The democratization of information drives the modern world. It really started with the printing press in the 15th century. That revolutionized civilizations and organizations. It copied and circulated ideas. It certainly changed power and government. Without it, Jefferson’s Declaration wouldn’t have captured the American people. Newspapers wouldn’t exist. Of course, the media does have a checkered history with the truth. Long gone are the days where the American people tuned in to Walter Cronkite for the nightly news. Cronkite lived at the corner of Trust & Truth.
America won the race for social media. It’s completely pervasive in our society now and highly influential in how Americans think and behave. I’m no social media expert. In fact, I’m not a big fan. It sure doesn’t seem like the majority of what circulates on social media is founded in fact. Our adversaries find it easy and quite useful to fuel hate. The Chinese government won’t allow Facebook and Google in their country, but it revels in the heavy influence its TikTok platform has on us.
The truth has become a bit of a lonely island. The truth is complicated. It’s at times inconvenient. The truth can hurt. The truth can be costly. But used appropriately, the truth is a really great tool. Many times we don’t want to hear the truth. Falsehood is often more flattering. But that’s fake. The truth is real.
I am in constant pursuit of the truth, trying to understand the what, why, how, and who of everything we do. As an investment professional, we never have all the answers. But studying signs and piecing together information makes for better decision-making. I’m keenly aware, we get paid to anticipate.
To that end, we embrace constructive criticism; In fact, we covet it. I tell my team all the time, you can’t control what other people think, but you sure can influence it. Getting feedback is essential. I liken constructive criticism to beef jerky. It can be tough to chew and hard to swallow, but it’s got a lot of good things in it for you. Constructive criticism is high-protein brain food.
Human beings don’t like to be criticized. It immediately launches our defense mechanism. But even though we don’t like to be criticized, doesn’t it feel like there’s been a population boom of critics? Criticism comes from the brain. The limbic system of the human brain controls our emotions. I believe constructive criticism comes from the heart. It comes from people who actually care about you and your success. We need those people in our lives. We should embrace them with open arms.
The Market is the ultimate truth-teller. To be sure, it’s not always right. The Stock Market tends to embrace optimism and is often guilty of reaching euphoria. The Bond Market conversely is more of a skeptic, and definitely embraces pessimism well before anyone else. Matching buyers and sellers with the wisdom of crowds definitely gets to accurate and fair as fast as humanly possible. Like a bloodhound, the Market is constantly sniffing out the truth.
The AI trade reignited this week. Tech was strong. Semiconductors led after getting clobbered the last few weeks. Nvidia CEO Jensen Huang reiterated the early days and strong demand for the innovative solutions. It was rally time on Wall Street.
Taiwan’s exports rose to a new record high of $43.6 Billion in August. The Artificial Intelligence boom continues to fuel demand for semiconductors. Exports to the U.S. surged nearly 90% to an all-time high of $11.9 Billion. That surpassed the previous record for shipments to China, Taiwan’s largest trading partner. It underscores the major shift in Asian supply chains. The trend will continue. Taiwan’s finance ministry expects total exports to steadily advance for the rest of the year, driven by the AI-related demand.
In Cupertino, AI stands for “Apple Intelligence”. The new iPhones were introduced this week. Demand for Apple’s AI-enabled phones will provide a big test for consumer appetite. Billions of Dollars have been spent, investing in models that can chat and interact with users in humanlike ways. AI can write, think, speak, and produce images and animations. Over the Summer, investors grew cautious of the balloon spending on AI as many companies have yet to show a clear path to profitability. Apple has not invested as heavily, embracing partnerships with innovative startups for access to cutting-edge technologies. Apple has positioned itself strategically to be a consumer gateway for AI.
Ready or not, here it comes. AI is expected to influence if not change the way we work, live, and play. It’s just not clear when. Of course, things that get hyped often take longer to roll out. Many thought that driverless cars would dominate the 2020s. It sure hasn’t happened yet. It’s truthful to say the internet changed everything. But the hype in the 1990’s and the inflated Stock Market proved that things do get ahead of themselves.
AI is a tool and an agent. A major risk is it falling in the wrong hands. Bad actors are already feverishly trying to capture the innovation for nefarious use. It’s becoming increasingly difficult to know what’s real and what’s fake. AI can make independent decisions. It can create content on its own. Rules and regulations don’t really exist yet. Innovation moves much faster than lawmakers and law enforcers. That’s the truth.
Here’s another truth: America has a debt problem and Washington doesn’t have a plan to address it. Our Federal government spent $380 Billion more than it earned in August. That, according to the Treasury Department. It also spent over $1 Trillion on interest payments so far, this fiscal year. That’s the first time ever. The fiscal budget deficit swelled to $1.9 Trillion. That’s a 24% increase from a year ago. The Fed’s aggressive tightening cycle, which pushed rates to their highest levels in 2 decades, has been a big driver in the increase in interest payments. America’s central bank is set to start cutting rates next week.
Inflation is slowing. That’s the truth. You’re probably hearing that prices are coming down. That’s not the truth. They’re just not going up as fast. The last piece of critical data before the Fed meeting next week was released. The Consumer Price Index (CPI) came in at 2.5%. Inflation is now as close to 2% as to 3%. If you recall, 2% is the Fed’s stated target.
While the headline CPI figure was in line with expectations, Core CPI, which strips out food and energy, increased at a 3.2% annual rate. It was up for the third straight month and highest since April. Shelter has been the nag here. Rents and Housing costs remain high. The Market initially fell on the news, but later ended the volatile session sharply higher.
Volatility is everywhere. The odds of a ½-point rate cut next week briefly touched 70% last week. They fell to ~17% on Wednesday after the CPI report. It went into this weekend at a coin flip. So with CPI at 2.5% and Fed Funds at 5.25%-5.5%, there is nearly 3% of interest rate which the Market believes is excessive and has the central bank behind the curve. The Fed is going to cut interest rates next week, that much is certain. By how much is the only question. Regardless, the Market pricing in roughly 1.5% of interest rate cuts by the end of January.
Stocks finished the week with strong gains after last week saw the S&P suffer its biggest decline since the Silicon Valley Bank crisis last year. That sets up a possible sell-the-news event next week with the Fed’s highly anticipated September meeting.
The truth is, America’s Economy is slowing as is inflation. The Market is back to pricing in an economic landing that’s soft, not hard. The election uncertainty will stay and likely grow as we near November. What actually happens will only be known in arrears. We’re ready for anything.
This week marked the 23rd anniversary of a day we must never forget. It’s absolutely critical that the story keeps being told considering how many Americans today don’t remember or weren’t even born yet on that tragic day, September 11th. I lived in New York City in 2001. As fate has it, I wasn’t there that day. Unfortunately, 2 guys that I went to Cal with were.
Brent Woodall lived across the hall from me. A couple years older, he was like a brother. Brent played football and baseball at Cal. He moved to New York and worked at Cantor Fitzgerald, in the World Trade Center. He didn’t make it out on September 11th, 2001. His daughter was born in April of 2002. She never met her dad.
I played rugby with Mark Bingham. He was a couple years older too. Mark was on United Airlines Flight 93 out of Newark heading to San Francisco. All 44 people aboard the plane were killed. Thousands more might’ve perished in our nation’s capital had it not been for the passenger revolt which sent the plane crashing into that Pennsylvania field. The last recorded words heard were: “Let’s roll”. Mark Bingham was one of those guys.
On September 11th, 2001, America was sucker-punched by terror and hate. Within hours, over 3,000 people died, including hundreds of first responders who ran in while most ran away. They gave their lives in pursuit of helping others. Tell me that’s not evidence of the land of the free and the home of the brave.
I guarantee I’ll never forget. That’s the truth.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
