Market Commentary

  • Here Are Some Links For Your Weekly Reading – July 17th, 2022

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    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

    Trading Links:

  • Reinventing The Wheel

    When I think about the invention of the wheel, I think about cavemen (even though I know that cavemen did not invent the wheel).

    Lots of significant inventions predated the wheel by thousands of years.  For example, woven cloth, rope, baskets, boats, and even the flute were all invented before the wheel.

    While simple, the wheel worked well (and still does).  Consequently, the phrase "reinventing the wheel" often is used derogatorily to depict needless or inefficient efforts.

    But how does that compare to sliced bread (which was also a pretty significant invention)?

    Despite being a hallmark of innovation, it still took more than 300 years for the wheel to be used for travel.  With a bit more analysis, it makes sense. In order to use a wheel for travel, it needs an axle, and it needs to be durable, and loadbearing, requiring relatively advanced woodworking and engineering. 

    2014-innovatie-stenentijdperk

    All the aforementioned products created before the wheel (except for the flute) were necessary for survival.  That's why they came first.

    As new problems arose, so did new solutions.

    Necessity is the mother of invention. 

    Unpacking that phrase is a good reminder that inventions (and innovation) are often solution-centric. 

    Too many entrepreneurs are attracted to an idea because it sounds cool. They get attracted to their ideas and neglect their ideal customer's actual needs. You see it often with people slapping "AI" on to their product and pretending it's more helpful. 

    If you want to be disruptive, cool isn't enough. Your invention has to be functional, and it has to fix a problem people have (even if they don't know they have it.) The more central the complaint is to their daily lives the better.  

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    Henry Ford famously said: “If I had asked people what they wanted, they would have said faster horses.”

    Innovation means thinking about and anticipating wants and future needs.

    Your customers may not even need something radically new. Your innovation may be a better application of existing technology or a reframe of best practices. 

    Uber didn't create a new car, they created a new way to get from where you want with existing infrastructure and less friction. Netflix didn't reinvent the movie, they made it easier for you to watch one. 

    As an entrepreneur, the trick is build for human nature (meaning, give people what they crave or eliminate the constraint they are trying to avoid) rather than the cool new tech that you are excited about.  

    Human nature doesn’t seem to change much … Meanwhile, the pace of innovation continues to accelerate. 

    The challenge is to focus on what people want rather than the distraction of possibility.

    It gets harder as more things become possible.

    We certainly live in interesting times!

  • Americans’ Top Financial Concern

    It's no secret that the economy is slowing – with high inflation rates and rising interest rates. 

    According to Mohamed El-Erian, from Queens College at Cambridge University, we're experiencing stagflation – which is when inflation is high but growth is slowing significantly. Theoretically, that leads to recession. 

    Inflation-Top-Financial-Concern_Infographicvia visualcapitalist

    The Consumer Price Index has also grown by over 8% in the past year, so the American household is facing financial threats from many angles. 

    Many feel that the Fed has responded disappointingly recently, and their response (or lack thereof) will be a major dictator of whether we enter a recession. 

    I believe that emotions play a role too. When people are afraid, they spend less and hoard what they can to save themselves from an unknown future. They feel anticipatory grief.  And their fear, uncertainty, and doubt ripple through society and our lives. 

    Personally, I've weathered my heaviest storms by sailing toward the future regardless of the threats. An abundance mindset is a powerful tool, and as more people feel confident it becomes a macroeconomic trend with real influence. 

    I'd encourage you to think about what opportunities there are and will be. There are always seasons of change … Winter eventually comes – and goes. Nevertheless, winter can be a great opportunity to plan your next moves and build the infrastructure to sow more seeds in the coming spring. 

    As well, unlike nature, you can personally have springtime while the majority are in winter. We're currently in an A.I. springtime – and I believe that will continue regardless of economic trends. 

    Happy to talk about this … Let me know what you are thinking and feeling!

  • Here Are Some Links For Your Weekly Reading – July 2nd, 2022

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    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

    Trading Links:

  • How Bad Were The Markets In The First Half Of 2022?

    The S&P 500 has had its worst first half performance since 1970. 

    Screen Shot 2022-07-01 at 3.30.06 PMvia AXIOS

    But, the S&P's performance isn't the only danger indicator. 

    Screen Shot 2022-07-01 at 3.32.52 PMvia Fortune

    Stocks, bonds, crypto, and more, all saw rapid declines in the first half of 2022. 

    It's hard to pin the blame on any one factor. Was it the result of the actions we took to stabilize the economy during the throes of Covid? Is it the runaway inflation, Russia, or the continuing supply-chain issues? 

    It feels like everything that could go wrong – is going wrong. I mean, how often do stocks and bonds fall at the same time?

    On a positive note, bear markets are often much shorter than bull markets.  Also keep in mind that while global growth is slowing, innovation isn't!

    Don't forget, “Winter” for the economy or a particular industry doesn't have to be winter for you. 

    Onwards! 

  • Companies With The Most Patents in 2021

    Intellectual Property is an important asset class in exponential industries.

    Why?  Because I.P. is both a property right (that increases the owner's tangible and intangible value) and a form of protection.

    They say good fences make good neighbors.  But you are also more willing to work to build an asset if you know that your right to use and profit from it is protected.

    As a result of that thinking, Capitalogix has numerous patents – and we're developing a patent strategy that goes far into the future.  So, it's a topic that's front of mind for me.

    Consequently, this visualization of which companies got the most patents last year caught my eye.  In 2021, the U.S. granted over 327,000 patents.  Here is who got them.

     

    DS-Top-25-Companies-with-the-Most-New-Patents-in-2021-main-Apr20Raul Amoros via VisualCapitalist

    While IBM isn't the public-facing industry leader they once were, they've been topping the list for most patents for the past three decades.  Their patents this past year cover everything from climate change to energies, high-performance computing, and A.I.. 

    What ideas and processes do you have that are worth patenting?  And, what processes are worth not patenting – to keep from prying eyes?

    Food for thought … Onwards!

  • Thoughtful Entrepreneur Podcast

    Recently I had a chance to talk with Josh Elledge on his Thoughtful Entrepreneur podcast. We talked about AI's inevitable influence on trading as well as my experience as an entrepreneur. 

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    Despite mis-spelling Capital Logix … it's Capitalogix … the conversation we had is worth a listen. 

    Check it out.  

  • Visualizing Oil Prices in Response to Economic Events

    In the past, I've talked about where America gets its oil, and how data is more than just "the new oil". 

    During the worst of the pandemic, oil prices dropped almost 40%. They've now risen 216% from that pandemic low. With gas prices skyrocketing, it's probably time to look at historical oil prices.

    Visual Capitalist put together a simple infographic. 

    Historical_Oil_Pricesvia visualcapitalist

    So why are prices so high? Unfortunately, large portions of the world's oil reserves are in regions prone to political conflict.

    Currently, the Russia-Ukraine conflict is leading to supply uncertainty and rising prices.

    Meanwhile, oil companies are bringing in record profits. 

    Oil prices are a complicated topic because supply and demand aren't particularly responsive to price changes in the short term. Regardless of price, people need to drive. And, regardless of demand, it takes time and money to drill new oil wells. 

    As a result, you can see mismatches, like today, where uncertainty has raised prices, but oil companies are doing tremendously well. 

    The question now becomes … where does it end? Does it take a resolution to the current conflict? Or, will prices reach a ceiling and fall back down based on other factors?

  • Don’t Touch That Dial

    History may not repeat itself exactly … but it often rhymes. News stories, however, seem to replicate.

    There is nothing wrong with your television. Do not attempt to adjust the picture. We are now controlling the transmission. We control the horizontal and the vertical. We can deluge you with a thousand channels or expand one single image to crystal clarity and beyond. We can shape your vision to anything our imagination can conceive. – The Outer Limits (1963)

     

    via YouTube

    It almost feels like an episode of Black Mirror, watching these stations quote the same pre-determined diatribe on fake news and its danger to our democracy.

    The very message they are purportedly supporting, in the video above, directly contradicts their actions. 

    Most people realize this happens to some degree, but it seems different when presented like this.

    I believe I am reasonably aware and somewhat immune from propaganda. That probably isn't as true as I'd like to believe.

    Meanwhile, Sinclar Broadcast Group owns nearly 200 stations in 80 different markets and wants to buy more. That is a powerful platform to deliver mass messages and influence the zeitgeist of its audience.

    It used to be true that winners wrote history (think empires, wars, etc.). Now, the one that delivers the most broadcast narratives shapes the emotional and seemingly logical responses to what we perceive to be happening around us.

    The result impacts elections, financial markets, buying choices, and countless other areas of our life. 

    We see and hear it every day about politics, wars, economic issues, and many other things we don't focus on enough to notice.

    As A.I., Bots, and social media grow, our ability to discern truth from 'truthiness' weakens. Especially with the growth of deepfakes. 

    What do you think about this?

  • A Brief Look At Bear Markets

    Main Street and Wall Street are often at odds.  Terms like "retail" and "professional" or "smart money" and "dumb money" highlight the difference in perspective and access to tools, processes, and even information.  

    The biggest disparities happen at turning points.  Today, many companies are posting record profits, but markets are volatile, gas is expensive, and inflation is high.  So, we're getting some mixed signals.

    It may be too soon to say we're in a recession, but we are experiencing a downturn. 

    Here is a comparison of recent market corrections showing each decline's intensity and duration.

     

    Ezgif.com-gif-maker (5)via Reddit (Dow Jones Market Data & the WSJ)

    While this chart is a week or two old, it shows some interesting data.  While there are a few shorter drops, most were longer and deeper than where we currently are. 

    Thus, we could have further to go … but it could also be a sign that we're responding better to market issues than in the past. 

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    via Cascade Financial Strategies

    The blue areas represent past bull market durations and returns (total and annualized).  The red areas represent past bear markets.
     
    Note: this chart is from 2018 – Nonetheless, it is a good reminder of the bigger picture.
    I remain optimistic about the future state of our economy.  That doesn't mean there won't be pain.  Still, I believe that technology continues to increase the size of our potential pie and the capabilities we can leverage as a catalyst to recovery. 
     
    As a bonus, if you want to see a flashback to the Great Recession, here are two pieces of my market commentary from the time.  It's interesting to look back and see how my writing has changed. 

    How are you feeling about the markets and our economy?