Market Commentary for the week of May 20, 2024

Aurora Borealis (a personal tale)

For several days during the past week, stargazers have been obsessing over a spectacular natural phenomenon, the Aurora Borealis, an evening lightshow of pinks and purples and greens caused by coronal explosions of plasma and other materials which intersect with the Earth’s magnetic field.  Now, I’m no astrophysicist so this tome will not be about the laws of light forces, geometry, and particle sciences.

But I do want to convey to my audience a sense of wonderment and profound impact that these events inspire and how they directly relate to my profession and persona…..

I’ve shared in earlier missives the galactic event that most changed my life and my perspective about the world in which we live.  In 1968, Christmas-time, three astronauts aboard the Apollo 8 space mission sent back to Earth the first photos taken by a human being of an “Earth rise” above the lunar landscape.  I’m sure you’ve seen the photo.  This majestic image captured the enormity…and the sheer isolation…of our planet from deep space hundreds of thousands of miles away.

The reasons that this image affected me so deeply are profound.  I was a teenager at that time transitioning from high school to college.  Under “normal” conditions that is a difficult time for young adults trying to find their way in the world…and what a world it was.  The US was at war in Vietnam; there had been a summer of domestic unrest and protest; and we were shocked by two political assassinations  that cratered our hopefulness about the future.  It seemed as if the world and our future was shrinking right before our eyes.

And then this image…..taken from a tiny space capsule with three brave souls aboard who showed us how small and insignificant our planet really was in the vast cosmos of time and space.  I was moved to tears at the time, and still get emotional, and inspired, when looking at that photo.

From the vastness of space we could finally see how the oceans connect the continents; how territorial lines of demarcation are irrelevant to the planet’s ecosystem; how conflict, war, and peace are really parts of the same continuum.  I came to understand that without understanding the totality  of the globe none of it makes any difference.  We all ride the same planet together.  Science connects us to the arts.  Commerce is intricately woven into the human spirit.  Medicine is sports and recreation.  Being of faith is the same as good business.  Happiness and conscience are intercontinental, and not for sale. 

So why discuss this in today’s commentary?  How could something that happened over a half-century ago be at all relevant to today?

Because the very nature of investing… despite all the algorithms, calculus, and statistics…has a symmetry, a comprehensiveness about it.  If not, if all you seek is to hit “home runs”, then you’re not investing….you are gambling.  Your financial advisor becomes your croupier, and the whole exercise fails to live up to a nobler cause.  Yes, profit-making and building net worth are specific client objectives and how I earn my livelihood.  But somewhere in the recesses of the enterprise is buried the notion that we are all responsible for the well-being of our only planet.  It’s about time we put a human face on all the integers and try to gain a real perspective about what all the data means and who’s affected/influenced by it.

You want to invest in natural resources?  Fine, but be respectful of the condition you leave the environment.  Food?  How about making sure that agribusiness is also a social compact, one which leaves no child hungry.  Energy?  A dwindling natural resource that requires conservation and sustainability.  Technology is everyone’s  future.  The list of inclusivity, nuance, and market silos is too long for this page…

My work in the socially responsible spaces is well documented.  There is no reason why we cannot use our collective talents in math and science and engineering to do more than simple self-aggrandizement and profiteering.  Go outside this evening, stare into the darkness of space, and consider your fellow time travelers…past, present, and future….and think on your contribution to them, as well as to your own family, and ask, “is everyone alright tonight?”    

Market Commentary for the week of May 6, 2024

Power up

As earnings season unfolds investor’s attention is turning to companies that have sustainable business models with an expectation of developing scalable growth for the foreseeable future.  Thus far, the amalgam of businesses that have accomplished that feat this quarter is quite broad, hence the run-up in stocks.

But more importantly, one must focus upon quality over quantity, consistency versus heroism.

Thus, our research is developing an unusual bent regarding the mania over artificial intelligence (AI).  By digging a little deeper we are tackling this new technology with an old approach: looking at the infrastructure required to bring these technologies online, namely energy and utility equities.

Although far less glamorous than discovering unique “techno-darlings” these sectors are essential to the underpinnings of a new world order that is about to burst onto our horizon.  To ensure that the power is turned on when the AI switch is pulled there has to be a reliable energy grid.  The establishment of an AI social and business compact depends upon complete operational and distribution support.

For eons your parents and grandparents used the energy/utility consortium as supplements to their investment portfolios’ income and capital gains objectives.  Today, we would argue, that strategy makes even more sense.  Their standing in their local communities, the regulation under which they operate, and the function they satisfy allow these companies to operate as fulfillment centers for homes and businesses.  Additionally, they resemble many of the “better mousetrap” objectives that we look for in our research.  Their vital place in the technology realm make them an underappreciated resource for burgeoning tech.  It’s not an exaggeration to say that as goes mainstream utilities so goes artificial intelligence.

Boring?  Maybe!

Now, while utilities and energy companies aren’t “sexy” to talk about, sometimes stating the obvious makes for better outcomes.  In fact, for nearly four decades, my databases have enabled the creation of several silo-specific portfolios in areas such as health and life sciences, water, agriculture, fixed income, and alternative energy.  Our fixed income research, for example, has allowed us to maximize dividend yield in our portfolios while maintaining “laddered liquidity” in the event of massive economic shifts.  Our current affinity for the utility sector is both a call for defensiveness against rampant equity valuation expansion overall, as well as a generational realization about the development of new technologies and infrastructure.  What was once “old” is new again.  Utilities today are not your grandparent’s annuities.  They are high tech solution providers to the globe’s ever-expanding technology base.

As such, the need to create viable energy sources goes well beyond traditional fossil fuel companies, and includes hydro, nuclear, and wind.

Finally, why is our research bias turning defensive; why infrastructure; why shy away from the glitz, glitter, and hype?  Because defense limits volatility.  Drawdown is the most onerous of portfolio penalties.  Defense is the opposite of cyclicality; it makes it unnecessary to try to ride the biggest wave….or crash when your bet is incorrect.  Defense obviates the effect of exogenous noise when speculation is running hot.  Irrespective of last week’s Fed announcement about interest rates, there is always a time and place to diversify risk, maximize yield, and protect against downside capitulation.  Playing the waiting game while collecting dividend income is an effective way to parlay capital accumulation from financials, utilities, and energy companies without the equity combustibility (no pun intended).

Making the investment process less complicated is good common sense, and good strategy, too.