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One Supercomputer to Rule Them All

The markets went sideways this week as analysts continue to digest earnings announcements, economic reports, and geopolitical developments.  I mentioned last week that while we are in correction territory, the markets haven’t hit a point of capitulation.  This week we came close with three days approaching moves of 1,000 points or more intra-day on the Dow Jones Industrial Average.  Yet each time the trend reversed and recovered.  This means volatility will likely remain with us a bit longer until the fear and anxiety works its way out of the system.  I use the word “system” intentionally as we often think of the market as a well-oiled machine driven by logic and fundamental data.  That might have been the case one-hundred years ago, but is certainly not the case today.  Increasingly, the markets are driven by behavioral psychology that often creates the momentum that drives the market either higher or lower.  That psychology has turned to cautious anxiety in recent weeks and to a large degree has moved the markets accordingly.  Psychology can be irrational and despite economic data suggesting otherwise, these periods can take on a life of their own.  They don’t last forever and often reverse when you least expect it.  The markets remain in oversold territory for now, but know that valuations will bring investors back sooner or later.

Perhaps the biggest news this week was the outcome of the Federal Reserve’s two-day meeting.  On Wednesday we learned that despite current market volatility, the Fed plans on moving forward with its previously telegraphed monetary tightening.  We should expect the first interest rate hike in March to correspond with the end of the Fed’s bond buying program.  The Fed anticipates three interest rate hikes this year, although I’ve seen analysts from major investment banks suggest four and as many as five this year.  Given that the Fed is walking a tightrope between slowing down the economy and throwing it into a recession, I find it unlikely they go much beyond the three rate hikes they’ve implied.  Ultimately, it comes down to how inflation plays out this year and whether it returns to normal slower than anticipated.  As the landscape shifts, so too will the Federal Reserve’s response.

In economic news, we learned that Q4 GDP came in at a blistering 6.9%, well above the expectation for 5.7% growth.  For the full year, GDP grew by 5.7% versus a decline of 3.4% in 2020, reflecting a rebound from the pandemic lockdown.  While this is outstanding news, it does have us looking in the rearview mirror.  Perhaps more sobering is that January consumer sentiment fell to a ten-year low.  Remember what I said about behavioral psychology?  It becomes a self-fulfilling prophecy when enough people view the glass as half-empty.  Before you know it, the headline news is decrying the emptiness of the glass and declaring an empty glass crisis.  It appears sentiment fell throughout January, posting a cumulative loss of 4.8%, sinking to its lowest level since November 2011.  Try to avoid being sucked into the doom and gloom that is being peddled.

In company news, we learned Facebook (which goes by Meta these days) has created an artificial intelligence supercomputer that could be the fastest in the world when it is fully operational later this year.  It will be among the top ten fastest supercomputers in the world and could be the fastest by the end of the year.  It is being trained with natural language processing and computer vision and could one day train models with trillions of parameters according to the company.  This brings back memories of HAL in 2001 A Space Odyssey.  Unfortunately, it also brings back memories of the supercomputer in the movie War Games which accidentally almost started World War III thinking it was running a simulation.  I mean really… what could go wrong?  Ultimately, Facebook’s new supercomputer will be used to build out the company’s metaverse vision.  I don’t know whether to applaud their innovation or fear for the future.

In closing, I must let you know that if you want to buy a gasoline powered Lamborghini, your time may be running out.  The company is set to release four new cars this year, representing the final gasoline-only supercars the company will produce.  Going forward, Lamborghini will transition to hybrids beginning in 2023 and then eventually going fully EV.  I know this is difficult news, but if you’ve always wanted a gasoline-powered Lambo and have $500K laying around, you may want to visit a showroom soon.  Now you know.

Bruce J. Mason, MBA