2024 Outlook Commentary

2024 will bring more positive novel surprises. New years always do. In 2023, it was the dramatic acceleration in AI, which touches nearly every industry, and the early stages of an answer to the obesity epidemic with GLP-1s. Here is a list of what’s on our minds going into 2024:

The Misery Index is down significantly

The Misery Index is an appropriately named measure of the Inflation Rate plus the Unemployment Rate. Twelve months ago, it was 9.8%, and today, it’s 6.8%, driven entirely by the drop in inflation. There’s a lingering fear among many professionals that inflation may reappear. It’s a justified fear, but leading indicators point to inflation falling further. Real-time real estate metrics show significant decreases not yet in the official figures. Generally speaking, real estate is stretched to the upper limit compared to income levels. The pressure is on rents/shelter to fall. That will impact the official inflation figures in the coming months. Official inflation CPI today is at 3.1%, while Truflation is just above 2%. The first CPI release of the year is Jan 11th. Official inflation figures will drive rate policy. It doesn’t matter for most investors if the first rate cut happens on Jan 31st or March 20th. When a figure as well known as “the misery index” falls from elevated to historically normal levels, that’s a positive sign.

Industrial Automation

We look for signs of favorable economic tailwinds for all investments that can continue for a long time. These themes are mainly centered in the US, thanks to our robust capital markets, legal system and reserve currency status. Eventually, economic performance tied to these themes flows through the participating companies, pushing them to the higher ranks of the major indexes.

Years ago, we wrote about our major themes: cloud computing, e-commerce, the battle for attention, semiconductors and the digitization of finance. In 2024, industrial automation will be a major theme supported by these original tailwinds. Cloud computing and semiconductors naturally evolved into the AI theme last year. If you were already focused on these underlying trends, you didn’t need to become an “AI investor” in 2023.

The global cloud is supported primarily by mega tech corporations like Google, Amazon and Microsoft and smaller emerging players like Cloudflare and DataDog to a lesser but growing extent. The global cloud is the global brain running all of these automations. When you hire OpenAI to build a custom AI model based on your company’s history, your data flows through a Microsoft machine. It seems unlikely that AI and the demand for computing will become less popular in 2024.

We still have a long way to go in the rollout of our industrial automation in manufacturing, CNC, welding, logistics, food supply, farming, warehousing, self-driving and so on. We’ll also need extensive cybersecurity to protect every link in the chain. This should give investors confidence. Many stages of our collective evolution are still in the early phases.

The Moonshots

Twenty years ago, the CTO of the AI division of META, Andrew Bosworth, taught a course at Harvard on AI that was attended by Mark Zuckerberg. For decades AI has been eeking out imperceptible gains year after year until finally, ChatGPT captured our imaginations and unleashed the generative AI frenzy. In 2024, Meta is referred to as an AI stock for the first time in its 20-year history.

A few of the moonshot themes are:

• Space – When will we see the first data center in space? Maybe not in 2024, but we’ll undoubtedly see it this decade.
• Global Connectivity – Amazon’s Kuiper is launching 3,000+ satellites this year to launch a competing business to Starlink. For fun, check out this recently updated map of underwater cables.

• Blockchains – Bitcoin is 16 years old this year. The US dollar ex-gold standard is just 53 years old. The role of blockchain technology in financial markets is undeniable and unpredictable.
• Biotech and health tech – AI developments will impact drug discovery, monitoring, personalizing and exploring the roles of DNA and our diverse biome.
• Quantum computing – Training GPT-4’s AI model took many months. What if quantum computing could do the same in minutes? It may be unrealistic today, but maybe not in 10 years.
• Nuclear power – more small nuclear reactors in the short term and world-changing breakthroughs in fusion in the long term.

The worst thing that can happen to an investor looking for these opportunities is the rush to buy when prices are near the peak of inflated expectations. Many of these moonshots are buried within mature companies and are often valued near zero because they barely appear in the financial statements. Similar to the evolution from cloud computing and semiconductors to AI, you don’t need to seek these themes individually to gain exposure eventually.

Netflix: The New Americans

The New Americans is a documentary by multi-award-winning director Ondi Timoner about the emergence of the Wall St Bets, Reddit-style, social media-driven investing. Ondi decided to make this film when she saw the similarities between the anarchy of the GameStop stock crowd and the Jan 6 insurrection.

As I mention in the documentary, the continuing theme that I want people to take away is that socially organized buying still exists, and it’s much more powerful than you might think. Although it’s been relatively dormant for a while now, I wouldn’t be surprised if we see more organized meme-driven retail buying in 2024. Reddit’s WallStreetBets has over 14m members, and it only takes 100,000 people with $10,000 balances to reach $1B in buying power. For the internet, that’s not that many people. For context, GameStop is only a $5B market cap company.

The documentary debuted at SXSW this year, and I got to see it at the Telluride Film Festival in the early Summer and loved it. I play a fairly prominent commentary role. It was released New Year’s Day on Netflix. You can watch the movie here.

Private Credit

The continued shift from banking deposit-funded credit to investor capital credit is likely to continue through 2024. I won’t belabor this point. Interest rates are dramatically higher today. For the first time in a long time, we can invest in compelling credit opportunities instead of relying on equities for all of the opportunities.

Politics – The Forward Party

By and large, political drama in the media does not impact markets beyond introducing additional daily price volatility. It’s not productive to link political drama to general market performance. Many expect election years to support markets due to the incentive for incumbents to juice the economy to retain power.

No matter what happens in 2024, the political noise will be distracting and often deeply upsetting to many. The media amplifies and prolongs drama.

I’m mostly interested in what’s happening with the Forward Party. We’ll see how they evolve, but they are focusing on State and Local elections for now. Their website states, “There are over 500,000 elected positions in the U.S. 70% of them are uncontested.” Local politics often benefits lobbyist activities, and many parts of the local system have been abused. It doesn’t seem likely that much progress will be made at the top. Progress at the local level feels more attainable and potentially more impactful.

Unicorns

There were 100 newly minted Unicorn companies globally in 2023. Unicorns are startups that achieve a valuation of over $1B via funding rounds. This number aligns with 2017 figures and is well below the absurdly high 622 Unicorns minted in 2021. Given the reduction in fear going into 2024, there should be at least 100 this year. As you might expect, most new unicorns in 2023 were AI-related. Growth-at-all-costs is officially over, and valuations have reset mostly to normal levels.

The one comment I’ll leave in this section that applies to public markets is that tech-savvy companies will likely discover significant efficiency improvements in AI tools in 2024. Battery Ventures estimates that AI can reduce sales and marketing costs by 30%. Their study showed that a 70-person team with the right AI tools can achieve the same output as a 110-person team. I can also imagine similar productivity gains in the R&D department, not to mention lower developer costs than in recent years. For most of the software space, sales and marketing (S&M) and research and development (R&D) represent nearly the entire cost of running the business. Consider this in 2024.

Extra commentary: Ozempic vs Supplements and Deficiencies

Last month, I took the full plunge and ordered all of the supplements from the Bryan Johnson protocol. I also implemented his eating schedule by skipping dinners. Bryan is known for investing $2m to test various anti-aging health regimes so that he could share the results publicly and for his slogan “Don’t Die.” Here are some reflections:

• I didn’t start this supplements and eating experiment to lose weight, but I’ve lost about 10 pounds over two weeks. My general interest in sugar and caffeine has all but completely disappeared. I love coffee and have no issue drinking it, but the craving just doesn’t seem to come up now.

• It’s not easy to “feel” a vitamin or mineral deficiency. We might be tired because of any number of critical factors. Sugar, coffee and nicotine are cheap energy boosters. What might they be masking?
• Vitamin and mineral deficiencies lead to serious health complications over time. An iodine deficiency can lead to thyroid issues, for example. That’s why table salt has iodine added, so the general population has a reduced risk of developing iodine deficiency-driven illnesses.
• Many of the supplements in Byran’s research are simply organic, like broccoli, ginger, garlic or cocoa, or well-known like Vitamin C.
• A few of the supplements are based on emerging research, like Nicotinamide Riboside.
• It’s not realistic for just about everyone to use willpower alone to control weight or cravings. That’s why Ozempic and GLP-1s have been so powerful and successful.
• There is no business model behind supplements. Daily iodine supplements cost $8 for 1300 doses. There’s no margin or economic incentive to promote iodine supplements. Byran’s work is unique in that he isn’t selling a guru methodology. He’s been successful in advancing awareness and research with skin in the game.
• Ozempic is not the only low-effort health hack of 2023.

Don’t take any of this as health advice, and don’t take any of the above as literal financial advice. Always consult with knowledgeable professionals. I added this section because health is the most important form of wealth.