We live in a world dominated by technology. There is just no way around it. But sometimes, I don’t understand it.  For instance, I am struggling to comprehend the concept of virtual reality. I don’t know what avatars are, nor do I want to meet one, even virtually. I am very wary of artificial intelligence, even though it seems inevitable that it will have a profound impact on our world.

In my view, new cars have too much technology.  Even my watch has too much technology. Every time I am forced to do a software update on my phone the geniuses from Apple add new technologies that I prefer not to have.

More broadly, advanced technology enabled just-in-time inventory and software on a chip, whatever that means. Now we have imbalances throughout our economy. We have a mismatch between job skills and business’s specific employment needs.  We have supply chain disruptions, severe shortages and container ships waiting days and sometimes weeks to be unloaded.  We have accelerating inflation, which is simply not going to be transitory. The latest data show inflation reaching a level not seen in decades. The dreaded word, stagflation, the scourge of the 70s, is being talked about as a possible, if not likely, economic scenario.  The vast majority of our country believes we are going in the wrong direction. 

I would feel much better if there was a consensus about what problems technology can solve and which problems it cannot, or at least there should be a discussion of the unintended consequences of implementing ill-designed, or even the innovative, technology.

I recently started reading a book about Community. The premise is that we have lost the ability to live in true community.  The CEO of Facebook, Mark Zuckerberg, likely to be the villain in many of my newsletters going forward, is trying to build a “metaverse.”  In essence, a metaverse will include virtual communities and work places, where people work, socialize, and interact virtually, from the comfort of their home.  Actual, face-to-face interactions are unnecessary in this new vision of community that Facebook is promoting.  It just makes me shake my head.  I’m really out of touch.

The stock market has made fifty new highs this year, and seems poised to end the year close to an all-time record.  Interest rates remain low, and the economic recovery, despite Washington’s best efforts to derail it through over-regulation, and unnecessary stimulus, is still progressing.  It has been amazing, really, to watch the market climb this incredible wall of dysfunction.   

Will the environment be better or worse in 2022? That difficult question has been on my mind. Let me try to frame what could be important drivers in either direction for 2022.

The positives:

1. Low interest rates:

It is unlikely, in an election year, with massive debt levels, that the Fed will let interest rates rise much. Continued low interest rates will support higher stock prices as long as earnings growth resumes.  Currently, the consensus is projecting 5% earnings growth for the S&P 500 in 2022.

2. Interim election and potential gridlock:

With split government, the risk of higher taxes, over-regulation, and anti-business policies will be drastically reduced. Moreover, and admittedly this might be a stretch, there is always the potential that new leadership will unite the country, propose sound economic policies, and govern with integrity. I know that is probably a long shot, but it is possible.

The negatives:

1. Big government getting larger and more intrusive:

I apologize if you are tired of reading this same sentiment in every newsletter, but until it changes, if I want to write what I believe to be true, which is what I have always done over the past thirty years, I really have no choice.  Washington remains the problem in virtually every area impacting our economy and markets.  Change will come eventually, as it always does.

2. A lost sense of community:

In a nutshell, we aren’t rooting for each other.  We are disconnected, isolated, and becoming more tribal.  Something or someone needs to unite us.  I will always be hopeful that unification will eventually happen.

Given the state of affairs today, this story about Albert Einstein resonates with me –

One day Albert Einstein wrote on the blackboard:

9 x 1 = 09                    9 x 6 = 54

9 x 2 = 18                    9 x 7 = 63

9 x 3 = 27                    9 x 8 = 72

9 x 4 = 36                    9 x 9 = 81

9 x 5 = 45                    9 x 10 = 91

Suddenly there was chaos in the hall because Albert Einstein was wrong, the correct answer for 9 x 10 is 90 and all his students made fun of him. So, Albert Einstein waited for everyone to shut up and said, “Even though I had correctly analyzed the nine questions, no one congratulated me, but when I only missed one question, everyone started laughing; it means that even if a person is very successful, society will notice his smallest mistake and they will enjoy it.  So don’t let criticism destroy your dreams, the only person who never makes a mistake is the one who doesn’t do anything.”

We don’t really celebrate together very well anymore.  Too often, if one is successful, there are those who want that person to feel guilty, or at least admit that it was all due to certain advantages that not everyone had. There isn’t any inspiration in that way of thinking, for those who have attained success, or for those still striving to do so.  Inspiration to achieve, to overcome, to give back, to be thankful, would all be giant steps in the right direction. 

Michael Kayes, CFA

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