Byron Wien was well known in the investment business for his annual "Ten Surprises". What I liked best was his attitude toward engagement, "Never retire...if you work forever, you can live forever". He knew there was no biological evidence that supported his claim, but he went with it anyway. He passed away this month at age 90, still engaged in research. A life well lived.
If I were writing Byron Wein's Ten Surprise list, I would modify the list to address not only surprises but also events that might be more significant than we currently contemplate.
#1. Bitcoin /Crypto. If you get the gamble right the payoff is impressive (a double or more in the last 12 months). Get the timing wrong and you lose 50%. The issue I have is that after multiple years there is still no practical economic application.
Potential positives: investors have added $807 million to crypto-focused exchange-traded products over the past year (Bloomberg 17/11/23). Additionally, it is widely believed that Bitcoin ETFs will be approved, creating further investor demand.
Negatives: Pricing is likely controlled by an inside group, and the security of the ownership of your holding may be subject to fraud. Sam Bankman-Fried certainly did not help the cause. Crypto is useful if you want to avoid tax and/or launder funds, but governments with their insatiable need for funding, are unlikely to allow this to continue.
#2. Generative Artificial Intelligence. By far the hottest investing topic in 2023. Everything from homework completion to drug discovery is impacted (in good and bad ways). This will have a huge impact on business processes. Bill Gates has a thing or two to say on this subject, as Microsoft is at the forefront.
Then you amplify by combining Generative AI with Quantum Computing...........
#3. Quantum Computing. My friend, James Myers (editor of a terrific journal that I highly recommend, The Quantum Record), first alerted me to the exponential acceleration that is coming to computer speed. The topic is complex but important. To think that when I was in high school, we marked computer cards with a lead pencil. In fact, I think the changes that are coming warrant a read of Quantum Supremacy by Michio Kaku. The combining of Generative AI and Quantum Computing speed will bring increasingly rapid change to the investment industry. Let’s hope there is still room for a personal touch.
#4. The last great cartel faces reality. Not the OPEC cartel but the North American real estate cartel. In a recently won U.S.-based class action lawsuit, the courts found that sellers should not be required to fund the commission paid to the buyer's agent. The argument is that the seller has no business relationship with the buyer and should not be required to pay this built-in fee. It appears that in the future the buyer will pay their agent directly. The question becomes, what is this service worth? If my experience in the investment business is any indication (where investment management fees dropped from as much as 5% to 1% over 20 years), real estate agent fees should see a drop to 1% over time. On the face of it, this seems ludicrous, until you review real estate fees in the U.K. and Australia (1.42% and 2.0-2.5% respectively). A similar lawsuit is proceeding through the Canadian courts.
#5. Excuse my Canadian Focus I do worry about Canada. As a country, we continue our slide in productivity and growth. Without immigration, there would be no growth at all. We have the potential to become a global leader in industry and the environment.
Particularly in the short term, we have issues. Two-thirds of Canadian mortgages come due by 2026. At the current level of interest rates, Canadian monthly mortgage payments could increase by 45% over the next three years (if interest rates stay level). Reflect this statistic against the 80% plus of U.S. homeowners who locked in 30-year mortgages at 3%. The Bank of Canada may elect to drop interest rates to provide some relief, but this action will certainly not help the already low Canadian dollar. What a mess. Canada has all the potential; skilled immigrants, abundant natural resources, and a young population. What is lacking is strong leadership, which may not be possible in a federal system.
This are my top five issues that could have a surprising influence on our future. Next week, the balance of my Top Ten.
All the best for U.S. Thanksgiving and wishes for a more peaceful world.
Best regards, Tim
Tim Morton, CFA is a retired portfolio manager with 45 years of experience working with private clients and is the editor of mortonir.com and a contributor to Barron's. My comments are not to be taken as investment recommendations. They are purely for discussion purposes. Please see your registered advisor for investment advice.
Komentarze