The Long Term Investor

Really......Mr professional money manager.

Don’t Blame Indexing for Your Problems

https://www.acadian-asset.com/investment-insights/owenomics/dont-blame-indexing-for-your-problems

(BOLD is my opinion OR what I consider important content)

"The trend towards passive investing shows no sign of stopping. It is generally applauded by finance professors but condemned by active managers like David Einhorn. In an intriguing interview with Barry Ritholtz, Einhorn articulated a widely held view:

I view the markets as fundamentally broken… Passive investors have no opinion about value. They’re gonna assume everybody else’s done the work, right? 1

Einhorn is a smart guy whom I respect, and he might be right that the market has grown less efficient over time. But it’s not obvious that the possible deterioration of market quality has anything to do with index funds or passive investment. And further, if indexing goes up, you might expect the remaining active managers to perform better (less competition) and not worse.

Much of the discourse about passive investing is simply misguided. Since passive investors mostly do not trade, it is mostly true that they do not impact market prices; what really matters is what the non-passive investors are doing. Now, I say “mostly true” because there are complicated mechanisms through which the presence or absence of passive investors may impact prices, but the key thing about passive investors is that they do not trade. As we say in the homicide squad, “no body, no crime,” and here we have “no trade, no crime.”

Being passive in markets is like being neutral in war. Example: in 1940, Germany invaded France and in less than two months, France fell. America was neutral, in other words, passive. Would the best way to understand this event be to say, “America conquered France,” or “due to the actions of the US military, France fell?” No! Germany conquered France. Similarly, consider the much-discussed concentration of U.S. market cap into the Magnificent Seven. Should we say, “Passive investors drove up the price of the Magnificent Seven?” Nonsense, they did nothing of the kind.

Now, you could argue that passive investors should not be passive, just as you can argue that America should not have been neutral, but it would be absurd to make these counterfactual claims the center of your worldview. It is just not true that inflows to S&P 500 index funds drove up the price of Nvidia relative to McDonald’s.2 Those flows impacted Nvidia and McDonald’s equally in proportion to their float-adjusted market caps. Somebody else set the relative prices of Nvidia and McDonald’s; namely, the other non-passive investors trading with each other. Similarly, somebody else, not America, was responsible for the fall of France.

There has been much handwringing about the fraction of the market that has become passive. Should we be alarmed if it is more than 50%? What about 90%? Surely Congress should step in and outlaw indexing if passive rises above 95%?

No. There is no magic number, other than 100%, at which the market suddenly flips to being dysfunctional due to passive ownership. What matters is the existence of a sufficient number of informed active investors with a sufficient number of dollars and the existence of a liquid market with multiple types of interacting traders. As long as those conditions hold, you can have a well-functioning, efficient market with informative prices, and it doesn’t matter whether passive is 1% or 99% of the market.

Now, as an empirical matter, it is possible that indexing has hurt market efficiency, but that is a statement about who’s left in the non-passive sector. Let me give you an example. Suppose there are 100 investors in a stock market. We start with zero passive investors. Now suppose that 50 of the investors decide to switch to passively holding the market. Does that make the market less efficient, crushing price discovery and paving the way for Marxism? Well, it depends on who switches. If the 50 smartest and best-informed investors switch to passive, then yes, it could make prices less informative. If the 50 craziest and least informed investors switch, then maybe market prices get more informative. What matters is who stays in the market, providing price discovery and liquidity.

I am open to the idea that the market is getting less efficient and that this has something to do with indexing. But if so, that would reflect a complicated set of interacting factors as opposed to a simple cause-and-effect process. World War II had many causes, and maybe American isolationism and neutrality was one of them, but the main cause was the actions of Germany and Japan. In the investing context, while “indexing caused my value strategy to fail” might be a slightly more credible statement than “the dog ate my homework,” it is a lot less credible than “value investing has gone out of style with non-passive investors.”

Haters gonna hate

From their birth in the 1970s, index funds were attacked as un-American and doomed to failure. Similarly, as passive investing has grown, a variety of objections have been made:

• In 2019, noted financial theorist Al Gore said, “I think the large passive managers have a real difficult decision to make. Do they want to continue to finance the destruction of human civilisation, or not?”3
• In 2019, Michael Burry of The Big Short fame argued that inflows into index funds had created a bubble and “like most bubbles, the longer it goes on, the worse the crash will be.”4
• In 2016, Alliance Bernstein put out a report with the absurd title, “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism,” which was discussed by the indispensable Matt Levine of Bloomberg.5

While many of these objections revolve around governance issues, others seem to have a moralistic concern that passive indexing “free rides” on investors who toil to collect information. The able Cliff Asness ably refuted these arguments in a 2016 op-ed, “Indexing is Capitalism at Its Best:”

Piggybacking on prices developed by other people is fine. That’s how free markets work… Free riding on price signals isn’t a bug of capitalism to be exploited by those greedy red indexers; rather, the use of price signals by those who played no role in setting them may be capitalism’s most important feature.6

More passive does not mean less efficient

Let’s go back to the example where we have a stock market consisting of 100 investors owning a number of firms. Suppose the 100 investors are all active investors and each has $1 in wealth so that the total market cap of the stock market is $100. There is zero passive investing.

Now suppose that 9,900 more investors enter the market, they each have $1, and they all invest passively. Further, all the firms in the stock market collectively issue $9,900 more equity on a pro-rata basis, and each firm scales up its operations accordingly. Now we have a market that is 99% indexed, but the same original 100 active investors are still doing exactly what they did before, holding the same $100 of stock at the same prices, getting the same economic value as before, and all the prices are unchanged. Now obviously I’ve made a lot of assumptions here, but the point is that it is not some law of math that the entry of passive investors changes prices; it depends.

The illogical assertion that passive investing can cause mispricing appeals even to smart people such as Bloomberg columnist John Authers:

The problem with passive funds is that as long as they’re taking in new money, they’ll accept the prices then available in the market. Thus, the more a company is valued, the more the fund will buy of that company, tending to push the price up further. With tech performing well anyway, the argument is that the weight of money coming into passive funds each month will add to the sector’s momentum, bringing it further and further away from the rest.7

Huh? That is not how math works. If an S&P 500 index fund receives inflows, the fund buys x% of the shares outstanding of both McDonald’s and Nvidia. You’d expect both stocks to rise the same percentage amount. Now, maybe you could argue that McDonald’s and Nvidia have different price elasticities, but that is a different mechanism. You could also argue that all S&P 500 stocks will become overpriced, but that is a statement about narrow indexing, not about the momentum of tech stocks.

Let me compare two fictional countries: the United States of Active Managers (USAM)—”in active managers we trust”—and the Union of Socialist Passive Managers (USPM)—“from each according to market cap, to each according to market cap.”

USAM is a backward country with minimal technology, a population of 200 million people, and a GDP per capita of $5,000. It has a small stock market with a market cap consisting of $100 billion. Indexing is banned in USAM.

USPM is much richer and more technologically advanced, with a population of 332 million and GDP per capita of $76,000. It has a stock market with market cap of $36 trillion. Indexing is widespread in USPM and 99.7% of the market is held by passive investors. Surely USPM has a horrible stock market that is inefficient?

No! Both markets have exactly the same amount of dollars that must be held by active investors: $100 billion. Therefore, if you think USAM is efficient because it has $100 billion of active investors trading among each other and arriving at price discovery, you should think the same about USPM. Who cares about the 99.7% of passively held assets?

Get ready for the big reveal. I will now tell you the identity of these countries. USAM is the U.S. in 1970. And USPM is the U.S. in 2024 under the hypothetical oppressive 99.7% passive investing regime.

I know what you’re thinking: It’s absurd to compare America of 1970 with America of 2024 (especially since I have not adjusted for inflation). They are totally different countries with different market caps. True! But these objections highlight my basic point. What is important are the non-passive investors: are there enough of them, are they smart, do they have the right incentives, are they able to express their views via trading? What is not important are the passive investors: these are like the audience in a play, they just sit there, watching the activity on stage.

OK, let me hit you with yet another framework. Authers summarizes Einhorn’s argument as:

Everyone in the passive world relied on everyone else to do their homework for them and set a sensible price for stocks…8

This description of passive is correct. But is it bad to rely on someone else to do your homework? If the goal is to get good grades on homework, I’d gladly rely on, say, Einstein to do my physics homework.

Suppose students come in two types: overachievers and slackers. Overachievers are diligent students who spend 90 minutes a night doing homework. Slackers are lazy students who spend 10 minutes a night on homework. We all agree that the more overachievers there are, the higher will be the average homework score. Now suppose we introduce a new concept called “cheating.” Cheaters will simply copy another random student’s homework. Question: if a random 50% of the students decide to cheat, will the average homework score go up or down? The answer is obvious: no effect.

Question: if only slackers decide to cheat, will the average score go up or down? The answer: obviously the score will go up. So that is a scenario in which cheating (passive investment in homework completion) does influence outcomes, but it makes average scores higher, not lower.

What do we learn from the homework example? The key concept is not how much cheating there is. The key concept is: who doesn’t cheat? That is, who are the active homework-doers? It makes no sense to say, “the advent of cheating will obviously diminish homework scores.” And there is no magic number, say 90%, by which the proportion of cheaters drives down average scores.

As with passive indexing, we cannot have 100% cheaters, because then there will be nobody to cheat from. And it is probably a good idea to have at least 5 or 10 non-cheating over-achievers, because if we have just one honest nerd, the nerd might have a bad day. But as a general proposition, all that matters is the population of active students, not the population of passive students.

Academic models with passive investors and inefficient markets

So far, I hope I have convinced you that it is not mechanically true that higher indexing equals less-functional stock markets. What matters is not how many passive investors there are, what matters is how many active investors there are. We need to have enough of them.

And that brings me to incentives. Let’s go back to the homework example. We can imagine all sorts of outcomes depending on the different incentives. Maybe if everyone but me is cheating, I just randomly answer the homework questions to minimize effort. Or maybe, if all the slackers cheat but the overachievers do not, the overachievers work harder in order to be above average. While cheating by random students does not change the average score, the introduction of cheating may change incentives. It’s complicated.

Academic economists have studied the impact of passive investing on market efficiency, and the answer is: it’s complicated. Is it possible to devise a theory whereby the rise in passive leads to an inefficient market and the overvaluation of the Magnificent Seven?

Before answering, let me introduce you to Lamont’s Fundamental Law of Active Theorizing®: Sufficiently motivated theorists can devise a theory to produce any desired result, following the equation that the theory’s academic impact equals the cleverness of the theorist multiplied by the square root of the theory’s implausibility divided by the number of assumptions required. So, with the homework example, I’m sure you could concoct scenarios under which cheating raises average scores, lowers average scores, has no effect, or possibly produces a set of Magnificent Seven nerds who dominate the homework market. We can also imagine transitions from no cheating to high cheating regimes with complex dynamics before settling to steady state.

With that in mind, let us review some academic papers. Garleanu and Pedersen (2022) say passive makes the market more inefficient, and that this inefficiency helps active managers to outperform:

Another trend over the past decades is the decline in the cost of passive management. We show that such a decline should lead to a rise in passive management (at the expense of self-directed investment and active management), consistent with the development in the 2000s… Further, a reduced cost of passive management leads to an increase in market inefficiency… leading to stronger performance of active… These predictions are consistent with the empirical findings…9

Jiang, Vayanos, and Zheng (2022) think that passive could distort prices:

Flows into passive funds raise disproportionately the stock prices of the economy’s largest firms—even when the indices tracked by the funds include all firms… We estimate that passive investing caused the 50 largest US firms to rise 30% more than the US stock market over 1996–2020.10

So, they provide a rigorous theory (but one that is certainly complicated and arguably far-fetched) for the claim that the passive flows could lead to the Magnificent Seven.

Coles, Heath, and Ringgenberg (2022) find that as an empirical matter:

An exogenous increase in index investing leads to lower information production as measured by Google searches, EDGAR views, and analyst reports, yet price informativeness remains unchanged. These findings are consistent with an equilibrium in which investors choose to gather private information whenever it is profitable. As index investing increases, there are fewer privately-informed active investors (so overall information production drops), but the mix of investors adjusts until the returns to active investing are unchanged. As a result, passive investing does not undermine price efficiency.11

Last, Bond and Garcia (2022) say:

We develop a benchmark model to study the equilibrium consequences of indexing in a standard rational expectations setting… A decline in indexing costs directly increases the prevalence of indexing… augmenting relative price efficiency. In equilibrium, these changes in price efficiency in turn further increase indexing, and raise the welfare of uninformed traders.12

So, there you have it: the academic consensus is as clear as mud. Passive investing either makes relative pricing more efficient, less efficient, or has no effect. One common thread to many models, however, is that as passive investing goes up, informed active investors should benefit, which has not been the case in recent years.

So where does that leave us? In a healthy market, we need some smart active investors, including smart fundamental investors like Einhorn and smart systematic investors like Acadian Asset Management. We also need some non-smart non-passive investors for the smart people to trade with; such traders appear plentiful. Yes, it is true that the passive investors are benefiting from the efforts of smart investors, but they are not necessarily making life worse."

MY COMMENT

BOTTOM LINE......put up or shut up. If you claim to be a professional money manager PROVE that your services provide value. PROVE that you can beat the SP500....short term to long term consistently.

If you cant.......shut up. There are managers that are able to do this......some spectacularly. For example Peter Lynch. His returns were so extreme.......they had to be based on his skills, instincts, something out of the ordinary.....but he did it.

There is no shortage of active managers right now and no shortage of traders. AND....even if passive investing is distorting the markets......if you are an active manager.....that is one factor that you should be able to foresee and use to your advantage if you have the skills you claim to have.

Mostly.....these people complain because they......gasp......can not beat the passive indexes and are shown to be failures.

I have personally beaten the SP500, long term, over the past 35 years. I believe there are people that read this thread that also have beaten the SP500 long term. But....we are not professional money managers. Although I do manage family money.

Perhaps these professionals would be better off focusing on how the constant AI trading by their fellow professionals and big trading houses and big banks is distorting and destroying the markets. Or how the financial media has changed and is distorting and destroying the markets. Or the role of government in disrupting the economy and causing economic disaster over and over and over. Or how the use of derivatives and various leveraged products is disrupting the markets. Or how all the various idiotic things you can trade now that have no real value or basis in reality is distorting the markets. Etc, etc, etc.

 

OK....here we go....the start of earnings next week.

Constellation Brands reports on Thursday. On Friday there will be reports from JP Morgan Chase, Black Rock, State Street, Citigroup, and Wells Fargo.

The week after......the bank earnings will flood in and continue for the first few weeks.

In addition we will have the CPI release and Wholesale Inventories next Wednesday......and the FED minutes. Jobless Claims and the PPI will come on Thursday.

And just in case that is not enough.....a good number of the FED MORONS will be giving speeches all week.....Monday, Wednesday, Thursday, and Friday.

A killer week for news and the fear-monger industry. No doubt the markets will be taking GUT PUNCHES right and left. It will be fun to see how it all works out and how the markets are able to withstand this assault. (I have no pre-concieved idea of whether the markets will be UP or DOWN.) (Not that it matters in the long term scheme of things.)

In the end I doubt anything shocking will happen with any of this stuff. It will ALL likely be about where expected going into the week. BUT it WILL certainly be a MEDIA FRENZY. Probably a HURRICANE/TEMPEST in a tea pot....as usual.

 

This is called....government mandated demand destruction.

Burger King, In-N-Out and other chain locations in California raise prices after minimum wage increase: report
One McDonald's franchisee reportedly said he has had to raise menu prices as well

https://www.foxbusiness.com/media/b...nia-raise-prices-minimum-wage-increase-report

OR....you might call.....government mandated small business destruction. OR you might call it....government mandated tax base destruction. You could also call it a lot of other names that cant be said on here...or...in polite society.

In the end....jobs will be lost, and taxes collected will actually go down. Small businesses will be destroyed and owners will simply leave the business. Government control of the markets and business NEVER works out as planed.

I know.....I retired and closed a thriving business....when taxes got to be 55% or more of my gross income. I was FED UP with my silent partner....government....sucking money out of my business while I took all he risk and did all the work. AND....I dont regret it in the slightest.

 

Poor, poor.....BA. They used to be the greatest aviation engineering and manufacturing company in the world. Now.....tragic.

A Southwest Boeing 737 lost engine cover during takeoff, FAA is investigating

https://www.cnbc.com/2024/04/07/boeing-engine-part-fell-off-during-southwest-flight-takeoff-faa.html

Boeing abandoned their roots and corporate culture in 2001 when their management left Seattle for Chicago. It took management 23 years to destroy the company. A classic tale of....outsourced engineering and manufacturing, contract workers, absentee management, incompetent management. "creating shareholder value" culture, DEI, etc, etc, etc.

I find this little article interesting.....although the "source" is anonymous.

Boeing insider claims aviation giant is failing because profit-hungry executives are all working from home and slams DEI push at company for being 'anti-excellence'

• A Boeing insider slammed CEO Dave Calhoun and other executives for avoiding the office and flying to meetings on private jets
• The source claimed an obsession with DEI is alienating the workforce
• Boeing is in the grip of a safety crisis around its 737 Max jets following a string of incidents

https://www.dailymail.co.uk/news/ar...ailing-executives-working-home-slams-DEI.html

 

Needless to say......I have ZERO plans to ever invest in BA. Talk about trying to catch a falling knife hurtling toward the ground from 50,000 ft in the air.

 

The markets are trying to decide what to do today.....so far.....nothing. I just heard on business TV that the amount of money siting in Money Market Funds has now bumped up to $6.1Trillion.

That is money in the bank.....literally....for the markets. Sure rates on MM funds right now are pretty good.....but so are the stock markets. I would like to know what all the people that own that money are planing to do with it. The current rates that they are seeing are OK but will not get anywhere near stock returns.....and....rates are likely to drop.

Sooner or later we will see a good chunk of that money come into the markets......even if it is only 20% to 50% of the funds it will be a big driver for stocks.

 

I can not agree more.

No, the Fed Isn’t the Icebreaker
It is a myth that the Fed charts the global monetary course.

https://www.fisherinvestments.com/en-us/insights/market-commentary/no-the-fed-isnt-the-icebreaker

(BOLD is my opinion OR what I consider important content)

"Lately, obsessive central bank chatter has taken a new form. People scrutinize the Fed’s next move not only for its potential impact on the US economy and stocks, but because Fed moves allegedly signal other central banks to follow its lead. The widespread perception is that not only is the Fed the first mover, but its longer-term course is also something the rest follow. In our view, this focus is entirely misplaced, and not just because stocks and the economy have already proven they can thrive with higher rates and don’t need cuts. Simply: One central bank doesn’t predict another. History shows it.

Exhibit 1 shows policy rates from the Fed, Bank of England (BoE) and European Central Bank (ECB) since the euro came on the scene. As you will see, history is hardly a case of follow the leader.

Exhibit 1: Three Independent Central Banks Do Their Own Thing


Source: FactSet, as of 4/4/2024. Fed-Funds Target Rate, BoE Bank Rate and ECB Main Refi Rate, 12/31/1998 – 3/31/2024. Fed-funds series switches to the target range’s upper bound at December 2008, when the Fed adopted its current system.

The Fed may have been the first to hike at the end of the dot-com bubble and cut as it burst, but the BoE started the rate hike salvo in the bull market that followed. The Fed again led the charge with rate cuts in 2007, but the ECB launched a solo hiking campaign in 2011 and a cutting cycle after that, all while the Fed and BoE held steady. The BoE was next to diverge, cutting rates after the Brexit vote while the ECB held and the Fed hiked. The BoE eventually hiked a couple times that cycle, but nowhere near as much as the Fed did, and the ECB didn’t move at all. Then the Fed started cutting in 2019, a campaign the BoE didn’t join until COVID lockdowns. When this last tightening cycle began, the BoE launched it.

Some articles acknowledge the Fed isn’t always the first mover on rate hikes but write this off, saying the Fed always moves first on cuts. If you look only at the times the Fed has actually cut rates in the past two and a half decades, that might seem true enough. But it ignores the ECB’s solo cuts starting in late 2011. And the BoE’s 2016 cut. Oh, and the fact that the Swiss National Bank (SNB) has already broken the rate cut ice.

The SNB shows how this really works, in our view: Central bankers do what they think is best to fulfill their mandates, based on the conditions and data in the country (or in the ECB’s case, bloc of countries) they are responsible for. If this weren’t the case, the ECB wouldn’t have raised rates in 2011 due to mounting inflation concerns. Nor would the BoE have cut in response to concerns about the Brexit vote’s impact in 2016. And the SNB wouldn’t have deemed rate cuts beneficial in light of its own recent inflation history (inflation there never even approached the heights seen elsewhere in the Western hemisphere, and it slowed to just 1.0% y/y in March).

So no, the Fed doesn’t need to give the ECB and BoE implied permission by cutting rates first. Nor do its subsequent rate decisions have much to do with the ECB and BoE’s longer-term rate paths. It just wouldn’t make logical sense. The UK and parts of the eurozone have been flirting with recession for months and have finally shown some green shoots lately. Meanwhile, the US kept growing, and GDP even accelerated in recent quarters. The US, UK and eurozone may share disinflationary trends, but otherwise conditions are different. Central bankers will take it all in stride and do what makes most sense for their particular situations.

And most importantly, none of it will be a market driver. The prospect of rate cuts is too well known not to be priced in at this point, and—again—we have already seen cuts aren’t necessary for stocks to do fine. This is all a sideshow."

MY COMMENT

YES...it is all a sideshow. A carnival with clowns and a pretty good freak show. It is transparently obvious based on historical data that the FED is doing nothing based on nothing. Their targets are fantasy and they are captive to their ego driven focus on achieving media attention for themselves. in other words...typical government high level hacks. Basically.....EMPTY SUITS.

Why and how they drive the markets is beyond me......it is patently obvious.....that the FED and actually NO government in the world has any ability to control and guide an economy or the stock markets. They can LURCH us around day to day....but beyond that they achieve nothing other than pushing the economy into a recession once in a while.

 

WELL.....while I have been reading and typing I see that all the big averages have now turned green.....at a much better level than the open. Progress for the markets.

 

I also see that one of my limited positions....SMCI....is down so far today. Poor SMCI....they are in a mini-correction. For one day they are at (-2.26%).....for one week (-7.25%)....for one month (-18.72%). Beyond that they are massively positive.

All the media attention that they get is not a positive for the stock....although the company continues to move ahead with their hardware. It will be fun to see how they do with the upcoming earnings.

I will be watching them for the next 1-2 years and deciding if they are a keeper or not. When I add a stock I would say that historically I end up keeping about one out of three for more than 1-2 years. I tend to be very unforgiving when it comes to new stocks and their survival rate in my portfolio for more than a year or two. I dont mind trying out a new company......but....I do tend to be very strict with stocks that I am trying out.

I dont put much credence in the above short term performance of SMCI since the NVDA has also shown weakness over this same time span.....and.....SMCI is the hardware little brother of NVDA. So I will sit and watch.....and be guided by their earnings fundamentals over the course of the next 4-8 quarters.

 

It is nice to actually see AMZN doing better now....although as usual I dont trust their current management.

Amazon Eyes Record High as It Rebounds From Post-Pandemic Rout

https://finance.yahoo.com/news/amazon-eyes-record-high-rebounds-133410160.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) — Wall Street investors are finally doing what analysts have been recommending all along: buying Amazon.com Inc.

The shares of the e-commerce and cloud computing giant rose as much as 1.2% to $187.29 on Monday, putting the stock on track to surpass its closing high of $186.57 set in July 2021, according to data compiled by Bloomberg.

While fellow mega-cap technology behemoths including Meta Platforms Inc., Microsoft Corp., and Nvidia Corp. have breached record highs in recent months, Amazon has lagged the pack as it nursed itself back from a post-pandemic selloff of about 57%.

The stock has long been the most loved equity by brokers, with 67 analysts urging investors to buy and the remaining two with a hold-equivalent rating. However, investors have looked for more than just analysts’ recommendations to come back around.

To win over investors, the company has been relentlessly cutting costs and restructuring its business, while demand for AI is also starting to boost its bottom line. Amazon Web Services, its once fast-growing cloud unit, also showed signs of re-acceleration in the last quarter, assuaging some fears of a demand slowdown.

Morgan Stanley analyst Brian Nowak said that that upside to retail profits is giving more confidence in the e-commerce giant’s ability to deliver strong Ebit and free cash flow in the coming years.

Nowak hiked the price target on the stock to $215 from $200 in a note dated Sunday, implying a 16% increase from the last close. Analysts on average have a target of about $209, according to data compiled by Bloomberg."

MY COMMENT

Hopefully the current price and performance of AMZN is a result of the new management now having gone through the learning phase as to how to manage the company. It is very difficult to be the management team to follow founder management at a big company. The second or third managers to follow a founder seem to usually fail. MSFT is the perfect example.

In any event.....I will take it......and continue to hold the stock. They continue as the MOST DOMINANT retail company in the world....in addition to their crown jewel Amazon Web Services. I do like the fact that they are about as close as you can get to a big cap conglomerate in the modern world.

 

I have made good money lately on my little HOARD of gold and silver that sits there as shinny lumps of metal in my siblings safe.

I dont buy much......mostly 20-60 Oz of silver per year in the past and more recently 1-2 Oz of gold per year. I dont consider it an investment since it just sits there, does not compound, and most of the time does not gain in value. I guess it is just what I always call it......a HOARD.

 

Today is the big eclipse.

Unfortunately here in Austin....we are clouded over and it is likely to last into the afternoon. It is ridiculous that here locally a few weeks ago they declared a disaster declaration based on anticipated traffic turmoil, strains on first responders, and crowds coming into the area.

It all reminds me of Y2K.....I have even seen some fear mongering that there will be a run on grocery stores. A perfect reminder of human behavior and the fact that no matter how far we advance we are not that far ahead of the Middle Ages. I guess this is part of the reason that I have my little HOARD of gold and silver.

 

It appears that the markets like the coming eclipse....they are continuing to move ahead into the green so far today. We seem to be at or near the daily highs right now.

 

LOL.....I was looking at a chart of the Ten Year Treasury when I heard the business TV talking about the yield today. Great minds think alike. The current yield is 4.434%. The highest it has been in the past.....YEAR AND A HALF.

Yet as usual.....If you look at a chart going back 20-30-40-50-60-70 years......the current rates are historic LOW rates.

Fortunately the markets dont care today.

 

A little question.....do you own a safe?

We dont. Although my sibling has a big one and we keep our little hoard of gold and silver there. We also keep some family items that are owned jointly with her there also. Our important papers sit in a big file cabinet. Most of those papers are not irreplaceable.....so there is no need for them to sit in a safe. Car titles for example.

Well.....actually I lied.....we do own one small floor safe. It is an antique, original finish, medium size safe that we use as a side table in our living room. I do have the combination for it.....and....... it is completely empty.

 

I am not a fan of Jamie Dimon.....I take anything he says with a grain of salt since he has one goal....the promotion of himself and his company. But....this is an interesting little summary of his current views.

Jamie Dimon says AI may be as impactful on humanity as printing press, electricity and computers

https://www.cnbc.com/2024/04/08/jam...printing-press-electricity-and-computers.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• JPMorgan Chase Jamie Dimon chose AI as the first topic in his update of issues facing the biggest U.S. bank by assets.
• In his annual letter to shareholders released Monday, Dimon said he was convinced that artificial intelligence will have a profound impact on society.
• He also touched on inflation, geopolitics, social media and the bank’s First Republic deal.

Jamie Dimon, the veteran CEO and chairman of JPMorgan Chase, said he was convinced that artificial intelligence will have a profound impact on society.

In his annual letter to shareholders released Monday, Dimon chose AI as the first topic in his update of issues facing the biggest U.S. bank by assets — ahead of geopolitical risks, recent acquisitions and regulatory matters.

“While we do not know the full effect or the precise rate at which AI will change our business — or how it will affect society at large — we are completely convinced the consequences will be extraordinary,” Dimon said.

The impact will be “possibly as transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the Internet.”

Dimon’s letter, read widely in the business world because of his status as one of the most successful leaders in finance, hit a wide variety of topics. The CEO said that he had ongoing concerns about inflationary pressures and reiterated his warning that the world may be entering the riskiest era in geopolitics since World War II.

But his focus on AI, first mentioned in Dimon’s annual letter in 2017, stood out. The technology, which has gained in prominence since OpenAI’s ChatGPT became a viral sensation in late 2022, can generate human-sounding responses to queries. Enthusiasm for AI has fueled the meteoric rise of chipmaker Nvidia and helped propel tech names to new heights.

JPMorgan now has more than 2,000 AI and machine learning employees and data scientists working on 400 applications including fraud detection, marketing and risk controls, Dimon said. The bank is also exploring the use of generative AI in software engineering, customer service and ways to boost employee productivity, he said.

The technology could ultimately touch all of the bank’s roughly 310,000 employees, assisting some workers while replacing others, and forcing the company to retrain workers for new roles.

“Over time, we anticipate that our use of AI has the potential to augment virtually every job, as well as impact our workforce composition,” Dimon said. “It may reduce certain job categories or roles, but it may create others as well.”

Here are excerpts from Dimon’s letter:

Inflationary pressures:

“Many key economic indicators today continue to be good and possibly improving, including inflation. But when looking ahead to tomorrow, conditions that will affect the future should be considered... All of the following factors appear to be inflationary: ongoing fiscal spending, remilitarization of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs in the future (even though there currently is an oversupply of gas and plentiful spare capacity in oil) due to a lack of needed investment in the energy infrastructure.”

On the economy’s soft landing:

“Equity values, by most measures, are at the high end of the valuation range, and credit spreads are extremely tight. These markets seem to be pricing in at a 70% to 80% chance of a soft landing — modest growth along with declining inflation and interest rates. I believe the odds are a lot lower than that.”

On interest rates & commercial real estate:

“If long-end rates go up over 6% and this increase is accompanied by a recession, there will be plenty of stress — not just in the banking system but with leveraged companies and others. Remember, a simple 2 percentage point increase in rates essentially reduced the value of most financial assets by 20%, and certain real estate assets, specifically office real estate, may be worth even less due to the effects of recession and higher vacancies. Also remember that credit spreads tend to widen, sometimes dramatically, in a recession.”

On a breakdown between banks and regulators:

“There is little real collaboration between practitioners — the banks — and regulators, who generally have not been practitioners in business…. Unfortunately, without collaboration and sufficient analysis, it is hard to be confident that regulation will accomplish desired outcomes without undesirable consequences. Instead of constantly improving the system, we may be making it worse.”

On rising geopolitical risks:

“Russia’s invasion of Ukraine and the subsequent abhorrent attack on Israel and ongoing violence in the Middle East should have punctured many assumptions about the direction of future safety and security, bringing us to this pivotal time in history. America and the free Western world can no longer maintain a false sense of security based on the illusion that dictatorships and oppressive nations won’t use their economic and military powers to advance their aims — particularly against what they perceive as weak, incompetent and disorganized Western democracies. In a troubled world, we are reminded that national security is and always will be paramount, even if its importance seems to recede in tranquil times.”

On social media:

“One common sense and modest step would be for social media companies to further empower platform users’ control over what they see and how it is presented, leveraging existing tools and features — like the alternative feed algorithm settings some offer today. I believe many users (not just parents) would appreciate a greater ability to more carefully curate their feeds; for example, prioritizing educational content for their children.”

An update on the First Republic deal:

“The acquisition of a major company entails a lot of complexity. People tend to focus on the financial and economic outcomes, which is a reasonable thing to do. And in the case of First Republic, the numbers look rather good. We recorded an accounting gain of $3 billion on the purchase, and we told the world we expected to add more than $500 million to earnings annually, which we now believe will be closer to $2 billion.”

JPMorgan acquired most of the assets of First Republic last year for more than $10 billion after regulators seized the firm amid the regional banking crisis.

MY COMMENT

I do definately agree with his view and opinions on AI. I also agree with his view on Geo-politial risk.

I DO NOT agree with his comments on a "soft Landing"........in fact in my view is has already happened. Whatever we see going on in the future does not change the fact that we have already achieved the soft landing.

I agree with his list of inflationary factors. I find it interesting that the basis for just about ALL of the factors he mentions is....drum roll please.....government.

 

COOL.....at the last minute the sky cleared and we saw the eclipse. At full eclipse it was amazingly dark for 1:37 in the afternoon. That big darkness only lasted for about 5 minutes.