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 A Tale of Two Years and Two Worlds

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Charles Dickens put it well 165 years ago, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…” This is an apt metaphor for the stock market and the world in 2023 and perhaps for 2024 as well. Last year saw seven magnificent technology stocks promising glorious productivity gains from Artificial Intelligence (AI) lead the S&P 500 to dramatic double-digit returns. But 2023 also saw 2 of the 3 biggest bank failures in U.S. history, as rapidly rising interest rates kneecapped many lenders and borrowers. The Federal Reserve’s quest to quell inflation with higher rates proved a serious headwind for banks and real estate investors. That and other risks of 2023 were addressed by highly regarded bank CEO Jamie Dimon in his November earnings call, “This may be the most dangerous time the world has seen in decades.” Dimon is a serious guy and his bank, JP Morgan, is the biggest bank in the world. His concerns as the world’s most prominent banker wasn’t merely interest rates but also global conflicts in Ukraine and the Middle East, their potential impact on global trade, critical markets such as food and energy, and the rising threats to fragile geopolitical relationships.

AI is a big deal and may be the ‘next big thing.’ For sure it is a great advance that, in time, will transform many industries and sectors of the economy. But it is not clear yet who will best monetize those advances and turn them into big fortunes. Scaling up disruptive technology takes time and transforming the economy takes even longer. The lithium-ion battery was invented in the 1980s but it took 20 more years for it to make your smartphone last all day. Multiple hot wars in Europe and the Middle East on the other hand could metastasize into chaos and calamity before you know it. To quote Vladimir Lenin, “There are decades where nothing happens and there are weeks where decades happen.” The risks of global conflict in Europe and the Middle East are very real and extremely hard to calculate. The damage and destruction would easily surpass the younger generations’ wildest imagination.

Another 2024 issue that challenges the developed world economy is the most extensive and expensive industrial project since the ramp-up by Allied powers to confront and defeat the Axis powers in World War II. This project is the UN’s plan to reach net-zero CO2 emissions by 2050. The quest to transition the world’s energy, power and electric grids away from fossil fuels to net-zero renewables is fraught with peril and already crippling many sectors of the European economy.

Low cost, reliable electricity is something people in the developed world take for granted.  We can’t take it for granted anymore. Everywhere you look, both here and abroad, the embrace of wind and solar power has resulted in significantly

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