Client Portals

Week 5: Big Tech, Inflation & Housing3 min read

Feb 2, 2022 - Max Osbon ( 5 mins to read)

Briefing: Most of the big tech names surpassed earnings expectations. That’s good news, but it doesn’t mean we’re out of the clear on the Fed-induced bear market. | Lumber went through another price shock and is falling rapidly. We will likely see more of these rolling price shocks as the world continues to adjust. | Innovation keeps marching forward.

Big Tech Measuring Up

With the big tech names reporting this past week, we finally got a peek at some positive numbers. Microsoft, Google, and Apple delivered excellent results. Meta (Facebook) fell short of estimates last night by enough for the stock to immediately trade down 20% after hours. Meta has 2.82 billion daily active users and 3.59 billion monthly active users, or 45% of the global population. People have strong opinions about Meta, but, interestingly, a major tech company like Meta that serves nearly half of the world’s population, now trades at a P/E well below that of the S&P 500.

Meta generates revenue from advertising, and TikTok’s competition or Apple’s privacy standards may dramatically cut their prospects. There are always logical reasons to be bearish in every market. More than anything, this market is susceptible to any whiff of news that’s just short of perfection. Microsoft, Apple, and Google, fortunately, passed that test.

What’s important to keep in mind here is we are in a self-inflicted bear market initiated by rate rises and quantitative tightening. Markets overshoot to the upside and the downside, and these moves happen faster today than ever before. There is likely more downside to come in this case as we still need to see what the Fed will do next.

Inflation – Lumber shocks again

Lumber has gone through its 2nd parabolic price shock over the past few months. Fortunately, prices are down 30% in just the past two weeks and hopefully heading back towards a normal range. We wrote about Lumber in May when we pointed out that the high price of Lumber is due to temporary labor shortages and supply chain backlogs and is not related to the price or supply of actual trees.

It’s not all that surprising to see inflationary ripples as we flip back and forth between covid policies and react to new variants. If you’re looking to do renovations or build a new home, you’re probably going to have to wait another year for prices to calm down further.

There is a persistent undersupply of housing in the US, so demand for Lumber will not slow anytime soon.

Growth, Exploration and Innovation

Outside of ongoing issues with the Fed, Covid challenges and inflationary shocks, the innovation engine keeps pushing forward:

AlphaCode DeepMind (Google’s AI lab) trained its AlphaCode AI to compete in a coding competition, eventually scoring in the 54th percentile, which is considered an average-level coding skill. The AlphaCode model was able to produce novel algorithmic solutions. DeepMind made headlines in 2021 after solving the protein folding problem with their AlphaFold model, which is considered a revolutionary scientific breakthrough.

Axiom Space Axiom Space, the commercial partner for the ISS (international space station), plans to build a film studio in space set to launch in 2024. Tom Cruise is associated with the project. If that seems unlikely to happen, consider that a few months ago, three Russian cosmonauts flew to the ISS aboard Soyuz MS-19 for 12 days to film their movie, “The Challenge,” which comes out in 2022.

Robot Sales Record 2021 was the first year where non-automative buyers purchased the majority of robotics orders (58%). This push was driven by a recognition that robotics can help reverse productivity declines and fill jobs that have been difficult to fill. The total sales number for the year was 39,708 units, a 28% increase from last year and an all-time high.

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