Lack of Market Breadth..
The Fear of AI and the Singularity
Our view, AI is not going to take over civilization for one big reason, it is not good at thinking and analyzing new never seen before facts. It can do a good job when it looks at past happenings and then finds a close fit to current events. But in the early AI research in the mid-1980’s that we did in developing a trading program based on 72 daily measurements, we found no statistically significant repeats. There were some close fits, but ironically the closer the fit for precipitating factors, the larger the error for actual results. This is probably due to the fact that market analysts, while using their own either AI or non-AI methods, have a high probability of coming to the same conclusion based on past events, thereby increasing the risk of too many people on the same side of the boat.
The Current Situation
When we take this to the current situation in the markets we see a lot of talk about lack of breadth. My view is that the big reasons for this are twofold, one is markets generally love and tend to try to promote bull markets (the buy and hold philosophy is based on this premise), and secondly since the supply-side agenda was precipitated in 1980, the underlying market factor was to move money to the top, money that would naturally flow into the stock markets (and of course promote inequality in the general population). And, to compound this market demand issue in 2011 the FED added fuel to the movement with its QE2 + programs that continued until November 2021.
A Newly Reluctant FED
With a resurgence of inflation in 2021, initially transitory, then viewed as real, and now after some time it is being realized that supply factors were the big problem, both transportation and manufacturing. This has created a financial market dilemma for many participants because for forty some years they didn’t have to do much work to become guru’s on CNBC. Now without the FED blow-dryer they have to do their own hair. So what do they do, they jump on the tried and true stocks of the past because they lack the ability to figure out what the next economic cycle will look like.
What to do in this Situation?
If you don’t have the ability to discern the players in the next cycle, probably the safest thing is to invest in what everyone else is ignoring. Or you can target the areas that have the highest probability of being the next movement. We have some ideas on that.