Announcements: Master, Minion was selected by Kirkus Reviews as among the “top 100” Indie books published in 2023. There are about 4 million books published a year, of which Kirkus reviews about 10,000. It’s a political thriller full of art, love, sex, violence, and political intrigue. My next book, The Uncomfortable Truth About Money (Harriman), comes out next year.
“You see a child play and it is so close to seeing an artist paint.”
Erik Erickson, (1902-1994)
“When you have a president who challenges the results of elections and brags about what he could do in one day as a dictator ..that is a profound threat to our long-run prosperity, and therefore short-run asset prices.”
Larry Summers
“Causality for a lot of problems in the world doesn’t matter.”
Jensen Huang, Nvidia CEO
Today, I want to talk about cycles in general and then what is likely to happen to asset markets next year. If you are here for the investment logic, jump to the paid section further down. The punch line—-some (a lot?) of next year’s returns just happened.
NOTHING HERE IS INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL. DO YOUR OWN RESEARCH.
Cycles
We know there are cycles but, despite that knowledge, we have a hard time anticipating shifts.
“Man, it’s cold,” I said to my wife as we left a recent event, the wind cutting through our layers. December in New England should be cold, and I shouldn’t be surprised. But I was. The wind’s merciless ferocity.
To accurately understand today and where we are going, we need to visualize all the cycles overlapping: longer days, aging, easier money, elections, AI locusts, and the long-standing tension between democratic and authoritarian systems.
Seasons
The seasons are the easy part. Today is the shortest day of the year in North America and from here things open up. That fact is what triggered the thought about cycles. If the days kept getting shorter, we’d starve. That shift to longer days still comes as a welcome change or rebirth or light or whatever religious symbol you are drawn to. But it repeats year after year in a way that produces enough of a spiritual challenge that we are compelled to gather and commemorate the shift.
Lifespan
The precise stages of our life cycle are open to debate. Erickson (1902-1994) divided the cycle into 8 stages. Freud, Maslow, and Darwin had their delineations (unconscious/conscious, hierarchy of needs, survival of the fittest). As far as I can tell, there are four stages—-dependence (on others), autonomy (earning a living, raising family), self-actualization (finding your niche), old age. Tapping into the unconscious is invaluable at each stage. Two parts of the cycle are beyond debate, birth and death. I know in the future I will be older than I am now and I can guess with reasonable accuracy when I will no longer exist. According to the Social Security actuary tables, I have 288 months left.
Politics
Shifts in the nature of our politics are difficult to predict, but shifts in leadership are not, The coming year will see a number of major elections—in the US, Mexico, Russia, and Taiwan. Taiwan’s election hinges on what sort of relationship to pursue with China; the KMT favors more cooperation, the DPP less, though neither party favors either reunification or independence. Will China accept that fact? The US election turns around Trump. If he either is prevented from running or loses, very little likely shifts, Haley and Biden differ in the way Bush and Clinton differed. But if Trump wins, it’s like Mussolini gaining power. This is one of the known, massive risks in 2024, as the quote from Summers suggests. Russia also has an “election” but we all know who will win (Voldemort). The interesting thing in Russia is when Putin dies. Because he has built a cult of personality devoid of the traditions either of the Czars or the Soviets, it isn’t clear how a successor will be chosen. There are low but non-zero odds of civil war. The underlying moral rot in Russia is very difficult for outsiders to fathom but it is extensive. Dmitry Bykov talked about that on my podcast, here.
Monetary
Over thousands of years, no one has ever figured out how much money to create. If we create too much, we get inflation, too little, a depression. Shifts in monetary policy then create self-reinforcing shifts in other parts of the economy, so for any given monetary policy shift the other parts of the economy follow, like a slinky down the stairs, until there is a counter-vailing shift. We’ve now had the fastest tightening in decades and the markets expect a reversal. I think we will get that reversal—easier money—but the problem might be that the reversal is less than what people “think” it will be, as expressed in the futures market (more on this below). That said, the direction is clear, more liquidity. That’s why stock markets keep rising.
Technology
For tens of thousands of years, innovation cycles didn’t really exist. You can look at cave paintings from 30,000 years ago (like the Chauvet Cave) and see that the human imagination between then and Picasso has not shifted much. What has shifted is technology, beginning about 200 years ago. Each cycle—canals, steam, electricity, railroad, combustion, nuclear, computer, internet—had a trajectory. The net result is a shift in how we use energy, medicine, and information. We are mid-stream on another disruptive cycle. The epicenter of the shift is a new way of thinking, one that is not driven by logic or causality (if this, then that), but by predictability. We don’t know why AI sequences genes in a certain order, but if it works to solve a disease, we accept the solution. However, when it comes to ethics, AI fails, which is why the informational algorithms fuel discord. It’s predictable that people will be drawn to conspiracy theories but not ethical to program the algos to promote them on TikTok.
Historical
Just as we have never figured out how much money to print, we have never figured out how to organize society. While more people live under democratic systems than ever before, the split between autocratic and democratic systems has been roughly the same over the last 50 years.
Each system has acute problems. But the gravitational pull is toward democracy. You can see this in two measures—migration (where people leave and where they go) and wealth. The democratic places are far wealthier and struggle to keep people out of them. The authoritarian systems are the opposite.
Today, all these cycles are at work. Your views may be different than mine, but to survive you need to imagine the way they will go in the future. Banking on increased sunlight is easy. The rest—discounting, politics, technology—gets progressively more difficult and one of the most difficult things is how to invest in this dynamic.
An Investment Thesis
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