THIS IS NOT INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL. DO YOUR OWN RESEARCH.
Prices are truth, in the way the temperature is truth: objective reality.
We each experience a specific temperature differently, depending on our blood vessels, body mass index, or upbringing so subjectivity exists, but the temperature is a raw fact. Markets are an ever-changing pointillist picture of this truth. There is great value in being able to then extrapolate a hunch toward where those prices will go next.
Today, I want to share the pictures I have been looking at to make sense of the world. If you were looking over my shoulder, below is what you’d see. I’ll provide brief commentary on each picture but the essence is:
Central banks, absent Japan, are going to ease or are already easing (Brazil). In the US, there is not much pressure to do so rapidly, because the economy is fine. After today’s employment numbers, this expectation is now more appropriately priced into the US bond market.
We are in the early days of a wave of technology (AI), with enormous, difficult-to-measure consequences. The biggest shift is likely an increase in productivity. I suspect this shift will also lead to both upward pressure on asset markets and, in due course, a Long-Term Capital Management (1998) style blow-up by an investment fund relying on AI to manage money.
Inflation pressures are contained both due to this labor-saving technology, weak growth in Europe and China, and because the US is the marginal energy producer. If energy prices rise, the US pumps more. If they fall, the US turns off the pump.
There are a few pockets of the world with stunning cash flows and a vast terrain with poor cash flows due to either intense competition terrible governance or both. Technology behemoths in open societies are making a ton of money and are priced below average. By contrast, technology companies in China trade at a tiny fraction of US tech because the political risks are so high.
While current geopolitical clashes are horrific, they are contained and unlikely to upset the above. After my trip to Ukraine, my watch is still set up to receive alerts when Russia bombs Ukraine. It’s a nightly occurrence, but now hardly a headline.
Below are the pictures.
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