The “Now Market” Intensifies

To Our Investors and Friends,

The S&P 500 finished the month of January up 1.4%. As was the case in 2025, volatility continues to play a big role as a handful of companies rose 40% or more in the first month, and many others sank over 20%. The 10-Year Treasury bond held steady, ending the month at 4.26% from 4.18% at the end of 2025, while the 2-Year Treasury note increased 5 bps to 3.52%. Oil began the year with a significant rebound, increasing almost 14% to end at $65 a barrel in part due to a drop in the US dollar, which threatens to go lower. The commodity-heavy Russell 2000 Value Index ended the month up 6.9%, while the Russell 1000 Value Index increased 4.6%. This was followed by the Russell 2000 Growth Index’s 4.0% gain and the Russell 1000 Growth Index’s 1.5% decline.

The January effect, the tendency for the market to move higher in the month of January, was significantly pronounced as traders positioned for the new year. Fears of inflation and a dollar debasement sent gold as much as 25% before ending the month up 12%. Silver was even more unusual, increasing by as much as 50% in January before crashing on the last day of the month to finish up 21%. Technology had an equally wild ride with semiconductors up 13%, led by memory chip maker Sandisk (SNDK +143%) as software stocks dropped 9% in the month. We believe these rapid changes, largely based on price momentum and herd mentality, are representative of an unstable short-term market, the “Now Market”.

We believe that the disruptive forces of a new world order led by the United States threatening to dissolve NATO in conjunction with the disruptive forces of Artificial Intelligence have led to mass market confusion, and more chasing than at any time since the disruption caused by the emergence of the internet at the end of the last century. As was the case back then, wild enthusiasm for the “new” led many to pile out of what they considered vulnerable areas, especially retail. As is always the case with the adoption of new technology, the market often gets it wrong. The assumption of unlimited compute demand that is driving semiconductor stocks and the end of the Software as a Service business model is a story that will need considerable validation to hold up.  

A leading cyber security firm highlights why the view of the rapid adoption of AI systems is at odds with corporate behavior. “They break almost immediately, researchers wrote. When full adversarial scans are run, critical vulnerabilities surface within minutes – and sometimes faster. During ZScaler’s red-teaming exercise in 25 corporate environments, it took a median of 16 minutes for an AI system to experience its first major failure, and by 90 minutes, 90% of systems had failed. In one case, it took only a single second for a system to fail.” AI is currently ignoring safety, security, reliability, and cost which all put it at odds with the rapid expansion into corporate America that the AI native companies need to continue their robust growth rates.

At Kingsland Investments, we continue to validate the capabilities of AI with the expectations of the market, and see a growing disconnect. As has occurred with the introduction of every major technology over the last 150 years, the power of the new technology always takes longer to reveal itself than the market wants, and often by years and even decades. We remain at the dawn of the AI era, and it most certainly will change the way we do everything. We will continue to learn, understand, and invest when opportunities present themselves.

All the best to you,

Arthur K. Weise, CFA

This Time It’s Different (or is it?)

To Our Investors and Friends,

The S&P 500 finished the year up 16.4% in 2025, which follows 2024 up 23.3% and 2023 up 24.2%. This recent market enthusiasm began with OpenAI’s introduction of ChatGPT at the end of November 2022 and has carried the market since. Excitement surrounding the future of this new technology is dominating everything, including GDP growth. The 10-Year Treasury bond has been supportive, finishing the year at 4.18% from 4.58% this time last year, while the 2-Year Treasury note fell 78 bps to end the year at 3.47%. Inflation has been stubborn at around 3%, but oil took off some of the pressure, closing the year down almost 20% to $57 a barrel. As was the case over the last several years, large growth outperformed all other major indexes. The Russell 1000 Growth Index ended the year up 18.6%, with the Russell 1000 Value Index up 16.9%. This was followed by the Russell 2000 Growth Index’s 13.0% gain and the Russell 2000 Value Index’s 12.6% increase.

Over long periods of time, market returns track earnings growth of the index components, but over shorter time frames, the enthusiasm of the crowd plays a bigger role. As can be seen in the chart below, recent studies by JP Morgan, Vanda Research, and Citadel Securities have shown an increase in retail trading volume from less than 10% before the pandemic, to as high as 36% at the end of April this year. New tools and platforms have made the ability to trade easier than ever, but the driving forces determining the success of investors have not. Ultimately, successful investing is determined by correctly predicting a company’s earnings power and owning the stock as new investors buy at higher stock prices to benefit from that greater earnings power.

“The New York Times ran a story that…signaled a market top. The article was titled ‘The Magnet of Dancing Stock Prices’ and it stated plainly, ‘The people who know the least about the stock market have made the most money out of it in the last few months. Fools who rushed in where wise men feared to tread ran up high gains. Even such a veteran of markets as Charles M Schwab had declared that probably the old timers, who usually play the market by note, are behind the times and wrong, and that the new crop of speculators who play entirely by ear are right and that a new speculative era has dawned’.” This was not a recent story, but one that author Andrew Ross Sorkin quoted in his book 1929, Inside the Greatest Crash in Wall Street History – And How it Shattered a Nation. The human dynamic in stock investing is as old as the market itself, and should remind us all that our tendency is to follow the crowd into stocks that are rising with little regard for when that trend could end.

At Kingsland Investments, we are continually learning about AI through consistent use of several AI chat bots and reviewing videos ranging from Stanford professors teaching AI and industry leaders explaining the advancements of AI. We remain at the dawn of the AI era, and it most certainly will change the way we do everything. Speculation is part of investing, but at Kingsland Investments, we seek to limit speculation to the probable.

All the best to you,

Arthur K. Weise, CFA

Market Concerns Surface Regarding the Shortcomings of Artificial Intelligence

To Our Investors and Friends,

November was a volatile month for the market, which sold off in the first two weeks and then rallied in the last two weeks to close almost flat. The Magnificent Seven ended down almost 2%, while the S&P 500 finished up .1% in the month. The 10-Year Treasury bond declined 9 basis points to 4.0% and the 2-Year Treasury note dropped 13 bps to end at 3.5%. Oil retreated 3.8% in the month to close at $59 a barrel. Healthcare stocks rallied by almost 10% as the technology sector fell 5% in the month. This helped the Russell 2000 Value increase by 2.8% and the Russell 1000 Value to expand by 2.7%. The tech-heavy growth indexes gave up earlier gains as the Russell 2000 Growth retreated .7% and the Russell 1000 Growth declined 1.8%.

The stock market rally this year has been largely tied to investment spending on Artificial Intelligence (AI) Infrastructure. This has led to significant gains in both the spenders on AI – the Magnificent Seven has risen 23% YTD - and the beneficiaries of that spending, represented by the Philadelphia Semiconductor Index, up 41% YTD. Many speculate that without this significant capital expenditure on new AI data centers, the economy could have gone into recession. For the first time in months, however, investors are beginning to question the returns on investment into this infrastructure, and for good reason.

In her book, Empire of AI, author Karen Hao sheds light on the capabilities and shortfalls of the deep learning Large Language Models (LLMs) that are being developed to create the popular AI tools being used today. According to Hao, “deep learning’s success is largely because very little investment went into exploring other paradigms. While neuro networks are remarkable inventions, with myriad exciting uses, there are weaknesses, namely their hotly contested and inefficient ways of storing accurate information and reasoning have endured as companies have deployed them in an expanding list of contexts and applications. Neural networks have shown, for example, that they can be unreliable and unpredictable. As statistical pattern matchers they sometimes hone in on oddly specific patterns or completely incorrect ones.”

Hao further explains that such problems as hallucinations will not go away and highlight the core shortcomings of the technology. She explains, “even the term hallucination is subtly misleading. It suggests that the bad behavior is an aberration or a bug when it is actually a feature of the probabilistic pattern matching mechanics of neural networks.” Hao further explains, “the issue of hallucinations was rooted in the nature of neural networks. Unlike the deterministic information data bases of symbolic systems, neuro networks would always traffic in fuzzy probabilities. Even with Reinforcement Learning from Human Feedback (RLHF), which helped to strengthen the probabilities within a Deep Learning model that correlates with accuracy, there was fundamentally a limit to how far the technique can go. The model obviously has to guess sometimes when it is outputting a lot of detailed factual information. No matter how you train it, it is going to have probabilities on things, and it is going to have to guess sometimes.”

 At Kingsland Investments, we view the advancements in AI as early and flawed, but useful in many applications. As with any technology, it will take years and meaningful advancements before it has a hope of being truly intelligent. Speculation on when intelligence emerges is anyone’s guess. What we question is not that investments should be made in AI, but whether the hundreds of billions spent in pursuit of improving today’s flawed technology could be better spent elsewhere. We believe the market is questioning the same thing, suggesting that the significant returns in a handful of names is now at risk, while other proven technologies offer much better future returns. With this in mind, we will seek to make investments in companies that are demonstrating real benefit to their customers with new technology through better functionality at lower cost.

All the best to you,

Arthur K. Weise, CFA

The Power of Mobility

To Our Investors and Friends,

The market added to its gains in October, moving ahead by 2.3% as the semiconductor sector soared another 13.6% on several announcements of plans to build large Artificial Intelligence data centers. The excitement produced the world’s first $5 trillion market cap company: Nvidia, which powered ahead by 8.5% after the company’s GPU Technology Conference that showcased new products that will create everything AI in the future. The 10-Year Treasury bond held steady at 4.1% and the 2-Year Treasury note increased 5 bps to end at 3.6%. Oil declined 2.9% in the quarter to close at $61 a barrel. Technology stocks lifted the Russell 1000 Growth by 3.6% and the Russell 2000 Growth by 3.2%. Value stocks lagged with the Russell 1000 Value up .4% and the Russell 2000 Value up by .3%.

The robust gains in the stock market have done a great job disguising a struggling economy that is slowing on weakening consumer spending and an increase in unemployment. A government shutdown that has now lasted an entire month is beginning to strain low end consumers notably. We believe these pressures may bring to the surface the income disparities in this country that have been bubbling under the surface for decades.

In his book Stuck, How the Privileged and the Propertied Broke the Engine of American Opportunity, Yoni Applebaum discusses how over the last half century, zoning laws and the creation of historic districts have been choking off America’s mobility and standards of living enjoyed by the middle class. Applebaum explains, “Americans were always starting over, always looking ahead to their next beginning, always seeking to move up by moving on. Mobility has been the great engine of American prosperity, the essential mechanism of social equality and the ballast of our diverse democracy.”

The reshaping of the economy through the creation of AI factories could reverse many of the trends that have led to a “have” and “have not” society. As Applebaum explains, “Americans, whether born here or abroad, exceed when they move towards opportunity. The real story of America is of migrant success. Of a whole nation tuned to enable mobility." We think the real power of AI will be in revitalizing the American public’s quest for a better future.

At Kingsland Investments, we will continue to focus on the power of people to transform their futures and the trajectory of the economy. AI has the power to create a new industrial revolution that combined with a renewed focus on mobility can re-focus those that currently find themselves stuck in the current economy. We will continue to spend our time searching for uniquely positioned businesses that offer new opportunities and stock appreciation potential.

All the best to you,

Arthur K. Weise, CFA

Searching for a Tipping Point in Artificial Intelligence

To Our Investors and Friends,

The S&P 500 finished the third quarter up 7.8% as the economy began to show signs of slowing. As has been the case since the April lows, the rally was fueled by the Magnificent Seven (up almost 17%) and some of the most speculative parts of the market. The 10-Year Treasury bond dropped a modest 12 basis points in the quarter to 4.12%. The 2-Year Treasury note declined 17 bps to end at 3.55%. Oil fell 4.2% in the quarter to close at $62 a barrel. The Russell 2000 Value Index led with a 12.6% gain, the Russell 2000 Growth Index exhibited a 12.2% increase, the Russell 1000 Growth Index advanced 10.5%, and the Russell 1000 Value Index gained 5.3% in the quarter.

The stock market has staged one of the most dramatic rebounds in its history from the April lows driven by the hopes that artificial intelligence will change the US economy at its very core. In his latest book, Revenge of the Tipping Point, Malcolm Gladwell revisits tipping points to better understand how they occur. In his many examples, he explains that there is usually an overstory, a set of conditions that exist prior to the tipping point, that makes it far easier to drive the majority of people in that direction. Gladwell explains, “If change happened gradually, you could see that you were getting closer and closer to your goal and you wouldn’t be surprised when you reached it. But if nothing happens and then everything happens you are in this strange position of being discouraged during a long stretch in which nothing is happening and stunned at the point at which it all shifts.” Right now, the market is anticipating that AI will revolutionize our economy  but the current lack of returns on investments in AI suggests we have yet to reach the tipping point. The risk to the market is simply that investors will lose patience for the benefits of AI to show up.

OpenAI, the creator of popular app ChatGPT, has provided a blueprint for how AI will change the world. The company anticipates that usage of their tools can generate considerable cost savings for users across a whole range of professions, making them much more efficient workers in the future. The blueprint is a traditional capital for labor substitution in which considerably more money is spent on capital to increase worker productivity, reducing the need for additional labor.

OpenAI estimates it is on track to produce approximately $13 to $20 billion in sales in 2025 yet has already committed to over $100 billion in expenses over the next few years. The company needs to increase the approximate 5% of paid users and make more per user to generate the amount of revenue needed to be a profitable entity. This may be a tall order for a company whose recent introduction of ChatGPT-5 in August is considered by many to be a disappointing upgrade. Without greater benefits, this gap will be hard to close.

Most of the capital costs for AI software comes in the form of semi-conductors, hardware, and electricity generation. OpenAI CEO Sam Altman believes that the amount of electricity required to fuel the artificial brains his company is building will be 1000x greater in 2033 when compared to what was required at the beginning of 2025. In fact, this year alone, demand for electricity for its software tools is expected to increase 9x to two gigawatts by year’s end. OpenAI’s projection of 250 GW electricity capacity by the end of 2033 compares to the US’s current 488 GW demand – about a 50% increase in total US electricity demand for this single AI company’s needs alone. As a country, we will need to find a faster way to generate considerable cheaper energy or live with prices that may go up materially from here.

At Kingsland Investments, we have always been focused on finding companies that benefit from tipping points during which young businesses are using new technologies to replace older, less efficient products and services. Central to this methodology is evidence of greater demand through significant revenue growth and profitability. AI will be very meaningful to the world economy, but the progress that we make in its utilization won’t be the linear path that Wall Street is assuming. Most certainly the rapid speculation occurring now will be met with many disappointments, and a handful of significant positive surprises. We will continue to spend our time searching for uniquely positioned businesses that the market will likely reward in the future.

All the best to you,

Arthur K. Weise, CFA

The Beta Trade May Be Coming to an End

To Our Investors and Friends,

The S&P 500 had another solid month, up 1.9% in August. For the first time since the market lows in April, the advance was led by many stocks that have been left behind the narrow rally. Small capitalization stocks advanced, and Nvidia, the Artificial Intelligence (AI) darling, fell 2% in the month. The 10-Year Treasury bond dropped a modest fourteen basis points in the month to 4.23%. The 2-Year Treasury note declined 35 bps to end at 3.59%. Oil fell 7.6% in the month to close at $64 a barrel. Popular indexes continued to advance in the month, led by smaller companies. The Russell 2000 Value Index led with an 8.5% gain, the Russell 2000 Growth Index exhibited a 5.9% increase, the Russell 1000 Value Index advanced 3.2%, and the Russell 1000 Growth Index gained 1.1% in the month.

The recovery in the stock market since the April low has been one of the most robust recoveries in market history and has been heavily driven by the “Beta Trade”. Highly volatile stocks including AI semiconductor and hardware companies, speculative technology stocks, and industrial and utility companies deemed AI beneficiaries drove this gain. Most of these stocks were recent additions to multiple AI ETFs (exchange traded funds) launched over the last year. As can be seen in the chart below, macro hedge funds and retail investors alike all piled into this narrow universe of stocks, leading to the greatest returns in pure beta in more than a decade, and the highest valuations these companies have ever experienced.

We believe that this five-month trend may be coming to an end as Wall Street returns to the office this fall and appreciates that much of the investments in AI have resulted in little to no return. In fact, a July 2025 study by MIT’s NANDA group revealed that 95% of AI projects have generated no return. The issue the group highlights is that spending has been focused on front-office initiatives that are too complex for these new technologies to effectively improve now, while ignoring the back-office opportunities that can produce a return immediately. Software companies are the enablers of effective AI investment and are beginning to produce meaningful results for those customers engaging with their new AI offerings.

We believe Wall Street’s narrow focus on AI hardware and Beta should naturally broaden out as more and more examples of AI success stories come to the surface. We think the software stocks that were sold off to make more room for greater holdings in semiconductors and hardware stocks may soon recover. We predict that the focus on AI will begin to migrate to ROI (Return on Investment)-driven AI spending – which likely benefits software companies.

At Kingsland Investments, we have always been focused on finding companies that generate increasingly higher profit levels through thoughtful spending that produced a high ROI. The software companies that we focus on often produce over 100% ROI for their customers, which ultimately brings these customers back for more. AI will be very meaningful to the world economy, but the progress that we make in its utilization won’t be the linear path that Wall Street is assuming. We believe we are entering a period in which the boom/bust semiconductor and hardware companies likely fade in favor of the more predictable software companies that are demonstrating meaningly returns for their clients.

All the best to you,

Arthur K. Weise, CFA

Market Noise Magnified by Artificial Intelligence

To Our Investors and Friends,

 The S&P 500 began the third quarter with another meaningful gain, finishing up 2.2% in the month. Artificial intelligence enthusiasm continued to push up utilities and technology, while fears of significant governments cuts to healthcare led that sector lower. The 10-Year Treasury bond advanced modestly by thirteen basis points in the quarter to 4.37%. The 2-Year Treasury note rose 22 bps to end at 3.94%. Oil increased 7.5% in the month to close at $70 a barrel. Popular indexes all moved higher in the month. The Russell 1000 Growth Index led with a 3.8% gain, the Russell 2000 Value Index achieved a 1.8% gain, the Russell 2000 Growth Index moved up 1.7%, and the Russell 1000 Value Index gained 0.6% in the month.

Over the last few months, the market has been led higher by both artificial intelligence beneficiaries and many speculative businesses that have poor business models, and often even lack revenue. Many investors view the current stock market volatility as a replay of the meme stock craze that took place in 2021 that largely ended with significant losses for those companies (some of which have since gone out of business). This appears to be happening again to some extent, driven by social media influencers who spend their time on YouTube, TikTok, Reddit, and Instagram touting their highly biased views.

One example stands out – retail favorite Tesla (TSLA), that reported what can only be described as a dismal quarter for its primary auto and energy businesses that produced revenue declines of 16% and 8% respectively as earnings fell even further. The loss of tax credits will likely materially impact future cash flow to a level that will not easily be recovered. Still, the stock held up when its army of influencers propped it up on the hopes of robots and a self-driving taxi future that may be realized over the next decade. These individuals are happy to say just about anything to keep their Tesla-based livelihood alive, attempting to justify why retail investors should hold on.

As explained in his book, Nexus, A Brief History of Information Networks from the Stone Age to AI, author Yuval Noah Harari explains that “humans gain enormous power by building large networks of information, but the way these networks are built predisposes us to use that power unwisely.” The explosion of misinformation spread by humans on social media is now being significantly magnified by AI chatbots and agents. Unlike new technologies that have created new information systems in the past, Harari explains that “AI not only can compose new scriptures but is fully capable of curating and interpreting them too. Equally alarmingly, we might increasingly find ourselves conducting lengthy online discussions about the Bible, QAnon, witches, abortion, or about climate change with entities that we think are humans but are actually computers.”

Rumors have always been a major factor in daily stock movements on Wall Street. Rumors created by AI for the specific purpose of scaring investors to do their bidding are about to play a major role in the markets. With this in mind, it is more important than ever to separate truth from fiction, and our financial well-being will now depend on it. At Kingsland Investments, we conduct our own primary research. Listening to conference calls, speaking to company management, and building earnings models based on sound assumptions may be the difference between random results driven by an increasing deluge of rumors and speculation, and growing assets over time.

All the best to you,

Arthur K. Weise, CFA

The Impact of Falling Returns on Artificial Intelligence Hardware

To Our Investors and Friends,

The Philadelphia Semiconductor Index, which consists of leading semiconductor stocks such as Nvidia (NVDA represents 11.8% of the index), led the market higher -- up 29.9% this quarter. The rest of the S&P 500 followed suit, finishing the quarter ahead by 10.6%. The 10-Year Treasury bond advanced modestly by one basis point in the quarter to 4.23%. The 2-Year Treasury Note declined 17 bps to end at 3.72%. Despite a brief jolt driven by the Israeli-led attack on Iran, oil fell by 8.9% in the quarter to finish at just over $65 a barrel. This has been a very unusual market as professional investors remain cautious due to the unresolved tariff policy and the specter of stagflation, while traders quickly embraced the most speculative parts of the market. The result was a surge in the Russell 1000 Growth Index of 17.8% and an impressive 12.0% increase in the Russell 2000 Growth Index that was driven by the most speculative companies in the index. These include quantitative computer and space stocks which are trading at levels reminiscent of the internet bubble 25 years ago. The Russell 2000 Value Index rose a more modest 5.0% and the Russell 1000 Value Index increased 3.8%.

The rapid recovery in the market has been driven by the view that investments in Artificial Intelligence should continue unabated even as concerns over tariffs and the potential for a slowing economy remain. Under the surface, however, there are signs that the current spending on AI infrastructure is not producing great returns and may foretell a moderation in future investment. According to a recent research report by Goldman Sachs, the hyperscalers (cloud software and AI infrastructure providers) including META, Alphabet, Amazon, and Microsoft have spent almost $480 billion in capital expenditures over the last three years. The investment bank projects this spending to more than double over the next three years, supporting the view that Nvidia and others can continue to grow their businesses significantly over the same time frame.

We believe indications of poor returns on investment do not bode well for a doubling of spending from here. As can be seen in the chart below, these hyperscalers have been seeing decreasing returns on their investment, and even higher spending suggests returns may continue to fall. The most damning evidence of falling returns on investment comes from CoreWeave (CRWV) which went public at the end of March. CoreWeave spent $8.7 billion in cap ex in 2024 on AI semiconductors and hardware so that large hyperscaler customers could improve their returns by “renting” the higher processing power without having to put up the capital to own it. It turn, CoreWeave has been able to charge these customers significant prices giving them unusually high margins for a service provider. Still, they were only able to produce $1.9 billion in revenue last year, highlighting the low revenue yielded from such aggressive spending. The market figured this out – as Nvidia had to bail out the IPO by putting up $250 million to support the deal.

At Kingsland Investments, we invest in companies that are disciplined in their purchases of capital equipment, which leads to higher returns on investment. This fuels higher stock prices over long time frames. This is why we favor software companies that have more consistent revenue and profits over time than the hardware companies that the market favors now. We anticipate that if returns don’t improve for those investing in AI hardware, the market will force them to reallocate resources into more productive businesses in the coming years.

All the best to you,

Arthur K. Weise, CFA

Immigration is Essential for Growth

To Our Investors and Friends,

The market staged one of its greatest monthly gains in May, as the S&P 500 ended the month up 6.2%. The S&P 500 is now slightly higher year-to-date. Concerns over both the deficit and inflation helped push up the 10-Year Treasury 24 basis points to finish at 4.41%. The 2-Year Treasury Note advanced 26 bps to end at 3.89%. Oil increased by 4.4% to $61 a barrel, a depressed level indicating continued concerns of a recession at a time when OPEC is increasing production. Led by semiconductors, speculative story stocks, and a strong rebound in the Magnificent Seven, growth stocks rebounded much faster than value stocks in the month. The Russell 1000 Growth Index increased 8.9% and the Russell 2000 Growth Index advanced 6.4%. The Russell 2000 Value Index rose 4.2% and the Russell 1000 Value Index expanded 3.5%.

This year’s market turmoil is primarily tied to a dramatic change to tariff policy that is meant to favor companies that move production to the United States. Success in increasing US manufacturing will be tied to both a reduction in construction-related regulation (highlighted in April’s letter), and continued growth in the number of working adults. Most of the developed world is faced with a declining population of working adults as decades of shrinking families are met with the challenges of an aging population. The US has largely escaped this aging demographic challenge due to immigration. As can be seen in the chart below, the absolute number of immigrants to the United States has increased significantly in the last 50 years, and today immigrants comprise approximately 15% of the total population.

In their book, Empty Planet: the Shock of Global Population Decline, authors Darrell Bricker and John Ibbitson discuss the problems that come with a shrinking population. The impact is beginning to be felt everywhere, but is most notable in Japan, home to the world’s oldest population. As they explain, the primary benefit of a young population is “the young consume. Workers in their 20s, 30s, and 40s not only produce the wealth that powers an economy, they consume it. Japan’s economy has been stagnant going on three decades in part because its aging population consumes less and less, leading to less and less demand.”

Bricker and Ibbitson believe that the United States’ superpower is its history of accepting immigrants, which bring with them their hard work ethic and innovation. The authors further explain, that “immigrants, whether documented or undocumented, both mitigate the effects of an aging population and bolster the number of American babies. And history tells us that it doesn’t matter how they come, how much education, or what job qualifications they have, or what language they speak. Inevitably, they too become American.”

At Kingsland Investments, we believe that the United States will continue to generate the majority of the world’s best growth companies, many of which will be founded by immigrants. Like the authors of Empty Planet, we think that the US’ secret sauce has been and continues to be welcoming immigrants, and we look forward to better policies that make it even easier for the best and brightest of the world to immigrate here.

All the best to you,

Arthur K. Weise, CFA

What’s Standing in the Way of a Manufacturing Renaissance?

To Our Investors and Friends,

April was a wild month that began with a tariff shock, inducing a market meltdown that slowly recovered as the initial tariff increase was toned down. In the end, having dropped as much as 11% intra month, the S&P 500 finished the month down .76%. The 10-Year Treasury was equally volatile, swinging as high as 4.48% before ending the month down 6 basis points to 4.17%. The 2-Year Treasury Note fell 29 bps through the month to end at 3.60%. Fears of both a global recession and proposed increased OPEC production drove oil down 15% to $60 a barrel. Value Indexes sank with energy, while Growth experienced mixed results. In fact, the Russell 1000 Growth Index increased 1.8%, and the Russell 2000 Growth Index declined .64%. The Russell 1000 Value Index fell 3.1%, and the Russell 2000 Value Index dropped 4.0%.

The market shock that came with the announcement of widespread tariffs on all global trading partners will be digested by investors over the next several months. We believe the US will be better off with more local manufacturing of strategic industries such as semiconductors but reshoring will prove quite a feat. The biggest hurdle to realizing this future is an intense regulatory environment that has decreased construction productivity meaningfully over the last 50 years, even while manufacturing productivity has materially improved. As can be seen in the chart below, single-family home construction takes almost twice as long as it did 50 years ago. For larger construction projects, completion is often measured in years. New York City residents can attest to this – it took nine years to construct a 1.5 mile subway segment along Second Avenue (completed in 2017) compared to just four years to construct the first nine-mile stretch of subway completed in 1904.

In their book Abundance, authors Ezra Klein and Derek Thompson explain that the reason the US ceased to lead manufacturing in the world has a lot to do with regulation that makes new construction difficult to accomplish. The authors state, “Lawyers constitute more than one-third of the House of Representatives and more than half of the Senate…when you make legal training the default training for a political career, you make legal thinking the default thinking in politics. Legal thinking centers around statutory language and commitment to process, not results and outcomes.” The authors further explain that “the problem we faced in the 1970s was that we were building too much and too heedlessly. The problem we face in the 2020s is that we are building too little, and we are too often paralyzed by process.”

At Kingsland Investments, we have largely steered clear of investments requiring significant construction of plant and equipment because building in America is incredibly costly and inefficient. We look forward to a time in which such investments make sense because the productivity of the final project makes for a high return on investment asset. Until this time, we will stick with high growth, low capital-intensive businesses that have dominated stock market returns over the last 50 years.

All the best to you,

Arthur K. Weise, CFA