Free money threatens to unravel the fabric of the economy. Unprecedented liquidity measures by the FED in the wake of the pandemic drive interest rates to zero and foster a culture of complacency and entitlement. People don’t want to work anymore because they feel they don’t have to. As a consequence inflation spikes and the FED is forced to raise interest rates dramatically. Longterm yields accelerate from near zero to almost 5% within months. Asset prices collapse. We close our Biotech positions and invest more in Tesla and Nvidia. Both companies are strengthening their competitive position by driving innovation. The fund ends the year down 72%.
2023
Two drivers shaped 2023. One is macroeconomic, and the other is generative AI. First, the Federal Reserve brought inflation under control. Markets can handle higher interest rates; what they hate is uncertainty about how high long-term rates might go. Fed Chair Jerome Powell and his team were able to put a lid on long-term interest rate expectations, which spurred a rebound rally in the stock market. Second, with the release of ChatGPT in November 2022, OpenAI inspired a new wave of AI enthusiasm. Nvidia is not just benefiting from this cycle; it’s the base on which everything is built. Commercial success in modern AI is predicated on parallelizing compute and data pipelines to maximize tokens per dollar. That’s why “parallelism is all you need”. Moore’s Law alone would not have been sufficient to enable modern AI systems. Nvidia has spent decades building an infrastructure for parallel computing. Tesla launched FSD v12, which is the first end-to-end trained robot capable of autonomously driving anywhere. This is unprecedented. As a consequence, investors price in more potential profit from AI. Tesla’s energy business is evolving into a significant profit center. The fund ended the year up 119%.