It All Boils Down to This

Since its inception in 1924, the S&P 500 Index has risen an average of 8%
per year, not including dividends. Since reaching an all-time high of 1,000 in
1981, the Dow Jones Industrial Average (DJIA) has risen to a high of almost
36,952 this year. While the DJIA has risen 37 times over the last 41 years, the

S&P 500 and S&P 400 have risen almost twice as much as the DJIA. The
question investors must ask themselves is, what has caused this growth? Have
there been excellent politicians in the US and around the world all of these years
that helped to produce this growth? Have there been very wise Federal Reserve
officials and other central bankers around the world that created perfect conditions
for such remarkable progress? Has the last 41 years been clear sailing with no
crises, no controversial elections, no wars or terrorist attacks, no pandemics, no
international tensions, lower debt levels of government debt, no recessions, no
bear markets? These are good questions to ask ourselves when so many are
focused on the invasion of the Ukraine, rising inflation, rising interest rates and
Covid variants.

 

Of course the period since 1924 and the period since 1981 have been
tumultuous with all sorts of problems to make investors fear the worst. So, I ask
you again. What was responsible for creating these very attractive returns over the
long-term? This is a very critical question we have to have an answer for,
especially at a time like this. What do you think the answer is? Really take some
time to think about this.

 

Let me give you just one minor example that explains what has been
responsible for the attractive share price appreciation over all these years. (A
client gave me permission to relay this information to you.) His company has just
purchased a business that sells center pivot irrigation systems, as shown in the
photo below from Lindsay.com.

These irrigation systems can be controlled remotely by a smart phone. There
are many sensors on this system to detect any problems. If there is a problem, the
sensors report the problem to the smart phone and a drone located in the center of
the system automatically takes off and flies to the problem area on the system to
take a photo of the issue. The drone then returns to its base to send the photo to
the smart phone. In this way, a problem can be detected instantly and crews can

go out to fix the problem with the proper parts and tools without having to go the
remote location first to see what the problem is and then return again later to fix it.
These units are usually located far away from major city centers so requiring only
one visit by repair technicians instead of two reduces costs and makes the units
much more efficient. This all means that very little manpower is required to
operate these fabulous irrigation systems.

 

Let's look at the components of these irrigation systems to see how they have
developed over time. First, major advances in computers and technology have
produced sensors that can monitor a system like this. Second, the advent of the
Internet on land and via satellite means that information from these sensors can be
delivered anywhere in an instant. Third, the improvements in cell phones over the
years to the point that they are now smart phones means that these small devices
that we can easily carry with us anywhere can do things no one ever dreamed of
20 years ago. Last of all, drones are the latest advancement that is now being used
in more and more applications that most of us do not hear about. This is just one
example of how drones are adding another link to increase the efficiency and
productivity of businesses. It is just one small example of continuous progress.

 

You can see that incredible improvements in technology, the Internet, smart
phones and drones have all come together to produce a product like this. Does an
election, a war, a crisis, a pandemic, or a change in interest rates or an
international trade war affect the development of this pivot irrigation system? Do
these issues affect the development of many other products? Not really. The pace
of change is becoming faster and faster as time goes on. Some of the current
events that happen, which we think are negative, can actually accelerate positive
change.

 

For example, the pandemic pushed RBC to enable forms to be signed
electronically earlier than scheduled. The pandemic gave us the opportunity to see
how employees could use existing technology to work from home in case there
was a disaster or to save office costs. To have employees work from home could
save companies billions of dollars in office costs in the years to come and make
workers more efficient, especially if they do not have spend hours commuting
every day. This could really boost corporate profits.

 

Ukrainian soldiers are walking within a few kilometers of Russian tanks and
sending up drones to fly to the tanks and record their GPS positions. These
coordinates are sent to command centers, which can then send missiles or drones
that will destroy a tank.

 

For example, the US military is sending 100 Switchblade 300 series drones
that weigh just 5.5 pounds to the Ukrainian military. They fit in a backpack and
are controlled by a tablet. They cost only $6000 and can fly for six miles and
hover over a target for up to 15 minutes before flying into it at 100 mph and
destroying it. A more expensive version that weighs 50 pounds has special armour
piercing warheads that can destroy a very expensive tank. The US made M1A2
tank costs US$6.21 million. Which soldier will ever want to park in a position in a
tank or any other armoured vehicle again when small cheap weapons like this are
available for untrained personnel to use?

 

The use of drones in an actual military battle may speed up the development
and application of drone technology. I don’t think any of us realize how much
drones, together with other advances will increase the productivity and efficiency
of businesses in the years ahead. I didn’t think many people would have a
personal computer when they first came out in the early 1980’s. I wonder if we
will all have our own personal drones sometime in the future? I would not be
surprised if we do!

 

I read that a company in China has designed a fabric that cleans itself when it
is exposed to ultraviolet light. Can you imagine wearing a shirt outside on a sunny
day that is just as clean when you take it off as when you put it on? This may
seem trivial now, but we never know how significant an invention like this will be
in the future.

 

Greater efficiency and productivity increases profits and earnings for
businesses. Advances in computers, the Internet, GPS, smart phones, digital
cameras and now drones are just some of the major factors that have enabled
businesses to become more profitable over time. This is what has been responsible
for much of the appreciation in share prices over time. Most of the current events
and issues that dominate the headlines do not interfere with the increasing pace of
change in so many products. Current events actually detract our minds from all
the work that is going on under the radar of the media in basements, garages,
offices, laboratories and research facilities all over the world to invent and
improve new products, materials and processes. When you strip everything
away, the long-term growth in share prices all boils down to an increasing
pace of change and innovation that increases profits. Let us make sure that we
focus on what really matters and not get bogged down by all sorts of factors that
really do not have much of a longer-term influence on share prices.

 

Short-Term Market Developments

Most stocks and market averages experienced two bottoms. One was in late
January and the other in late February. These were key reversal days when
markets fell sharply during the day but then ended the day with a gain. The charts
below only show the closing prices, not the swings during the day. You can see
that the S&P 500 appeared to start another uptrend in the middle of March.

 

In contrast, the influential financial stocks made lows in early March and
yesterday. The financial sector is on a different cycle than most other stocks this

time. This has held back other stock prices in the last week. However, it seems as
though the Bank Index (symbol BKX) has now completed the typical double
bottom pattern as well. The long-term oscillator for the S&P 500 below bottomed
and turned up two weeks ago as you can see by the green arrow.In comparison, the oscillator for the Banking Index, shown below, is just
showing signs of turning up now. The financial sector is very large and is one of
the most important sectors for the markets. As a result, when the financials also
start another uptrend, it should be very positive for stock prices all across the
board. That looks like it is happening now.

 

SAR Update

We have had one other call for assistance recently when a man, who was with
others, was reported overdue. It turned out that for one reason or another that there
was a misunderstanding about the date this man was supposed to be home.

Our team has had other calls in recent years where loved ones are so used to
hearing from their children so often that they report them missing when they go
out of cell phone range for a few days and do not hear from them. In one instance
we drove for several hours on a gravel road each way just to find out that the
parents at home were told their children would be away. First responders deal
with all sorts of situations that are never reported in the media. It does give us a
chance to use our equipment and see nice areas in the hinterland though. Have a
great weekend my friend!

Out on a snowmobile ride in the Coquihalla with a good friend recently.