MORE FROM YOUR MONEY                                                                                                 2024 4/4

 

The Pendulum Strikes Back…

After what seemed like the longest election runup in history, you, much like myself, will welcome a reprieve from political commentary, partisan rhetoric, and empty promises.  So, I will do my best to spare you this month, sticking only to trying to answer the more pragmatic question of “What does this mean for my money?” That being said, without question we have seen a very large swing in the political pendulum. While this is nothing new globally, the size of the swing was unexpected. While much of the world had more recently seen populist parties taking control, only Polymarket (more on this later), was able to successfully predict the outcome in the US election. This is a great jumping off point, to speak about what’s really important…your money.

 

How Did They Know…

As you have heard from me before, big data is big business. What’s impressive to me is the ways in which we are already starting to use this technology. From emerging science to predicting the outcomes of elections, we are using big data to research and learn in ways we never have before. While many pollsters struggled to predict the outcome of the US election…there was one statistician that predicted the outcome, virtually the entire campaign…Polymarket.This “Financial Futures Market” is closer to a casino, but allows people to place financial “bets” on the outcomes of everything from the winner of a high profile boxing match to what the weekend box office will be on the latest movie. This is not to say that Polymarket had a crystal ball, merely that they were able to combine AI with data to have a much more reliable probability. There is one very interesting side note on how they were helped by one large “trader” known as “The Whale”. This trader paid a research firm to conduct a poll surrounding the US election but with a very interesting twist.  As in most surveys like this, the researcher asked who the respondent was going to vote for, but then, asked whom they thought their neighbor would vote for. The poll took the underlying assumption that respondents might not be willing to reveal their true intentions, but would be more likely to reveal their true feelings by asking who they thought their neighbour would vote for. The results were very interesting and when combined with gambling data, created a very accurate prediction. 

 

While actually wagering on this platform is far too risky for our clients, it does highlight how big data has very quickly enabled humans to spot trends quite early but also have more confidence in predictions.  While this may seem anticlimactic for politics, it is a huge win for many fields like science and healthcare, government, education, finance and many more we have yet to conceive. This is another example of how big data and more importantly, humans ability to manipulate data, is growing in leaps and bounds. I’m going to speak more on these opportunities in future newsletters, but suffice to say we continue to look for catalysts in this area.

 

Transformational Growth…

Historically, equity markets have had some periods that had transformational growth that rewarded investors over extended periods.  It’s no secret that productivity creates wealth, and there have been some major catalysts to this theme in the past 40 years. We can look back to the 80’s and the strength of stock markets in the 90’s as being pushed significantly by the adoption of the personal computer.  Next we had the development of the internet in the 90’s followed by almost 2 decades of overall growth as humans adopted the internet into daily life. The big question right now, is if AI and big data will be the next major catalyst. They both certainly fit the mold of increased productivity. To what extent these new technologies create increased wealth will be the question of the next decade. What will be important, will be to see how big companies can adopt AI to enable productivity growth. I’m fairly certain it won’t be a straight line forward, but the potential is pretty amazing. At the same time, the “spillover” is starting to happen. By spillover, I mean that other non linear industries are starting to see increased demand as a result of growth in AI and big data. So far, we see energy as the largest current benefactor of increased data demand.  In the past quarter alone we’ve witnessed 3 of the largest technology companies on the planet sign private energy supply deals. This is no coincidence. Underinvestment in energy has caused companies to place a far higher value on securing future energy supply. Our expectation is that this trend continues unabated, especially with a US government that appears to be very “growth” oriented.

 

Pragmatism Only…

I’d be remiss if I didn’t at least touch on our view of the most recent US election. I would also like to remind our clients that my job here is to be as pragmatic as possible and not involve emotion. With that said, our base view is that for the most part as it relates to finances, the next 4 years will be net good for America, likely net bad for everyone else, with some countries far worse off than others(China). Domestically we have seen the threat of tariffs combined with the possibility for a reopening of the Keystone XL pipeline…I would say fairly close to a wash here in Canada overall, however, to what extent the US forces their policy view on Canada will remain to be seen. At the same time, there’s talk of a reduced corporate tax rate in the US. This is especially good for the smaller companies and should be evident going forward in one of our main holdings. Nonetheless, there could be clouds ahead for some of the pharma sector, but again, other parts of healthcare will likely thrive…so likely another wash. 

As it relates to interest rates, overall, the feeling is that rates will now be higher for longer south of the border, while here, we are closer to being between a rock and a hard place. I’ve talked about this previously, but lower rates here means a weaker dollar.  This is inflationary…no question. A lot of goods are bought in US dollars, and as of Nov. 6, they became even more expensive. There’s also the chance that this could get worse before it gets better. Our data tells us that the Canadian economy is sluggish at best, and with housing being a large portion of our economy, it’s fair to say that interest rates will be a major factor in Canada over the next year. While it may not please snowbirds, it’s likely we will see lower rates here…combined with a lower Canadian dollar.

 

Tips and Tricks from the Admins…

“The holiday season is upon us! Please enjoy and schedule time for some self-care amongst all the chaos. Wishing you all the best of the Season and the New Year to come” Helen, Angela and Gigi.

 

Closing out…

It’s been quite a year with plenty of things to speak about. As we head into the holiday season, I know personally I will be taking some time to spend with family, friends and colleagues  I hope you all take some time to enjoy some relaxation and make some memories with your friends and family.  As we look into 2025, I can only hope we see some positive changes globally, and perhaps some end to some of the conflicts around the world.  Have an amazing holiday and a great start to 2025!

 

 

“Majority rule only works if you’re also considering individual rights.  Because you can’t have five wolves and one sheep voting on what to have for supper”   Larry Flynt

 

 

By: Mike Van Berkel