Today’s resources are starting to shrink as AI comes to rescue us from chaos. Or so goes the narrative, depending on your source. I bring this up because in my opinion, the 2006 introduction from Google (GOOGL) of the algorithm aimed at aggregating the news to accommodate, peoples wants over their needs, has carved out division as the outcome. And given its suitability towards monetization and political manipulation, has it also become the new norm? In my opinion, if we let it. I consider this worthy of note as AI becomes the new debate, or rather division of opinion. Some see it as the end of humanity as we know it, sounds a lot like climate change arguments. Anyway, my focus is less about what AI will disrupt, and more on what It will change. That’s because it’s change the correlates with that outcome.
The Spiral Chartist
Investing in the Circles We Run Around
May 19, 2023
Phase One
May 5, 2023
Monetizing Events
Total nonfarm payroll employment rose by 253,000 in April
February was revised down by 78,000, from +326,000 to +248,000 (-24%)
March was revised down by 71,000, from +236,000 to +165,000 (-30%)
Other events, right or wrong, I’ve been favoring the energy sector. Not just renewables, we have plenty of exposure to that, through energy storage and more commercial renewables such as Hydrogen fuels. But the importance of companies engaged in production and distribution of fossil fuels is also in my focus. Not because of the current platform, but where that platform is going, what event has been triggered. The revival of liquid natural gas (LNG) has met the demand of the global market, has been cleaned up to produce less than half the carbon of oil, all easily captured and stored for other industrial uses. Oil companies have been pandering to an overly idealistic vision, in my opinion, suggesting their commitment to a future of safe energy, but are actually doing little in response. Except a few that are investing in the future of nuclear energy, such as Chevron (CVX), thanks to the introduction of nuclear fusion, a new technology, not to be confused with historically unclean nuclear fission, to fully meet unlimited renewable demands. Still too early to go all in, since most of the companies perfecting the process are private. But definitely an event space I’ll be watching.
April 27, 2023
Navigating the Noise
Ten years ago, I first read about UBI, a welfare proposal that had gained some academic, and even political interest until the pandemic introduced a better method of wealth distribution, stimulus. In my opinion the concept of the wealth effect as a tendency to spend more when an individual feels financially secure, is at the core of our current inflationary environment. I bring this up because I’ve frequently expressed my opinion that an economy designed to fuel consumer activity is always at risk of some degree of inflation. And the wealth effect has been observed through data since 1870 suggesting a close correlation between inflation and money growth. That’s why I’ve often tracked the behavior and data set called M2 that tracks the Federal Reserve’s estimate of the total money supply, such as money in consumer pockets, checking and saving accounts for example. And M2 is where I’ve followed inflation and concluded that inflation appears to have peaked in September 2022. But there’s no shortage of narrators, including Modern Monetary Theorists who question that conclusion. Hence, volatility rules.
The broad markets finally let off some steam this week,
and while not technically oversold, neither are the primary indexes still
overbought, as the volatility is keeping it all neutral. The change in
conditions can be attributed, in part, to a mixed earnings season and concerns
brewing over the upcoming debt ceiling debate. Interest rates resumed their
rise to prepare for the upcoming Fed meeting and international markets are
having their own positive year, even in the face of continued weakness of the
US dollar. For now, in my opinion, there is enough left for the narrative to
digest, that could push the broad indexes to a more oversold, and desirable,
condition.
Last week saw additional declines in economic activity,
including Housing Starts (-0.8%) and Existing Home Sales (-2.4%), both likely
to see additional declines as interest rates revert closer to their recent
highs, and with a Fed rate hike around the corner. One area that is showing
some increased activity is Manufacturing tracked by the Manufacturing
Purchasing Managers Index, which went above 50 for the first time since October
2022, but is still down over the same period. This week saw some additional
pickup in manufacturing thru New Orders, and New single Family Home Sales
(different from Existing) saw an increase (9.6%), but still down 3.4% from a
year ago. Today, the first release of the First Quarter 2023 GDP come in at
1.1% down from the previous quarter of 2.6%. Interesting enough was the Core
Personal Consumption Expenditure (PCE), which came in at 4.9%, higher than
expected and the GDP Price Index, otherwise referred to as the GDP price
deflator, came in at 4%, higher than economic consensus of 3.7%. In short, all
the GDP data was, in my opinion, enough to keep the Fed on track next week to
increase interest rates at least .25%. Whether they see reason to continue,
will be in their customary post meeting comments.
The big headwind, in my opinion, facing the capital
markets, is the debt ceiling debate. So far, the House Speaker has stated the
debt ceiling will be raised when the legislation includes a pause in government
spending, and the house voted in favor. The Administration says no extra deals,
lots of political food for the fight to follow. And the pundits will throw a bone
to our Algochums to brew up a little volatility. In the meantime, patience is
still the best strategy, as markets are too efficient, in my opinion, to be
predictable. So, in my future, opportunities will reach more desirable entry
points and the overall picture should become ever clearer.
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