On Monday this week, while out for my regular morning stroll with Olive, our beloved family ShihTzu, I was listening to a remastered Acquired episode about Taiwan Semiconductor Manufacturing Corporation, originally recorded in 2021. [A quick aside – if you are not familiar with Acquired podcasts, they are really worth checking out…couple of smart guys with incredible research and a very engaging manner.]  The hosts were extolling the phenomenally successful development of TSMC. With 50% (and growing) market share, they suggested it was hard to imagine how things could not continue similarly. They did note the geopolitical risk to the company of a Chinese invasion of Taiwan or some other  interference. Then, almost as an aside - I rewound it to make sure I heard correctly – there was a comment about a threat from something else, for instance a paradigm shift or the emergence of…wait for it...something much cheaper…

I listened recently to an interview with Cliff Asness, a successful hedge fund manager. Before embarking on his investment career, Asness, a bit of a math geek, earned an MBA and a PhD at the U of Chicago, in the process studying and working closely with Eugene Fama. Fama is a Nobel laureate renowned for his postulating of the ‘efficient market’ theory. In simple terms, that theory suggests that asset prices (e.g. stock prices) reflect all available information and therefore prices are what they should be. Asness does not subscribe to that theory and allowed as how he even heard Fama say as much himself – in effect, prices are not always ‘correct’…

After two years of excellent equity market returns, it is reasonable to question the likelihood of that continuing. Will the continuing development of AI and the expansion of its use be enough of a catalyst to drive markets higher? And if not, what would be the catalyst for further market gains? No longer are multiple rate cuts by the Fed a certainty. And the incoming administration has already created much chaos even before it has officially taken over the reins of government. That seems likely to continue and probably grow as so many appointees lack government and/or management experience…

The Federal Reserve upset the market on Wednesday.  They cut rates by a quarter of a point and then signaled that additional future cuts in 2025 would likely be more limited than previously indicated.  Everyone was discussing and expecting a ‘hawkish’ cut, meaning that there would be the expected rate cut and then the Fed would speak more aggressively about future cuts which is exactly what they did. The only truly surprising aspect of this was that the market and investors were surprised at all…

Last time in this space, I mentioned Howard Marks, a highly respected investment manager and market commentator. In the interview I watched, he made several notable remarks including the following: ‘There are no bad assets, only bad prices…a good asset and a good investment are not the same. Whether an asset proves to be a good investment, or eventually becomes one, is generally, and mostly, a function of the price you paid for it.’

It was a surprising week in so many ways - the unexpected level of success of the Republican party that led to their controlling both the House and the Senate as well as the re-ascension of Donald Trump to the Presidency. And no sooner had that dust settled a bit than the stock markets surged wildly, also unexpected considering that it was already widely viewed as overvalued.