Stop. Take a Deep Breath.

The last few weeks have been amazing to watch, even for old investment pros. The narrative which over the course of 2022 had gone in our direction (recession), first flipped to a soft-landing scenario (slow growth, but no recession), then flipped to a ‘no-landing’ scenario (i.e., economic growth continues). Finally, as the week came to an end, we appeared to be flipping back to a soft-landing scenario.

We find our own internal thinking of what is to come is divided as well. So, for now, we’ll leave our commentary to this: Jay Powell and the FED have been very clear what they intend to do, which is to keep at it until inflation is licked. How the stock and bond markets perceive that goal has become increasingly confused, explaining the rapid-fire market moves.

What is most important now is that it’s not all that important. We invest using a balanced, diversified approach, no matter what the macro environment may suggest. Our macro views of the world are not used to get in or out of markets, as the financial media often perceives these moves. Rather, we use our macro thoughts as the basis for when to rebalance all or parts of our portfolios. At times like this, we simply stop and take a deep breath. Our investment approach does not require any macro view of the world, no less the correct view. From our perspective, markets are making very little sense, but that does not affect how we invest. The next step will become clear soon enough, so we are more than happy to remain patient.

Will Big Tech Market Dominance Endure?

The Wall Street Journal appears to think so (see the link in What We’re Reading below). The innovation side of the big innovators has left much to be desired, of late. All of these companies (Apple, Alphabet/Google, Meta/Facebook, Microsoft, Amazon, etc.) spend oodles of money on R&D but for a long time now, innovation have been incremental. Not to pick on Apple, but is the iPhone 14 that much different than the iPhone 12? The WSJ story suggests that this is not a lack of innovation, it’s just that innovation seems to come in big gulps. Smart phones were a major innovation, but as smart phones matured and market penetration expanded, growth eventually slowed. At some point, the next innovation needs to arrive (AI appears to be the best bet). Then it’s off to the races yet again as companies muscle their way to market dominance.

The WSJ story suggests that the old leaders will continue to lead. We respectfully disagree. Every ‘unassailable’ company in history has had its comeuppance and these will too. It’s just a matter of when. That doesn’t mean they wither and die. IBM has managed to stay somewhat relevant for a very long time, nonetheless, it is a shell of the dominant player it once was.

Not long ago, the metaverse was all the rage, not so much today as the realistic uses appear more limited than first imagined. Early on Chase opened up a bank branch in the Metaverse, but would anyone want to visit a virtual branch when they don’t even want to visit a real branch?

The table below, from Evergreen Gavekal, lists the ten largest companies by decade for the last 5 decades. There are not many that repeat and we suspect that will continue. That’s not to say that one or two of these current big tech companies won’t be there, but we doubt that they will all be equally successful in maintaining their position.

As new opportunities develop, managements take differing paths to penetrate markets. Mistakes will be made. There will be winners and losers, as always. And, of course, there will be other opportunities that may not be best suite for these tech giants. The idea is that there is a constant rotation of top dogs. There is little consistency at the top and we expect that trend to continue.

What We’re Reading

As Big Tech’s Growth and Innovation Slow, Its Market Dominance Endures

Visualized: The EV Mineral Shortage

Beat It (or Don’t): An Update to a Chilly Earnings Season

China’s reopening is poised to boost global growth

Fed Chair Powell Speaks to Economic Club of Washington D.C. (1 hour video, note that discussion begins at minute 39)

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The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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General News, Weekly Commentary

By: thinkhouse