MARKET WATCH

May has been a good month for stocks across the board! Most international equities have risen one to four percentage points, with most commodities also trending up, but with more volatility.

Canadian energy stocks, while almost 30% higher year-over-year, declined 2% on the month. On the other hand, Canadian copper/metals companies rose almost 5%. The price of gold (in loonies) increased about 1.5%, but Canadian gold companies surged an impressive 8% month-to-date. This is likely due to gold companies beginning to catch up to the price of gold itself. Should the price of gold maintain its ascent, it’s quite possible gold stocks will continue outperforming the value of the metal itself.

As for our portfolios, I’m pleased with our performance and like the way we’re positioned. A meaningful portion of our holdings - emerging markets and commodities - may be in the early innings of a bull run. Having said that, geopolitical risks remain and markets often give back profits from time to time. In other words, although I’d be ecstatic to continue at this pace, it’s unlikely…but stranger things have happened.

As always, feel free to reach out if you have any questions, and if you’re looking for more timely information on the markets, you can find them on the research section of my website, or on my Twitter, Facebook, and LinkedIn feeds.

ON ASIA

For most of my life, the U.S. and Europe have dominated the economic and geopolitical world. However, this is changing. Though still the world's strongest nation, America’s relative strength has been in decline for decades and will likely be surpassed in the coming years. And Europe, though not quite irrelevant, is fading into a shadow of its former self. With power being relative, where is it moving? The answer is Asia.

For this reason, and that I’ve long found many of the continent’s histories and cultures fascinating, I’m dedicating time to studying all things Asia. Given their intertwined past, I’ve begun with a focus on Japan, China, and Taiwan, but will expand my research as time persists.

I’m not sure how long this will last, but I’m excited to see where this journey takes me.

BOOKS

The Shortest History of China by Linda Jaivin: A short introduction to the vast history of China. It covers broad themes like philosophy, geography, inventions, natural disasters, and, of course, its dynasties and economic rejuvenation.

The Invention of Japan: 1853 - 1964 by Ian Buruma: In 1603, Japan closed its doors to the world for more than two centuries, missing the Industrial Revolution and the advancement that came with it. When American Commodore Matthew Perry arrived at Tokyo harbour with four modern ships in 1853, Japan realized just how vulnerable it'd become. To change its fortunes, Japan spent two decades furiously learning from the developed world in an attempt to modernize economically, militarily, and, painfully, socially.

The Invention of Japan is about Japan’s transformation from a vulnerable nation, to imperial power, to its decimation in the Second World War, then, finally, to another economic rejuvenation. This is easily one of the most fascinating periods in world history.

The Japanese Empire: Grand Strategy from the Meiji Restoration to the Pacific War by Sarah C. M. Paine: After Japan’s rapid modernization, it won two improbable wars against much larger opponents. First against China, then Russia. Though luck played a part, these victories were possible by implementing a “grand strategy”. This holistic approach included economic, geographic, and geopolitical concerns, as opposed to pursuing purely military goals.

However, Japan’s next two wars, again against China, then the Second World War, failed to utilize the balanced decision-making that previously worked so well. This led to one strategic mistake after another, ultimately ending in its surrender and humiliation.

Shogun (Part 1) by James Clavell: I’ve wanted to read Shogun for as long as I can remember. Growing up, it was one of my mother’s favourite books. Then, several years ago, a martial arts instructor who lived in Japan for some time, recommended it as the best way to understand Japan and its culture without moving there. And now that I’m spending a few months studying all things Asia, the time is right.

As for the book, it’s an excellent window into Japan in the 1600s. It illustrates the extreme discipline, loyalty, and honour code that pervaded its society. It also showed how its feudal system enriched the regional warlords (daimyōs), enabling them to scheme against each other in hopes of ultimately becoming the Shogun, or master of Japan.

ARTICLES ON ASIA

India’s economy: The good, bad and ugly in six charts by Nikhil Inamdar: India’s economy is booming. Currently, it sports the world’s fifth-largest GDP and is expected to be the third-largest economy by 2027. However, these gains have been uneven: job growth remains sluggish, manufacturing lags despite incentives, and inequality is at a century-high with the rich thriving, while many remain trapped in poverty.

With a young population, being used as a manufacturing alternative and a strategic geopolitical counter- weight to China, India has much to be excited about. But, if it wants to take the next step forward, it’ll need to address its inequality problem. Historically, societies that have ignored this issue have had more than their share of destabilizing issues.

The Exodus of China’s Wealthy to Japan by Miho Inada: This is the other side of the inequality conundrum. China is cracking down, albeit in draconian fashion, on wealthy citizens. This has caused many rich Chinese to move to Japan - some even changing their names to sound Japanese in hopes of staying under the radar.

This may also be an issue that countries like Canada will face. Although anecdotal, I know several wealthy individuals who have either left Canada, or are planning to, due to what they deem a punitive tax and societal situation. As it becomes easier to move to lower tax jurisdictions, a more thoughtful manner of addressing the income inequality issue is worth exploring.

He Turned 55. Then He Started The World’s Most Important Company by Ben Cohen: The incredible story of how Morris Chang, at an age when many begin thinking of retirement, moved to Taiwan and created TSMC.

For those not familiar with TMSC, it fabricates the globe’s most advanced semiconductors, making it one of the world’s most important companies. And if you’ve ever wondered why the U.S. is so steadfast in its support for Taiwan, it’s partly - perhaps largely - to do with ensuring TSMC doesn’t fall into Chinese hands.

TSMC’s Debacle in the American Desert by Viola Zhou: One of the lessons taken from the pandemic was to ensure the continuous supply of vital goods. With that in mind, the Biden administration spearheaded the CHIPS Act to incentivize companies to produce cutting edge microchips in the U.S. Using this financial support, TSMC is in the process of building several fabrication plants in Arizona.

Unfortunately, this is much harder than it sounds. Building an advanced fabrication plant is very complicated. But perhaps just as challenging, the vast differences between the Taiwanese and American work culture is proving problematic. A fascinating read, especially if you’re interested in the study of cultures and how they differ.

Japan Seeks to Revitalise Its Semiconductor Industry by Sujai Shivakumar, Charles Wessner, and Thomas Howell: Japan’s semiconductor technology dramatically lags that of global leaders, but it has big plans to change that.

As a point of interest, the previous article mentioned that, while a TSMC plant began construction in Japan after they broke ground in Arizona, the Japanese plant has already been completed. Although the Japanese location was for a less advanced technology, it seems Japan is having fewer issues working with TSMC than the U.S. It will be interesting to keep an eye on this moving forward.

OTHER ARTICLES AND VIDEOS

Why the World Has Gone Cuckoo for Copper by Julie Steinberg: The green revolution has significantly increased the demand for copper. And it looks like it will be challenging for supply to keep pace, especially as it can take a decade or more to bring a new mine online. Given that, China and the U.S. are aggressively trying to secure an adequate supply moving forward.

Troy Asset Management: Investment Report #80: Great letter on why gold has and should continue to do well.

Interactive AI for Education: It’s incredible how quickly AI has become interactive. If you have children in school, you’ll want to check this out!

Google I/O 2024 keynote in 17 minutes: A relatively short video of Google’s new AI features. I’m most excited about Notebook LM (at 2:15 of the video). It enables the user to upload dozens of articles and PDFs, it will then answer any questions one might have. But most impressive, it can create multiple AI voices to discuss the topic you’re interested in, and you can steer the conversation in any direction you want. Notebook LM isn’t available in Canada yet, but I can’t wait until it is!

Sarah C. M. Paine - WW2, Taiwan, Ukraine, & Maritime vs Continental Powers by Dwarkesh Podcast: Wide-ranging conversation between popular podcaster Dwarkesh Patel and Sarah C.M. Paine, author of The Japanese Empire (see above).

Hardcore History - Supernova in the East (Part 1): I’m relistening to this excellent podcast series. Part 1 provides historical background on the lead-up to the Second World War, which includes the first Sino-Japanese war, along with Japan’s unique governing structure that led to many of its WWII blunders.

Hardcore History - Supernova in the East (Part 2): This episode discusses Japan’s imperial ambitions and the second Sino-Japanese war, which led to the allies cutting Japan off from vital resources, like metals and especially fuel. This, in turn, resulted in Japan’s decision to attack Pearl Harbour and, thus, enter the Second World War.

SELECTED INSIGHTS

“People spend too much time on the last 24 hours and not enough time on the last 6,000 years.” 

- Will Durant

“It is tough to make predictions, especially about the future.” 

- Yogi Berra

"They talk about life-work balance. That’s a term I didn’t even know when I was their age. Work-life balance. When I was their age, if there was no work, there was no life.”

- Morris Chang (TSMC Founder)