August 2023 Market Update

When you learned how to drive, someone probably told you that you need to look away from the oncoming headlights at night.?WHY? Because you will naturally go towards those lights, you will become “night blind” by looking into those lights.?Another important lesson we learned is to focus on a distant point to keep us in the center of the road. Ignoring your immediate surroundings can also be troublesome, but we need that balance.?Many investors need to look away from those bright hotspots in the market and concentrate on the roadmap they have laid out to build their best life over the long term.?Realizing that investing to build your best life is not a math problem.?

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What is the next “next big thing”??I have been asked this question regularly over the past few decades, and there is always a “next big thing”.?We introduced AI (Artificial Intelligence) as a clear, investable theme in this monthly blog as far back as 2019, and we are still far from seeing its full impact on our economy and world.?Now that it is “old news,” the words artificial intelligence have seemingly made their way into nearly every earnings report this season.?

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For some, their FOMO (Fear of Missing Out) Moment has arrived, and they are too late to the proverbial game.?Others fear the end of the world and freedom as we know it.?Then there are those who step back, take a few deep breaths, and dig a little deeper, being aware of the immediacy of what is happening now but being focused further out.?

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This month, we ask: ?

·??????Is Inflation Dead Yet

·??????Is This Bull Market Real

·??????The Next, “Next Big Thing”

?Is Inflation Dead Yet

We Beat it with the rate hike baseball bat and sprayed it with a steady stream of oil until it lay silent., apparently in its death throws.?But wait!?Somewhere, someone turned off the oil supply spigot, and housing prices started to rise.?Then a heatwave began to draw down oil and natural gas supplies to fuel those air conditioners.?

No, I don’t think inflation is dead yet for those reasons and because the comparable numbers from last June and July to June and July were hard to increase by that wide margin.?While the headlines may indicate inflation has been tamed, my best guess is we will see a resurgence largely driven by oil prices, which tend to drive just about all other prices higher.?With apologies to my “green friends,” oil is in basically everything, yes, even in electric cars.?We may need a few months to see this play out, but Mr. Powell may not be done raising those rates quite yet.

What may tame it could come much later in 2024 or even into 2025 as Artificial Intelligence truly begins to impact things in a deflationary way.?(still not quite there yet.)

(Why I could be wrong -) Then again, never underestimate the human ability to come up with even more things to work on, innovate, and create that will continue to utilize people and supplies in different ways that we have not even imagined yet.?

Is This Bull Market Real

It is hard to find good reasons to say this bull market is not real.?Earnings continue to surprise to the upside, and the rally started to broaden away from the big seven to the rest of the stock market.?It is also hard to forget that we are headed into an election year, which is typically bullish as the incumbent wants constituents to feel good about their economic situation.?

Why does the bull persist??(One of these days, I will completely geek out on you and include the full charts and analysis, but then again, most of you would not want to read that!)

1.????Companies do not have to refinance their debt at the new higher rates yet.?

2.????The consumer is spending down all that free money they received during the pandemic on experiences they were not allowed to have.?(According to several estimates, we still have another $ trillion left.)

3.????A healthy dose of continued stimulus from the strategic oil reserve and payback moratoriums on student debt.

4.????Artificial Intelligence is starting to lower costs and create new efficiencies.?

So when does it end? While inflation may remain persistent and those commercial loans coming due will likely cause bankruptcies, the bailouts will likely continue, as will the massive innovation that tends to fuel growth.?We could continue to see Mr. Recession hiding in the shadows for quite some time.??

The Next, Next Big Thing

We have discussed the history of innovation and how one innovation impacted other industries and our lives in general.?One of the things we discussed a couple of years ago was the idea that rather than just one thing, like the invention of the internet or the computer, we now have multiple new technologies interacting across multiple economic sectors and industries, much like the other “Roaring 20s we could be headed right into another Roaring 20s 100 years later. AI continues to power much of it, but AI is the engine of several other innovations happening all at once. In my opinion, the exponential explosion of innovation has yet to get fully underway.

So, why concern yourself with the next, next big thing??

Well, because my favorite section of Disney is Imagination Land!?Here is my answer:?It is not nuclear fusion.?That is, I believe, even further out.?The next, next big thing is quantum computing, which makes AI even more powerful and the innovations AI is powering even more powerful.?Alas, we are likely still a few years away from truly being able to capitalize on it, but we are getting closer than many realize. (As an aside, if you are worried about the vagaries of AI, you should be terrified of a world powered by quantum computers and AI.)

What is quantum computing? ?To oversimplify it for the sake of space, time, and your eyes glazing over in boredom, Traditional computing relies on two states: on and off, or zeros and ones.?Quantum computing makes today’s computers look like the old punch cards some of you remember making on the very first computers (come on, admit it, you remember!)?

Quantum computers allow data to exist in multiple states and times, exponentially increasing computing power and speed.?Combine this with AI, plug it into genomics, and then apply it to the space industry.?Suddenly, we could see even more of those Star Trek episodes become a reality.?Yes, these computers already exist and have for several years.?A few companies you would be familiar with have built their own.?

This note is not investment guidance for you; it is information and opinion only.

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Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal investment advice.

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Talk soon,

John

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Email:?[email protected]

?John Browning, MBA, and CSA?

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