MARKET WATCH

February has been a good month for international markets with most rising three to six per cent and Canada, while rising considerably less, remaining in positive territory. Commodities, on the other hand, have been a mixed bag: energy prices and stocks have been strong, while metals, like gold and copper, have fallen on the month.

But the big story remains the strength of the U.S. tech sector, and, more specifically, companies related to artificial intelligence (AI). As of late, their continued strength has seemingly pulled most other markets higher.

Within this spotlight, Nvidia, the designer of the world’s fastest and most sophisticated micro-chips, has been front and center. Nvidia is a great company and clearly deserves to trade at a premium value. However, its current valuation stretches most reasonable definitions of the word “premium”. For perspective, Nvidia is currently worth almost $2 trillion U.S. - more than all the stocks on the Hong Kong stock exchange. It’s also worth considerably more than the $1.2 trillion the world’s 40 largest mining companies were worth in 2022. (I couldn’t find a more recent valuation, but it’s unlikely they have reached $2 trillion, which would be a 66% increase since 2022.) 

This suggests one of three things: Nvidia is overpriced, the Hong Kong stock market and mining companies are under-priced, or a combination of the two. It feels like a significant adjustment is needed one way or another.

Mispriced valuations aside, AI-related companies have helped drive a significant percent of the rise in the U.S. stock market. Should these tech companies correct, widespread selling could follow. This is one of the reasons we lean towards sectors like emerging markets and commodities. They have been relatively unloved, are cheaply valued, and should be pivotal to global growth in the coming years and decades. They are also more likely to hold up well, and potentially even gain from funds rushing out of other sectors.

I suspect the next few months will be interesting.

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

Words of Radiance by Brandon Sanderson: I’m re-reading the first four books (and two novellas) of the Stormlight Archive series before the fifth one drops in December. This second book of the series was as good as I remembered. If you’re the least bit interested in fantasy, and don’t mind 1,000+ page books, this series is excellent!

Darwin: Portrait of a Genius by Paul Johnson: I was disappointed by this short biography on Charles Darwin. Although I learned about a few of his strengths and weaknesses, it never quite brought him, or his world, to life in a manner that a good biography does.

The Power Broker (Volume 2 of 3) by Robert A. Caro: On the other hand, The Power Broker is everything a great biography should be. This second part (of three) on the life of Robert Moses examined how he fully entrenched himself into New York’s bureaucracy and power structure. He was so successful that even though New York was perpetually strapped for cash, he always had adequate funds for his pet projects. Power was so skewed that this unelected official had mayors practically begging him to build the infrastructure they wanted.

ARTICLES

India Set to be World’s Third Largest Economy by 2027 by Shreyashi Sanyal: India’s economy is growing quickly. It’s only a matter of time before it overtakes Germany and Japan as the world’s third-largest. With the world’s largest population, and a young one at that, India will also begin narrowing the vast gap between itself and that of the U.S. and China. But, catching them will likely take decades.



For those interested, our portfolios currently invest in two emerging market funds with meaningful positions in India.

Life is Short by Paul Graham: Prioritize the things that add to your life and mercilessly cut as much BS as possible.

Behind the Memo - Easy Money with Howard Marks and Edward Chancellor: Last month, I read The Price of Time by Edward Chancellor. I also read Howard Marks’ memo on the same book. As luck would have it, those two men recently sat down to talk.

Interestingly, my biggest takeaway pertained to something left out of the book. One of its main points is that when money is cheap, meaning interest rates are low, it is usually poorly allocated or wasted. When asked how that could be, given the innovations which emerged from the dot.com spending spree, Chancellor needed to clarify. He meant that cheap money usually leads to poor returns for investors. But, as capitalism is Darwinian in nature, society can still benefit from one or two breakthrough technologies that emerge, even though most investors lose out.

Japan’s Nikkei Stock Average Hits a Record: Break out the streamers - the Japanese stock market exceeded its previous high… set in 1990. You read that right. It’s taken 34 years for the Nikkei to regain its previous levels. I never imagined it would possibly take that long!

The Birth of a (Pseudo) Currency: This article examines how, in light of Argentina's experimental economic policies, new pseudo-currencies have emerged as a way of maintaining liquidity. It also looks at two historical examples of pseudo-currencies: when Argentinian provincial "bonds" were issued in 2002 to pay government workers, due to a shortage of pesos, and the origin of U.S. “greenbacks” in 1861, which were created to pay soldiers when gold was scarce.

It’s interesting how in times of financial stress, emergency currencies were able to gain acceptance, be exchanged internationally, and, sometimes, even graduate to become national currencies.

The Present and Future of AI by Ben Evans: Interesting deck on all things AI.

Perplexity AI: With the expanding AI landscape, I’ve been able to try several new tools. Although I still use Claude (and sometimes Chat GPT), I’m increasingly leaning on Perplexity. The free version is connected to the Internet, which provides links to additional articles, videos, artwork, and presentations. For example, if you search, “The 100 Years War”, it not only provides a robust description while providing the links (20) mentioned above, it also suggests thoughtful questions to help you explore the topic further. In this example, it prompted questions about the war’s major battles, events leading up to it, and how the war impacted Europe. If you haven’t tried out AI yet, give Perplexity a look. It’s easy and intuitive to use.

MOVIES AND DOCUMENTARIES

Monsters Inc: When I learned that Tanya hadn’t seen this movie, it didn’t take me long for me to hit play. Hard to beat the combination of Billy Crystal and John Goodman.

Ratatouille: I’m a sucker for Pixar movies. Really enjoyed this movie on cooking… and chasing your dreams.

The Black Godfather: I’d never heard the name Clarence Avant before learning about this documentary. But he was arguably one of the music industry’s most important figures. He was instrumental in helping launch, connect, and propel the careers of numerous Black entertainers. The number of prominent figures interviewed for the documentary was impressive.

What stood out for me though, wasn’t his success. It was his generosity of spirit and ethics. An example was given where two young music producers offered him a deal. He walked them through the expenses they’d incur throughout the process and showed them that if he took their offer, they’d lose money. He took money out of his pocket to ensure they were properly paid.

He also made countless connections (without compensation) that were integral to launching and improving the careers of dozens of people in the industry. The world needs more Clarence Avants!

Thanks to Joe for recommending this.

Slaying the Badger: Whether you like cycling or not, this documentary on the 1986 Tour de France will have you on the edge of your seat. It looks back at the 1986 Tour de France and the pitched battle between teammates, Greg LeMond and his mentor Bernard Hinault. What made it so intriguing is that in cycling, a rigid hierarchy is usually adhered to, but this was thrown out the window – leading to chaos within the team. It became so terrible that one of these cyclists wouldn’t eat any of the team’s food, as he feared it could be laced with something. Here is a trailer for the documentary if you’re interested.

Drive to Survive (Season 6): The Formula One season starts this weekend in Bahrain, and that means the latest iteration of Drive to Survive (covering the 2023 season) just dropped. Tanya and I are avid F1 fans, but we’ve found the last few seasons somewhat lacking. However, although it’s still somewhat formulaic, we found ourselves enjoying this latest version. But it could be due to lower expectations.

SELECTED INSIGHTS

“Health lies in action, and so it graces youth. To be busy is the secret of grace, and half the secret of content. Let us ask the gods not for possessions, but for things to do; happiness is in making things rather than in consuming them.”                                                                                           

— Will Durant

“The hardest thing to teach a student—and the hardest thing to believe consistently—is that there is nothing ‘out there’ to go and get. There is no part, no career, no opportunity for which you should be searching and scrounging and coveting. All of the preparation is within, and you keep yourself mentally and physically fit; you remain generous with yourself and others; you stay deeply in study about your craft. Whatever is yours will then arrive.”​

— Marian Seldes​

“You are just as likely to solve a problem by being unconventional and determined as by being brilliant.”         

— James Dyson, on solving problems