June’s “First Friday” meeting discussed the prevalence of illusions.  Illusions combined with clever narratives frequently charm the best of us.  And when you mix market appreciation with narratives focusing solely on the positives, realities surrender to perceptions. 

Over the course of history, prosperity has discouraged demanding work.  Lax behavior goes unpunished.  Eventually this behavior leads to the downfall of every great civilization.i  And while this discussion is not insinuating America’s decline, it focuses on the “recency-bias” created by prosperity, and the lack of due diligence and critical thinking prosperity encourages.

May’s “First Friday” meeting focused on Identifying the categories of companies, public and private, most likely to become the winners and losers in the Artificial Intelligence world which is unfolding in front of us in real time. 

While May’s “First Friday” meeting focused on Artificial Intelligence’s technological leap forward, it reminded everyone watching that significant changes in technological advances usher in changes which are unplanned.  They will be, mostly positive.  However, there could be negative changes also.  The one certainty is change.  Since the evolution of the steam engine, electricity, transportation, the integrated circuit, creation of mobile computers and the internet, certain categories of the U.S. and global population have been advantaged – and some have been disadvantaged.  And quite often those disadvantaged at first, become the advantaged over time.

April’s “First Friday” meeting focused on the market’s expectations that earnings for 2024-2028 will match the 10%+ growth rate delivered by the S&P 500 during the last 5 years.  However, there is a problem with these expectations.  The variables responsible for the last 10+ years of torrid growth are unlikely to be repeated.  If those variables which created the tailwinds don’t reappear, earnings are unlikely to grow at 10%+ over the next 5 years, as the market is expecting.  With current pricing at historically high levels, the U.S. economy slowing, tailwinds gone, and expectations high, the probability that earnings fail to meet expectations is higher than the market believes. 

Today we are going to discuss the 3 themes we believe have a better than 50% chance of influencing our capital markets during 2024. 

You might ask – why this is important? 

In a market environment with abundant uncertainty, it is important to be prepared for any number of shifting environments.   And with current U.S. and global debt levels, at some point, the shifting environments will be more disruptive and surprising.