2023->2024 our predictions
In this post we are going to go through some of the more important stories we wrote about in 2023, and a bit on what we’re expecting for 2024.
When Michael and I started this Substack back in August we wanted to achieve a couple of goals; we wanted to supply our readers with curated analysis of the topics we cover, ensuring that we add our own flair to it. I felt it was important to look at market moving news instead of just “news” — you can get that anywhere. In some cases we were ahead of the curve, and as to be expected, sometimes behind.
2023 was very strange, when the year started a lot of people, myself included, thought that the bottom wasn’t in yet and that we could possibly see recessions in many economies. With hindsight we can safely say that the bottom was in, and except from some scares in March with SVB collapsing 2023 was a great year for stocks. I think this proves our repeated usage of the phrase: forecasting is hard.
Later in this post I’m going to go through some of my thinking going into 2024, but before we get started on that, here’s a recap of some of the coolest things we covered in 2023 (in my opinion).
The AI arms race
I could write about this for days. There has not been a single year in living memory where so many groundbreaking discoveries have happened in the same industry so quickly. And who can forget the soap opera made specifically for the Gen-Z attention-span when Sam Altman got fired, went to Microsoft, fired the OpenAI board, and came back to OpenAI again all in a weekend?
All the big tech companies are going headfirst into AI development, and the LLM (Large Language Model) space is churning out new models every week. One of the most exciting this about this in my opinion is that we’re seeing a shift toward models being made for specific use-cases, and being kept small enough to run on local machines.
AI is not all about software though, and 2023 was the year of hardware. I think a lot of people realized that the bottleneck for developing the “next big model” wasn’t software or ideas, it was the silicone it runs on. Startups and big tech alike were scrambling for GPUs, and startups like Inflection AI spending $600m USD on GPUs alone. I think the hardware hype peaked during summer when NVIDIA’s share price was around $500. NVIDIA was perfectly positioned to take advantage of the AI boom as they started getting ready for this moment in 2013. Datacenter construction is still happening at the fastest rate in history and the capacity is being absorbed long before construction is complete so I think there’s still upside left in AI, although a lot of it is beta, not alpha.
Ozempic eats the world
If AI was the first big theme of the summer, Ozempic and GLP-1s was the second. If you don’t already know, these drugs were originally made for diabetes management, but had the happy side-effect of helping people lose weight.
These drugs have been blockbusters in terms of revenue. Novo Nordisk has kept the Danish economy out of a recession, and the central bank has to exclude “contributions from pharmaceuticals” when reporting on GDP.
These drugs are not only good for losing weight, but several studies suggest that they also help against pre-diabetes symptoms, heart failure, kidney problems and much more. There are side-effects like constipation and dizziness, but there are also more serious concerns about thyroid cancer and tumors. The prevalence of these effects remains to be seen, but given the pace of FDA approval the benefits seem to outweigh the cons, at least for now.
39% of the world population is considered overweight or obese, this carries with it other health problems like diabetes, sleep apnea, increased cardiovascular risk as well as cancer risk. If GLP-1s can effectively lower the amount of people in the overweight classification, I think it will have wide ranging effects of many different industries: agriculture, fast food, clothing production and much more. Walmart already attributed a pullback in food purchases to GLP-1s, and that is extremely early in the lifecycle of these drugs, where just 1% of the American population ever having tried it.
BTC to the Moon
We started covering BTC, and more specifically the BTC Spot ETF back in August. Our first mention of it came through Grayscale BTC Trust winning their case against the SEC (Securities and Exchange Commission). This was a turning point for many I think, because it showed that a BTC Spot ETF will be a thing, sooner rather than later. The court ruled that the SEC was “Arbitrary and capricious” in them denying conversion of the Grayscale BTC Trust into a spot ETF.
We are long Bitcoin, but I think we missed by a few months. As it stands now we are up around 20%, but just Grayscale alone is up 322% this year, and the asset itself, BTC is up 167%. Timing might not be everything, but it sure is something.
In addition to Grayscale we also covered the spot ETF Blackrock is trying to get approved. The whole thing is quite humorous as Larry Fink, CEO of Blackrock has stated in the past that Bitcoin is a scam, so did bankers like Jamie Dimon. Both of these guys are in the forefront of the Blackrock BTC ETF, where BlackRock will be the issuer, and JP Morgan will be one of the brokers.
If you talk to BTC experts most of them say that there are no “fundamentals” (funny to mention alongside Bitcoin) behind the upward surge in BTC. There are some whales buying large amounts, Blackrock is probably one of them.
What does 2024 hold in store?
Like the intro said forecasting is hard so I’m not gonna pretend I’m some super-forecaster that’s always right. Instead of trying to predict what will happen I’m going to look at some of the events we know are coming and building on the already existing trends (AI) in the market. I think the point of an exercise like this is less about being right or finding ideas with high conviction and more about being prepared. If I knew what would happen I’d be billionaire already.
Will all of these things be great ideas or thoughts? No, but it’s good to have thought through different scenarios and played it out in your own head. Maybe some of these things will kickstart a though process you wouldn’t have had otherwise.
AI (again)
AI was one of the themes dominating much of 2023 and like I said above much of that was expressed through semiconductor companies like NVIDIA throughout the year. I still think there is a lot of upside left in AI infrastructure, but not necessarily on the computational (i.e. GPUs) side of things. One thing that’s difficult about large AI systems is that all the GPUs and data storage servers (and more) need to be connected some way. The slower this connection is, the slower both training and subsequently running an AI model is.
Just as semiconductors were in focus last year I think the markets attention will turn to other bottlenecks in AI such as networking. I also think that since we are seeing more and more investment into datacenters, it is not unreasonable to think that businesses that invest in datacenters (Google, Meta, Amazon etc) are interested in squeezing as much value out of their components as possible, and networking is a huge part of that. As a consequence I am looking at Marvell Technology (MRVL). My analysis is by no means finished, and I’m sure as to the timing, but as more and more money is being shoved into AI, I think Marvell stands to benefit. This is not to say that networking is the only AI play worth making in 2024, but as a picks and shovels investment I think its got legs.
The election
With the utmost respect to our American readers, the election is a shitshow. The prospect of having more presidential terms with either Trump or Biden is something that scares me. In a country where the president has to be at least 35 years of age, why isn’t there a restriction going the other way as well? No older than 70 please.
It is important to note that whoever wins the White House, interest rates will continue to be important moving forward, and since the democrats and republicans have different policy objectives which companies are the most attractive will depend on who’s in control and the expectation of interest rates.
A Biden win is looking more likely now than it did a couple of months ago, and if that were to happen I think there some beneficiaries of liberal policies worth looking at. In the case of a soft landing and a democratic victory, clean energy projects become more investable. I am looking at some solar energy companies that have recently taken a hit as interesting candidates later in the year. Specifically I’m looking at MAXN and NEE, both solar companies.
This is just one though about the election, but I think we are going to cover potential effects from the election and policy changes as we go through the year.
Geopolitical risks
We’ve had two pretty bad years when it comes to geopolitical stuff, first we had Ukraine and Russia, and now we have Palestine and Israel. The last one is of particular consequence now as Houthi rebels are trying to make shipping companies avoid the Suez Canal, leading to increased travel time, higher fuel costs, shipping prices and possibly even higher inflation as a result. A lot of people get flashbacks to 2021 when the ship Ever Given blocked the Suez Canal for 6 days, which lead to container prices skyrocketing as high as $18,500 USD by August 2021. The situation today is very different, and as a comparison a container rates $1,300 USD today which is considered high.
The biggest problem with the blockage of The Red Sea is that shipping capacity in effect gets reduced. Having a ship travel over the Cape of Good Hope instead of through the Suez adds around 6 days per ship. If the Houthis are insistent on keeping the Suez Canal closed we could see intervention by U.S. and European forces.
I don’t think the Red Sea business is the biggest worry for most, as we currently have two hot wars going on in different regions, that are somehow quite interconnected. Ukraine vs. Russia seems to be drawing more and more towards a negotiated end, favoring Russia. Israel vs. Palestine is set to go on for quite some time if we are to trust Israeli sources on the matter.
The biggest worry for most commentators around the world is China. Specifically China attempting to “re-unify” Taiwan with mainland China. Like I’ve said in other newsletters, Taiwan produces 92% of the worlds most advanced semiconductors, an invasion with resistance would likely be catastrophic for the world economy. Xi undoubtably knows this, but his rhetoric towards Taiwan is increasingly hostile. Biden has been very vocal in his support for Taiwan, but at some point something has to break, I find it unlikely that the U.S. can support Ukraine, Israel and Taiwan simultaneously if China were to invade. I do however think that China invading is a low-probability event.
New year, new probabilities
I’m probably wrong on lot’s of this, but I still think its a valuable exercise, not just because there might be money to make, but also because it helps me change my perspective on how I think about certain companies, stocks or events.
With all of this in mind, I can’t wait to get into 2024, which I think will be an exciting year, for better or for worse. Thank you for your continued readership, I look forward to post more content to you guys, and especially trade related content. Happy new year! Hope you all had a fabulous celebration.
Ill see you in the orderbook.