"Nothing is so treacherous as the obvious" observed Joseph A Schumpeter the famous Austrian political economist who is regarded as one of the 20^th century's greatest intellectuals and best known for his theories on business cycles and the development of capitalist economies as well as for introducing the concept of entrepreneurship.

Cycles, whether they be seasonal, economic, or personal, are inextricably tied to life. History has proven that economies rise and fall, and asset prices rise and fall as sure as night follows day. An economic cycle for example is defined as consisting of four distinct phases: expansion; peak; contraction; and trough. Each economic cycle comprises of these four phases. It is also fair to say that one can observe larger economic cycles within which several economic cycles may play out. If you could anticipate, plan, and organize around each stage of these cycles you would inevitably become more astute in any number of professional fields that require the purchase and sale of any asset, service or commodity. If economic cycles are inevitable which they are, why are they not then more predictable? This brings us back to the opening quote in this article by Joseph A. Schumpeter "Nothing is so treacherous as the obvious". How often do we grapple with an issue - any issue - only to say after days. months or years have gone by that the answer or solution had been staring us in the face, except for the fact that we did not see it.

The obvious is sometimes anything but and can be easily obscured by the very human attributes that make us...human. Whether it is hope, denial, greed, doubt, disbelief, attachment to an ideal, theory or assumption that we learnt or inherited in our past or took at face value from an expert, any of these factors can obscure the "obvious".

The Biggest Upgrade to the US Financial Payment Rails Since SWIFT

The biggest upgrade to the payment rails of the US financial industry - since the SWIFT system was introduced in 1973 - is going to be unveiled in July 2023. The system known as FED NOW will enable instant payments that take seconds to complete and can occur 24/7, 365 days a year, all with integrated clearing functionality allowing financial institutions to deliver end-to-end instant payment services to their customers. This means the recipient of funds will have immediate availability and access to utilize these funds. To put this in perspective ACH transfers typically take anywhere from one to three business days to complete, domestic wire transfers can take 24+ hours to complete and international wire transfers can take up to a week to complete. Fed Now will not replace the Automated Clearing House Network (ACH) - at least not anytime soon - and is expected to complement ACH services. However, the writing is clearly on the wall as Fed Now grows its track-record, adoption, sophistication, and capacity.

Instant payments are digital payments which have the capacity to be "programmable" and generate rich data. What is rich data? Rich data is the process of compiling data to determine when and where a person is most likely to buy something, as opposed to relying on trend forecasts. Rich Data is used to predict consumer behavior. While this may sound like a godsend to businesses of all types as well as the Federal Reserve and other agencies who rely on financial data for forecasting and decision making, this "potential to invade privacy" will simultaneously cause consumers to sound the "alarm". Who wants their every transaction to be trackable?

In this article we are going to discuss the evolution of AI, its origins and development to here and where it may be heading. Many books have been written on the subject, so this is going to be a short but hopefully informative and abbreviated history to here and a peak into the beyond. We will continue to write about the evolution of AI in our blog and bi-monthly newsletter and build upon this article.

The Singularity

We are entering a period of technological accelerated change over the next 3-20 years, the likes of which has never been experienced by humankind. Some technologists have identified or labelled the culminating point to which this accelerated change will lead as "The Singularity" which can be viewed as the "end of the beginning" after which the singularity epoch of human history begins. What exactly is "The Singularity"? The “Singularity” is a projected future point in time when exponential developments in computer (artificial) intelligence and computational power result in the most dramatic and irreversible change in human history. The origins of the term lie in physics where "The Singularity" is described “as a point at which a function takes an infinite value, especially in space-time when matter is infinitely dense, as at the center of a black hole. “The emphasis in this sentence is "takes an infinite value".

If you are walking into The French Laundry, a 3 star michelin restaurant in Napa, you may well expect to pay $50 plus for a sandwich extraordinaire. Not so, when you walk into your average sandwich place. I almost fell out of my chair when the person cutting my hair told me she was going to be charged $50 for a chicken sandwich at a local eatery in Walnut Creek, La Fontaine. She had paid $20 for a sandwich one day, $30 the next and then a few days later was presented with the $50 price tag. She declined the sandwich. 

While this may be an extraordinary tale of sandwich inflation and who knows what else, the reality is that the cost of eating out has gone up significantly, but this is sandwich madness. Yes, Russia and Ukraine are two of the largest exporters of wheat and there will be supply shortages that impact prices worldwide. The Russia-Ukraine situation has also sent gas prices soaring. Gas prices have risen to some of the highest in recent USA history. However, has America stopped growing its own wheat and raising it's own chickens? Of course not. So, why is a local sandwich shop in Walnut Creek charging $50 for a chicken sandwich? Is it the best chicken sandwich in Walnut Creek? Probably not.

The supply chain issues have given opportunity for corporate and business greed to inflate as well. While some price increases may be justified, of course, some price increases across a range of industries ranging from 50-500% are quite litterally "out of this world" and unjustified by any rational commercial standards.

The markets are on edge. The Fed has signalled it will use its tool box to curb inflation which includes raising rates and tapering. The market has shuddered. "Don't fight the Fed"! is the prevailing market wisdom. The market pundits and the news media are pronouncing that rising rates combined with less liquidity is going to be bad for stocks and that this could be the end of the historic bull market.

First of all, this movie has played out before. Between late 2016 and 2018 the Fed started to signal it was going to raise rates and high growth stocks sold off as they are the most rate-senstitive. Investors rotated into defensive stocks with strong earnings. However once rate hikes happened the same growth stocks that were now priced for those rate hikes, performed really well, while the defensive stocks did not. A good case can be made that we will see a repeat of the same pattern. Earnings remain robust, supply issues are likely to turn around in 2022 and inflation will eventually come down from it's current highs.

Likewise, the economy continues to find its way through the disruptions of COVID and while this may take more time than people think, we will move past COVID as the rest of the world begins to get vaccinated and build immunity. However, it would be foolish to discount new variants emerging over the coming 12 months - and more disruptions to global economies - while over 90% of the developing countries are still unvaccinated.