MARKET WATCH

Most global markets are a few points higher this month, with Canadian energy securities leading the way, rising a little more than twice as much. This is likely due to a few factors: inflation rates have fallen faster than expected, a severe recession looks increasingly unlikely, and, if we do have a recession, it will likely be mild. Lastly, summer tends to be less volatile.

Looking forward, value stocks, Canadian energy companies (see below), international, and emerging markets all look historically undervalued. This usually leads to outperformance in the following years. Not coincidentally, we are overweight all of these positions; which should be rewarded in our performance.

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.

BOOKS

How the Light Gets In (#9) by Louise Penny: I’ve thoroughly enjoyed the first eight books of Louise Penny’s Inspector Gamache series. But, when you progress this far into a murder mystery series, especially one situated in a rural village, you begin to wonder how fresh the storylines can stay. The answer is very! How the Light Gets In was quite the ride, as it masterly wove together unresolved plots from previous books. In my opinion, this is Louise Penny’s best book yet.

ARTICLES, NEWSLETTERS AND THREADS

Anthropic’s Claude 2: Earlier this month, AI company Anthropic released an updated version of its chatbot, Claude, creatively naming it…Claude 2. Although it reportedly “hallucinates” a bit more than the latest version of ChatGPT, many consider it a worthy challenger. Personally, I love its ability to analyze large amounts of text and PDFs. For an example, see directly below for its summary of a 13-page PDF.

Canso’s July Newsletter: I asked Claude 2 to summarize Canso’s latest newsletter in 85 words. The first paragraph was its initial attempt, and for fun, the second is the output when I hit the retry button:

“This Market Observer from Canso Investment Counsel discusses how inflation has moderated but remains stubbornly high. Central banks face pressure to ease policy as rates bite, but risk fuelling further inflation if they relent too soon. Canso believes central bankers have learned money supply impacts inflation, so will likely overcorrect with more tightening than markets expect. Canso is positioning conservatively, noting credit markets don't reflect recession risks. They conclude monetary policy's end game will likely not be pretty for markets.

“Canso discusses how inflation is moderating but central banks are still resolute on fighting it. They examine historical parallels to the 1970s showing similar declines in inflation before it rose again. Canso believes central banks have learned harsh lessons about money supply and will likely overcorrect with tight policy. This makes Canso cautious on financial markets despite perceived resilience. Canso sees risks of recession still high and markets underestimating the monetary policy end game. They are positioning defensively as rallies seem driven more by fear of missing upside rather than downside risks.”

Highlights From Julie Gurner’s Podcast Appearance: Excerpts from Julie Gurner’s Farnam Street podcast that focused on: discipline, the power to change, imaginary rules, boundaries, motivation, and confidence.

Canadian Energy Companies Are Historically Cheap: Nice dynamic chart to illustrate its point.

Warren Buffett on the Importance of Interest Rates: In summary: “Interest rates power everything in the economic universe."

Bi-Weekly Geopolitical Report – Distinguishing My Wife From a Hat, an AI Story by Confluence: Interesting article on how AI works - and it has a great title.

ON SEMICONDUCTORS

You can make a strong argument that semiconductors have shaped the modern world more than any technology. They affect almost every aspect of our lives. And now, with the rise of AI, they’ve become even more critical. Given that, I’m dedicating time to learn about the industry, how they work, and how they could be used in the future. Below are some of the better articles, videos, and podcasts I’ve come across so far.

What Is A Semiconductor? by MITK12Videos: Great 101 video on how a semiconductor works. I’m embarrassed to say I didn’t even know the reason they’re called semiconductors.

Moore's Law by QUT IFB101: Named after Gordon Moore, who, in 1965, predicted the number of transistors on an integrated circuit would double about every two years. This holding up means that about 200-400 million times more transistors can be squeezed onto an integrated circuit than when he made the prediction. This is not only one of the best illustrations of the power of exponential growth, but also explains how computers have shrunk from the size of a room to the palm of your hand, while becoming blindingly quicker.

Transistors - The Invention That Changed The World by Real Engineering: Good video on transistors. And if you prefer, here is a succinct definition I found using AI: A transistor is a tiny switch that controls electrical signals. It is made from silicon crystal that has been modified with other atoms to change its properties. When voltage is applied to one part of the transistor, called the base, it allows electricity to flow through from one end to the other. This switching action allows transistors to amplify signals, act as on-off switches, and perform logic operations in computers and other electronic devices. Billions of microscopic transistors packed together on chips enable all forms of modern computing and electronics.

Technology Size Comparison by Branch Education: The most advanced transistors have shrunk to an impossibly small 3-5 nanometres. How big is a nanometre? Consider the following: a millimetre is 1,000,000 nanometres, a sheet of paper is 100,000 nanometres thick, red blood cells are roughly 10,000, bacteria are about 1,000 nanometres, viruses range from 20-400, and a strand of DNA is 2.5 nanometres in diameter. Given this, the fact that a three-nanometre transistor can be made, is almost impossible for me to contemplate.

Semiconductors: Everything You Wanted to Know by The Knowledge Project Podcast: Though almost three years old, this is a good summary of the semiconductor landscape.

How ASML, TSMC And Intel Dominate The Chip Market by CNBC Marathon: Semiconductors are VERY hard to make. How hard? Only a handful of companies (Intel, AMD, Qualcomm, Nvidia, Samsung, TSMC, and a few others) design most semiconductors. Only a few (TSMC, Intel, Samsung) make (fab or fabricate) the majority of advanced chips. And only one company (ASML in Holland), is capable of making the machines that create the most advanced generations of chips!

The Complete History & Strategy of TSMC by Acquired: Question: What is the most important company that few people know about? My answer is the Taiwan Semiconductor Manufacturing Company or TSMC. Why? Because modern-day semiconductors foundries are very expensive to build and intractably difficult to make and operate, which is why TSMC makes a large portion of the world’s most advanced semiconductors. If TSMC and its intellectual capital disappeared, global technology would regress by years. New cars, video games, computers, military weapons, power plants, and hundreds of other electronic devices depend on TSMC’s chips. And it would take years to get back up to speed. 

This podcast is the unlikely and fascinating story of how TSMC, and the island of Taiwan, became the linchpin of our modern-day world!

BIOGRAPHIES AND MORE BIOGRAPHIES

It’s a little-known fact that many of history’s most successful leaders have learned as much, or more, studying the lives of other successful people than from more traditional methods.

For that reason, I’ve wanted to explore more biographies for some time. So, when I was introduced to the excellent podcast Founders (which focuses on people that “founded” a great business, as well as artists and world leaders), well, I became a little obsessed.

And, while in transit during my recent trip to Scotland, I explored the lives of so many fascinating individuals that only half are below. If you like biographies, I highly recommend checking this podcast out!

Founders #225 Winston Churchill: Great summary of Churchill’s life, based on the short book Churchill by Paul Johnson. Few people know that he once almost died in New York, crossing the street. He walked right into a fast-moving car looking the wrong way, forgetting Americans drive on the other side of the road from the U.K. I thought of this many times, when crossing the road in Scotland. Sometimes, the best lessons are preventative.

Founders #224 Charles de Gaulle: One of history’s most single-minded individuals. Many similarities to Churchill with some notable exceptions: he had fewer hobbies and, though hard to believe, was even more stubborn.

Founders #267 Thomas Edison: Arguably America’s greatest inventor. A voracious reader, Edison read EVERY book in the Detroit public library. Few people in history had more dogged determination than Edison. He endured hundreds (some sources say thousands) of failed attempts in creating the lightbulb.

Founders #283 Andrew Carnegie: Rags to riches story. Family moved from Scotland to America, he had to work as a young boy to help the family get by. Had an incredible work ethic and constantly pushed himself to learn and improve. As a young boy, Carnegie was given access to a wealthy person’s library. He became one of the richest men in history and famously built more than 2,500 free libraries for others to benefit from, as he once did.

Founders #311 James Cameron: “I like difficult. I’m attracted by difficult. Difficult is a fucking magnet for me. I go straight to difficult. And I think it probably goes back to this idea that there are lots of smart, really gifted, really talented filmmakers out there that just can’t do the difficult stuff. So that gives me a tactical edge to do something nobody else has ever seen, because the really gifted people don’t fucking want to do it.” This should give you a pretty good idea of who James Cameron is and why he’s been so successful. It also doesn’t hurt that he’s very smart!

Cameron built his career on questioning the accepted wisdom and believing in himself.