To Our Investors and Friends,
The S&P 500 Index (S&P 500) began the year on a positive note, finishing up 1.6% in the month of January. The year’s start is a continuation of the patterns we saw all last year with large cap growth handily beating every other part of the market. The 10-year Treasury Bond gradually increased throughout the month, ending at 4.0%, 11 basis points higher than a month ago. The 2-year Treasury increased 4 basis points in the month, finishing at 28 basis points above the 10-year at 4.3%. Oil rebounded almost 6% in the month to close at just under $76 a barrel as terrorist attacks in the Red Sea and elsewhere in the Middle East spiked fears of energy disruption. The Russell 1000 Growth Index jumped 2.5% in January while the Russell 1000 Value Index increased a modest .1%. Small cap started the year off poorly with the Russell 2000 Growth Index finishing down 3.2% and the Russell 2000 Value Index falling 4.5%.
As can already be seen in market returns in January, Wall Street’s infatuation with everything Artificial Intelligence (AI) should likely keep AI as the dominant factor driving the emerging bull market. AI holds the promise of generating material efficiency gains for business and is already being attributed to layoffs among technology and white-collar workers. Although it is not yet clear whether the recent layoffs are due to efficiency gains occurring today, it is clear that at some point in the future we will need far fewer people using AI to do the same work that many more are doing today. Human interaction and human connection will begin to warrant a much steeper premium in this increasingly AI dominated world. In the end, we expect AI will not replace humans, but enhance people’s productivity in the new digital economy.
In his book How to Know a Person, author David Brooks discusses the significance of human connection that will only grow in importance in an AI-dominated world. This human connection has materially decayed in a world dominated by social media as short content has replaced real understanding. Brooks explains “social media gives the illusion of social contact without having to perform the gestures that actually build trust, care, and affection. On social media, stimulation replaces intimacy. There is judgement everywhere and understanding nowhere.”
We will come to realize that AI will never replace humans, because humans are impossible to replace. Brooks explains, “you have a three-pound hunk of neural tissue in your skull, and from this, somehow conscious thoughts emerge. You emerge. No one understands how this happens. No one understands how the brain and body create the mind, so at the center of the study of every person there is just a gigantic mystery before which we all stand in awe.” Brooks believes that every individual uniquely views the world from his or her own lens, and that the only way to understand that unique view is through great conversations in which that world view is fully revealed. “Our differences of perception are rooted deep in the hidden kingdom of the unconscious mind, and we are generally not aware of how profound those differences are until we ask.”
At Kingsland Investments, we believe understanding the insights of creative management teams will always involve great conversations. We anticipate many new businesses will emerge that use AI to create better alternative solutions than currently exist. As always, we will seek to discover these opportunities enabled by AI through great conversations with these new leaders.
All the best to you,
Arthur K. Weise, CFA