MARKET WATCH

Most markets fell in May, with energy stocks leading the decline and falling 7% as West Texas oil fell into the low-$70 range. This decline resulted from China’s economy taking longer than expected to rebound after its COVID lockdowns and the unexpectedly mild winters in North America and Europe, which reduced the need for heating energy. 

Despite this fall, energy prices could bounce back in the near future. Global growth should improve and energy companies are hesitant to invest in exploration (it's politically unpopular and protecting their balance sheets is a priority). And OPEC may be looking to tighten production in the near future. Following a report showing traders are the most bearish on oil in more than a decade, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said: “I would just tell them: Watch out!” Perhaps it’s just bluster, but OPEC members have been uncharacteristically united and most need prices in the mid-$80 range to balance their budgets.



Additionally, there were exceptions to the general market decline in May. As of a few days ago, the S&P 500 traded 9.5% higher on the year, but seven of its stocks (META, AMZN, AAPL, GOOG, MSFT, NVDA, and TSLA) surged an incredible 44%. The remaining 493 stocks, however, only rose by an average of 1%. This has been the narrowest rally in the U.S. stock market since March 2000 when the Nasdaq 100 made a major top. This doesn’t mean tech stocks will inevitably fall, but with their lofty valuations, it wouldn’t be a huge surprise if they did, at least a bit.

Japan also bucked the trend. The Japanese equity market has been a grim place to invest the last 30+ years. If you invested $10,000 in the Nikkei 225 at its 1990 peak, you’d only have about $8,000. However, the Japanese market has been on a tear this year. It’s risen almost 20%, but, more significantly, it’s burst through its 30-year high! It still has a way to go to regain its all-time peak, but it’s worth keeping an eye on. And while it’s not a huge portion of our holdings, it is 1/5 of our international holdings, which is one of the reasons it’s performed so well this year.

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

The Way of Kings (Book 1 of The Stormlight Archive) by Brandon Sanderson: The Stormlight Archive is the best fantasy series I’ve read. But, unfortunately, the next book isn’t expected for over a year. So, to keep all the details (four books and two novellas) fresh, I’ve decided to re-read them again. It’s a very different experience reading a story the second time, but I’m enjoying it just as much!

ARTICLES

Science is a Strong-Link Problem by Adam Mastroianni: Interesting lens on how to look at the world. Mastroianni believes models can either be “strong-link” or “weak-link”. Weak-link problems are ones where attention needs to be focused on preventing worst-case scenarios. Think nuclear power. Strong-link problems, on the other hand, are when poor results cause minimal harm, but the upside can lead to huge benefits. In music, for example, a truly horrible song (Rosanne Barr’s rendition of the national anthem notwithstanding) won’t hurt many people, while a brilliant one, will be enjoyed by millions for years and years.

Using this frame, Mastroianni believes the benefits of ground-breaking science far outweighs the downside of bad science. Yes, when done poorly or unethically (and there is no shortage of it), there is some downside, but, as science drives forward, these false beliefs will be snuffed out. Whereas, a breakthrough in battery technology, for example, would benefit society enough to eclipse a mountain of poor research. 

Why Books Don’t Work by Andy Matuschak: It pains me to admit it, but the author isn’t wrong. While non-fiction books can provide a wealth of knowledge, they are usually designed to codify information, not to teach. This is why retaining the pertinent details after reading a book is often difficult. To improve the transfer of knowledge, Matuschak recommends authors learn how people actually learn, then develop methods to leverage these insights when they write.

Little Rules About Big Things by Morgan Housel: Great list of lessons Morgan Housel has learned over the years. The following are some of my favourites:

• The only way to build wealth is to have a gap between your ego and your income.
• History is driven by surprising events, but forecasting is driven by obvious ones.
• Most people can afford to not be a great investor. But they can’t afford to be a bad investor.
• Read fewer forecasts and more history. Study more failures and fewer successes.
• People suffering from sudden, unexpected hardship can adopt views they previously would have considered unthinkable.

Where We Are in the Big Cycle: On the Brink of a Period of Great Disorder by Ray Dalio: Solid macro article on the state of flux in the world by Ray Dalio. The three big takeaways are:

• The world is on the brink of seismic shifts that will disrupt domestic and world orders in ways that haven’t been seen before.
• The five big forces driving everything are the credit/debt/market/economic cycle, internal and external peace/conflict cycles, acts of nature, and human inventiveness/technology.
• The financial/economic cycle is likely headed into a period of weakness. The political cycle is headed into election cycle years, most importantly 2024 in the United States and Taiwan, which will be defining and turbulent.

What I Think Is Going On 1) with China-US Relations, 2) with Their Relations with Other Countries, and 3) in China by Ray Dalio: This article drills down into one of the big forces (external peace/conflicts) listed above. We are in a precarious period of history. After decades of unchallenged supremacy, China is on the brink of matching America’s global power. This tension has led to increased saber-rattling, which could lead to significant issues. Given his extensive experience and connections in China, Ray Dalio breaks down the situation as he sees it.

Canso’s April Market Observer: Another good Canso letter. Its main themes are: despite sustained levels of inflation, bond investors are anticipating a return to the pre-pandemic days of easy money; the bond market has a poor track record of forecasting inflation (both over- and underestimating actual rates; and the effectiveness of monetary policy’s ability to control inflation remains a subject of debate and uncertainty, as central bankers continue to struggle with striking the right balance between dovish and hawkish policies.

ARTIFICIAL INTELLIGENCE

AI Is a Waste of Time by Derek Thompson: Recent AI developments will likely revolutionize the way we work. However, like the Internet, it can either be a game-changing resource or a time vampire. The choice will be up to us!

How AI Could Save (Not Destroy) Education by Sal Khan: Recent improvements to AI have already disrupted education - this will only increase. While many fear this disruption will hurt educational outcomes, Sal Khan, founder of the Khan Academy, feels it can do the opposite.

In this recent TED Talk, he shows how the Khan Academy is using Open AI’s software to act as a personal tutor for students. One feature, which I plan to use myself, allows students to debate either side of a chosen issue, or with historical figures of their choice. Another helps teachers come up with lesson plans more quickly, so they have more time to spend with students.

Wiseone: I’ve tested a number of AI tools to keep on top of things. I’ve found the Chrome extension, Wiseone, to be of great use. It summarizes webpage content (but not PDFs) with three bullet points, while adding supplementary information in a succeeding paragraph. I don’t use it in lieu of reading the article, but rather, to help determine if the article is worth further exploration. It can also answer specific questions about the content on that webpage. It’s still in the Beta version, so odds are it will only improve with time.

How To Use ChatGPT To Easily Learn Any Skill You Want by Bri Does Things: Some helpful ideas on how to use ChatGPT to educate yourself. I wouldn’t be surprised if, before long, many of these suggestions will be available through updates or extensions. But, until then, this is a good place to start.

Chat GPT-4 With Browsing Looks Impressive

VIDEOS AND PODCASTS

Conversations with Tyler (Rick Rubin): Wide-ranging conversation with legendary music producer Rick Rubin and the insatiably curious Tyler Cowen.

The Invisible Barrier Keeping Two Worlds Apart by PBS Eons: The Wallace line is an invisible barrier that runs through Indonesia. On one side, animals traditionally found in Asia, like rhinos, elephants and tigers, exist. On the other side, these animals are peculiarly absent. Instead, you’ll find unique animals like marsupials, komodo dragons and cockatoos, which, in turn, are only found on their side of the Wallace line.

3 Professional Soccer Players vs. 100 Kids: This is probably what my soccer games looked like…

SELECTED INSIGHTS

“All that matters is that you are making something you love, to the best of your ability, here and now.”

- Rick Rubin

“Practice any art, music, singing, dancing, acting, drawing, painting, sculpting, poetry, fiction, essays, reportage, no matter how well or badly, not to get money and fame, but to experience becoming, to find out what's inside you, to make your soul grow.”

- Kurt Vonnegut