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Willful Blindness Has Defined the Investing World

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There are some disturbances in The Force, as today’s market action shows. Stocks whipsawed down and the volatility index, the VIX, jumped after reports of a suicide bombing at the Kabul airport. With the much anticipated – not by me – Jackson Hole conference coming tomorrow, this is an interesting time in the markets.

The meta-problem here is this willful blindness that has defined the investing world in 2021. Don’t ask questions! Don’t challenge Janet and Jerome! Don’t think for yourself!

It’s just all a bunch of bull. Sorry for the mild profanity.

The problem is that this idol worship and top heaviness in the market has the effect of crowding out real innovation. One example is a name I have written about many times for RM, Canadian small-cap Nano One Materials (NNOMF) . Nano’s shares have fallen 40% year-to-date despite a steady flow of new “bizdev” announcements, usually in the form of Joint Development Agreements between Nano and major multinationals. Nano’s CEO, Dan Blondal, gave an amazing presentation at my firm’s recent event, the Excelsior Capital Partners Management Access Conference.

Dan clearly explained that Nano’s patented One-Pot process allows for production of battery cathodes that are much more robust than currently widely-used architectures. Also One-Pot allows battery manufacturers to streamline the cathode manufacturing process into what Nano refers to as M2CAM, metal-to-cathode-active material, which would erase the need for levels of refining. This processing is usually done on different continents, with raw and in-process materials, transported on ships powered by hydrocarbons, all over the world to their final production location, which, in the majority of cases, is China.

Meanwhile, market darling Elon Musk used Tesla’s (TSLA) AI Day to parade a prototype of a robot that would be able to perform repetitive tasks and run at the mind-numbing speed of 5 mph. I proved the other night in Central Park that I can still achieve at least 6 mph over a reasonable distance. Not only is that not an impressive “spec,” the major issue with Elon’s presentation was, reportedly (I didn’t watch, just as I won’t watch Jackson hole tomorrow) that Tesla’s “robot” prototype was actually a human dancing in a robot suit. Mind-boggling.

But that is the problem. If you find an experience to be mind-boggling, it is precisely because you are allowing your mind to be boggled. Don’t.

Remember the following:

By any historically accurate measure – P/E, the Buffet indicator (ratio of S&P 500 market cap to U.S. GDP), Robert Shiller’s CAPE ratio – U.S. equity valuations are at a cycle-high, or, as with the Buffett indicator, an all-time high.

Inflation is everywhere, driven by Janet and Jerome and their cadre of equally clueless global central banker friends. Bond pricing (and, by association, yields) are so out of whack with the actual cost of money that we are overdue for a crash. When governments artificially support prices for anything – stocks, bonds, commodities – there is always a correction.

There is no good outcome in Afghanistan. If the market is dropping today based on news flow from Kabul, I am sorry to say there will be much more to come. The Biden Administration has so badly botched the withdrawal that the consequences will be felt, both in Afghanistan and here at home, for years, not days. It’s a shame for the folks in Afghanistan that will be slaughtered or oppressed by the Taliban, and folks in North America will undoubtedly express that at the ballot box.

Unhappy people vote for change and the markets love stability. The equity markets seem to love this orgy of spending driven by Schumer, Pelosi and the Democratic Party, and Canada’s TSX Composite has rallied 17.1% this year as well.

In the next 30 days we will see California’s recall vote (voting ends on September 14th) and Canada’s snap election (September 20th.) Larry Elder has proven to be a formidable opponent for California’s French Laundry-loving governor Gavin Newsom, and Erin O’Toole is offering a similar challenge to Trudeau and his frequently bizarre utterances.

So whether you think this “she-covery” is real or we are heading for another “she-cession,” please pay attention to the immediate future. The time to react to potential market pitfalls is before, not, as the market frequently does, on the day of.