G and may be wondering what it is and how it may affect your life. If you haven’t heard, 5G is coming to a cell phone near you! This massive global infrastructure upgrade race has begun to crystalize and be deployed. Conversions will begin later this year and will really get going in 2020.

So, What is 5G?

5G (5th Generation) is the latest generation of cellular mobile communications. It succeeds the 4G (LTE/WiMax), 3G (UMTS) and 2G (GSM) systems. 5G performance targets high data rate, reduced latency, energy saving, cost reduction, higher system capacity, and massive device connectivity. The first phase of 5G specifications in Release-15 will be completed by April 2019 to accommodate the early commercial deployment. The second phase in Release-16 is due to be completed by April 2020. (Source: Wikipedia)

How Will this Effect our Lives?

The evolution to 5G will allow for much faster data speeds, faster internet searching, improved urban cell connectivity, and allow for a significant increase to the number of devices that can connect remotely to, and be controlled by, remote devices. 

Speed – The Obvious Benefit

Do we really need more speed? Isn’t the experience of browsing the internet from mobile devices already good enough? It’s hard to envision faster connectivity, but the following chart will provide you some graphical representation of just how much improvement is in store in this upgrade to 5G.

The Internet of Things (IoT) – More Devices Connected and Controlled

We won’t be just searching the internet or buying goods from our smartphones or wireless devices in the future. The speed of 5G will allow for many more devices to be connected and interconnected. This is known in the industry as the Internet of Things and it’s changing the way technology is integrated into our daily lives. IoT needs the fast data speeds of 5G to be successful. As it evolves, IoT will kick off many exciting improvements for consumers while transforming business. For a quick lesson on IoT, check out this video produced by the IBM Think Academy:

Self-Driving Cars – This network will be so fast that it may be able to coordinate self-driving cars. Truly autonomous driving with cars talking to networks and the internet would work somewhat like an automated air traffic controller for the streets. 

Medicine – Virtual doctors will be able to monitor patients and have meetings without time delays. This could change the entire cost structure of healthcare while improving lives.

Video Gaming – Why would anything need to be on a disc when download speeds can be this fast?  Brick and mortar retail companies like GameStop will have further questions around their traditional retail approach. How about virtual reality becoming mainstream and not just a vision or fantasy?

Video and Television Viewing – 5G speed will allow the ability to download movies and content virtually instantaneously, and will continue to transform movie watching, cable and the entertainment experience. Coupled with Virtual Reality, the consumer may be in for some really exciting entertainment enhancements in the coming years.

Investment Ramifications

The internet, mobile phone and wireless connectivity industry is not only changing and enhancing lives, but remains a massive growth opportunity for investors. It also poses continual threats to mainline traditional businesses. Cable companies, as we know, are significantly disadvantaged by the ability to view cable and movies from virtually anywhere. Traditional auto makers could see declining sales as autonomous driving goes mainstream. What about the Uber’s and cab industry? And cell phone manufacturers and operators? Who is in the lead? Samsung, Apple, Google, Huawei? What semiconductor companies will dominate the next decade? Will Intel reemerge with new technology or perhaps Qualcomm? Or will Nvidia keep the lead in the fastest, next generation gaming and entertainment chips? Will a new firm emerge? Will this upgrade cycle be the next boom in handset manufacturers, or will this hurt them? As everyone waits for the new 5G phones to roll out, will that hurt Apple and Samsung and other leading handset manufacturers? Or will this massive upgrade cycle be the next sales boom for these manufacturers presenting a great buying opportunity? So many questions! 5G and the Internet of Things will certainly improve, while at the same time disrupt, many industries across the globe. Investors will have to be very aware of this enhanced speed that is coming and how it may positively or negatively impact businesses, growth rates, competitive threats, and complete disruption of traditional lines of business. This can be both an opportunity and risk to investors.

5G is upon us and the race is on – so what do we need to do and when?

5G is being built out around the globe and China seems to be in the lead as they upgrade their towers and systems. AT&T, Verizon, et al are scrambling to upgrade their networks to claim their stake as the leading 5G provider. The U.S. has been slower but is beginning to ramp up faster. The first 5G phones are likely to hit the market this spring, and it looks like Android phones (Google) may be the first to market. Apple is lagging and likely won’t have a 5G phone until early 2020. Apple has also been mired in a legal battle with Qualcomm and this may end up hampering Apple’s 5G efforts as Qualcomm emerges as a leading 5G chip maker. However, until the 5G network is better built out, the phones won’t add much value. It looks like 2019 will be a transition year and 5G will likely take full hold in 2020. Buyers of smartphones and investors should all be aware of this.

5G phones, when they roll out, will continue to work with the existing 4G and LTE networks currently in place. But not vice-versa. So, if you have an old 4G phone, you will need to consider when it is best to upgrade. It is hard to envision the need to upgrade until at least 2020, but consumers should understand this is on the horizon, and should ask these questions before buying their next smartphone or wireless device. 

Technological enhancements and mobile connectivity have been an amazing growth industry and one that has transformed lives, mostly for the better. 5G is a massive upgrade that will allow for continued evolution, more connectivity and more devices. This should be fun, and investors will have to continually monitor progress and weigh the opportunities and the risks accordingly. 

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Argent Blog

Is the Volatility Over? The BIG Picture:

Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer

  • We are likely in a cyclical (short-term) bear market within a long-term (secular) bull market in stocks:
  • Birds Eye View: What we have seen in equities over the last year is in line with historical bear markets within secular bull markets in terms of time and percent loss (Source: Ned Davis Research):
  • But Didn’t Markets Peak in October? No!  Most markets peaked in January of 2018.  That is a full year of bear markets for most indices!
  • A Retest: It would also be in line with history to see markets retest lows before the start a cyclical bull.
  • History rhymes but does not repeat: We have had one of the longest expansions in history, which gives pause to the call that the next bull market will be as strong as the average.
  • When to buy? Drawdowns greater than 20%-25% usually include either high valuations/major asset bubbles, an aggressive Fed, and/or an oil shock.  None of that exists today.  Therefore, if we retest lows set in December we are likely buyers. 
  • Risks: Main risk today is greater than expected deterioration in the economy due to higher than average geopolitical risk and potential policy errors.
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Tim Duchesneau

Tim Duchesneau

Tim is a Co-Portfolio Manager and Investment Analyst

Highlights from CES 2019

As always at CES, there were many innovative new consumer gadgets and concept ideas from some of the most cutting-edge companies in the world. These companies are leading the way in terms of new technology related to robotics, smart homes/smart cities, AI (Artificial Intelligence), AR (Augmented Reality) and VR (Virtual Reality).

Molekule is one of these very interesting, emerging companies. Molekule has made great strides in smart home devices in terms of reducing pollutants in the air. Their studies indicate that the air inside a building or home can be 5x more polluted then the air outside (their data has been approved by the U.S. EPA). Studies show that 25% of people are allergic to the air in their homes and aren’t even aware of it. Additionally, their studies show that poor air quality in homes and offices can increase the risk of common colds by 56%! Most people believe that the filters in their HVAC systems are enough to clean the air, but these filters actually enhance the problem by continually recirculating polluted air. Unlike most air purifiers that rely on HEPA filters, Molekule’s proprietary Photo Electrochemical Oxidation system, or PECO destroys pollutants by breaking down their molecular structure. This technology may change the way we clean the air in our homes and offices.

Another interesting standout company was HTC and their efforts to implement AR and VR into businesses, specifically healthcare. For instance, most orthopedic surgeons specialize in one companies’ replacement products (hip, knee, etc.) as the surgical process is unique to each manufacturer. HTC has developed technology using VR and AR, that allows surgeons to simulate replacement surgery without ever coming into contact with a live patient. As their training technology gets adopted, the barriers to entry for surgical replacements will begin to erode and patient options will increase. In addition to expanding surgeon and patient options, this training technology may hold an additional benefit; increased competition among the manufacturers will likely lead to advances in orthopedic replacement products. The utilization of AR and VR to train, educate and simulate real life situations has significant long-term benefits across industry sectors – this is just one example of what the future may hold.

Lastly, one of the biggest focal points of the CES Conference, and the only “game changer,” in my view was the evolution of driverless vehicles. The message from most car companies was that they are not yet ready to implement the more advanced level 4 driverless technology. One of the reasons is that when polled, less than 50% of consumers said they would ride in a driverless car. As a result, most car companies are implementing Nvidia or the more basic ‘level 2’ driverless technology. This includes more basic features such as lane assist, adaptive cruise control, emergency breaking systems, assisted parallel parking systems and other technology already implemented into the higher end car market. Thus, it wasn’t a complete surprise that the introduction of fully driverless vehicles appears to be years away from production. Technology is not the problem, but rather consumer acceptance which will restrict demand in the short-term.  Autonomous vehicles are game changers but consumer acceptance as well as reluctance from those who make a living driving vehicles (taxi drivers, truck drivers, etc.) are slowing things down. What we have learned from revolutionary technology, however, is that although acceptance may be slow, eventually it will take hold completely as it just improves lives.  Improving safety, efficiency, and increasing productivity will ultimately prevail. We may have to wait a few more years for the more advanced, completely autonomous vehicles, but I would expect autonomous driving to be a very large growth trend around the world over the next 10 years.

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Joseph Henry

Joseph Henry

Joe is an Associate Advisor at Argent

The Show Goes On!

Despite the government shutdown, the 2019 tax filing season began on Monday 1/28/2019, one day earlier than the 2018 tax filing season! According to the Internal Revenue Service (IRS), refunds are expected to go out in the first week of February and many refunds to be paid by mid-to late February like in previous years. For most taxpayers, the deadline to file 2018 tax returns is Monday, 4/15/2019. However, taxpayers living in Maine or Massachusetts have until 4/17/2019 due to the Emancipation Day Holiday.

If you have any questions regarding the changes from the Tax Cuts and Jobs Act, please reach out to a member of Argent’s tax team! 

For tax clients of Argent, please be on the lookout for your 2018 Tax Year Organizers as they will be sent out this week.

This information was originally published by the IRS on 1/28/2019 – https://www.irs.gov/newsroom/irs-kicks-off-2019-tax-filing-season-as-tax-agency-reopens-use-irsgov-to-avoid-phone-delays.

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Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer

Matt was on the road in Florida last week visiting clients, current and prospective private real estate investment firms, private equity partners, as well as research partners. One stop he made was to Ned Davis Research, Inc. Ned Davis Research provides Argent with a consistent data source as well as macro, micro, historical, fundamental, and technical research into markets. They are one of a few research sources Argent uses to help make investment decisions on behalf of clients. Matt met Ned Davis himself as well as other senior leaders of this global research firm while he visited. 
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Characteristics of Recessions and Market Declines

Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer

If we study the history of recessions and stock market declines we can see that the typical mild recession (slowdown) is a correction in the 20-30% range.  Many investors have a skewed view of recessions given that the last two were deeper than average.  The recession in 2000 started with bubble valuations and a commodity spike.  The recession in 2008 started with a commodity spike, an aggressive fed, and massive financial institutional imbalances.  We are seeing none of the above today.

                                                                                                                                                                                               Source: JP Morgan  

In addition, odds are still that we are in non-recessionary/cyclical bear market globally, but the risks of a mild recession (slowdown) have risen in recent weeks.  However, based on the data above, even in a mild recession a negative 20-25% return is what we would expect.  We were already 20% down from peak when the S&P 500 hit about 2350 in December.  Typically markets retest lows so don’t expect this volatility to abate quickly, but given the data above (as well as other indicators) we view this volatility as a chance to smartly reposition portfolios and take advantage of dislocations.

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