The stock market has finally woken up to what I’ve been warning about for weeks… namely that inflation is rebounding.
By quick way of review, the Fed stopped raising interest rates in July 2023. It then started talking about cutting interest rates in November. And it did this despite the clear evidence that Energy prices were the only part of the inflation data that had turned negative. Put another way, every other segment of the inflation data was still rising… albeit at a slower pace.
Fast forward to today, and the official inflation measure, the Consumer Price Index or CPI for short has bottomed and is beginning to rebound.
With inflation doing this, there is NO WAY the Fed can cut rates three times this year. The bond market has realized this and is now discounting maybe one rate cut of 0.25% this year.
Stocks didn’t like that. The S&P 500 has now dropped 4% and is below its 50-day moving average (DMA) for the first time since November 2023.
Bottomline: this move was entirely predictable, and those investors who were prepared for it are seeing EXTRAORDINARY returns in their portfolios.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
I warned time and again that the Fed was making a massive policy mistake that would unleash another round of inflation.
By quick way of review, the Fed stopped raising interest rates in July 2023. It then started talking about cutting interest rates in November. This was a MASSIVE mistake as inflation has NOT been defeated.
Indeed, ever since the Fed started talking about cutting rates, the official inflation measure, the Consumer Price Index (CPI) has bottomed and is now turning back up.
This trend continues. Yesterday, the Bureau of Labor Statistics (BLS) revealed that CPI rose 0.4% Month-over-Month (MoM) and 3.5% Year-over-Year (YoY) in March 2024.
This represents the FOURTH straight month of CPI coming in hotter than expected. The fact it surprised Wall Street and most investment strategists confirms that NONE of these people are paying attention to the data.
The only part of the inflation data that is down is energy prices (and used cars which receives almost no weight). Every other segment of the CPI continues to rise.
See for yourself:
However, even Energy prices will begin turning up again… as are commodities in general. Both gasoline prices and copper prices are on the rise and about to break out of multi-year consolidation periods.
This is going to catch most investors offsides… but the good news is that with the right investments, you could see EXTRAORDINARY returns from what’s coming.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
Over the last week, we’ve warned investors that the Fed’s actions are unleashing another round of inflation in the U.S. financial system.
By quick way of review.
The only part of the inflation data that is declining year over year is Energy prices. Every other segment of the Consumer Price Index (CPI) continues to rise.
Financial conditions are as loose today as they were when the Fed first started raising interest rates in March 2022. And yet, the Fed is preparing to cut rates instead of raising them.
The Fed is still providing hundreds of billions of dollars in liquidity to the financial system via credit facilities.
The Fed’s own research indicates that food inflation is the best predictor of future inflation. And agricultural commodities are skyrocketing to new highs.
Unfortunately for Americans, the Fed isn’t the only entity that is engaged in inflationary policies. The Biden administration is currently engaged in truly extraordinary levels of money printing.
The Biden administration has added $6 trillion to the national debt since taking office. Bear in mind, this is happening at a time when the U.S. is collecting a record amount in taxes. So, the Biden administration is not only spending all of the tax dollars collected, it’s spending so much money that the U.S. is having to issue record amounts of debt!
The below chart needs no explanation. This is simply not sustainable.
Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.
Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
As I keep emphasizing, another round of inflation is coming.
And the worst part?
The Fed knows it, but is playing political games to boost the economy/ stock market for the Biden Administration.
“But wait a minute, Graham,” you’re no doubt thinking, “the Fed’s preferred inflation measure is core-Personal Consumption Expenditures and that is trending down to the Fed’s 2% target.”
Let me let you in on a little secret… PCE is a terrible predictor of future inflation… and the Fed knows it.
The Fed is the largest employer of economics PhDs in the world. All told, the Fed has over 400 economics PhDs and 150 research assistants on payroll. As a result of this, the Fed is constantly doing research on various issues.
Back in 2001, the Fed had several researchers dive into the subject of inflation. Their goal was the analyze whether the Fed’s preferred measures of inflation (the CPI and the Personal Consumption Expenditures or PCE) are decent predictors of future inflation. The Fed also investigated a whole slew of other inflation measures for comparison purposes.
The results?
The Fed found that food inflation, NOT CPI or PCE, is the best predictor of future inflation. Fed researchers wrote the following:
We see that past inflation in food prices has been a better forecaster of future inflation than has the popular core measure [CPI and PCE]…Comparing the past year’s inflation in food prices to the prices of other components that comprise the PCEPI (as in Table 1), we find that the food component still ranks the best among them all…
Source: St Louis Fed (emphasis added).
Now, food is derived from agricultural commodities. And what have agricultural commodities been doing in the last few months?
The first round of inflation is highlighted with a pink oval. The current price move is significantly larger. According to the Fed’s own research, this indicates a second wave of inflation is about to hit the US.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Ever since the S&P 500 bottomed in late October/ early November 2023, the 21-day exponential moving average (EMA) has served a major “trend line.” Put simply, whenever stocks fell to test this line, they “bounced” soon after and the rally continued.
Last week’s price action featured a different dynamic. Stocks fell to test the 21-EMA and struggled to reclaim it for two sessions (blue oval in the chart below). The only other time this happened was during the brief market pullback in early January 2024. At that time, the market rebounded sharply on the third trading session (purple oval in the chart below).
In this context, today’s price action is key. If the S&P 500 rallies hard and reclaims the 21-EMA, then it’s likely stocks will rally to new highs. However, if stocks cannot reclaim the 21-EMA with conviction today, then we’re likely to see more downside for stocks.
I’ve illustrated the S&P 500’s support lines in the chart below.
If you’re interested in taking advantage of a unique situation in the stock market today, the FREE copies of our Special Investment Report detailing three investments that can profit from inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Our latest theme is that the U.S. Central Bank, called the Federal Reserve, or the Fed for short, is NOT politically independent, but is in fact a highly partisan organization that leans left.
The above items are not some conspiracy theory. The Fed’s own actions support this view.
By quick way of review…
1) The Bernanke-led Fed launched QE 3 just three months before the 2012 Presidential election. At the time, the economy was growing, unemployment was falling, and there were no signs of systemic duress in the financial system. So this was a clear intervention to aid the Obama Administration’s 2012 re-election bid.
2) The Fed kept rates at zero for seven of the eight years President Obama was in office. Once it finally got around to raising rates, it engaged in one of the feeblest hiking schedules in history, raising them only once in 2015
and once in 2016.
3) Donald Trump won the 2016 Presidential election in a major upset to the political establishment. At that point the Fed suddenly began raising rates three to four times per year while simultaneously draining $500 billion in liquidity from the financial system.
4) Today, the Fed is actively juicing the stock market via multiple credit facilities designed to provide liquidity to help the Biden administration with its re-election bid. The Fed is also promising to cut rates despite the fact it’s an election year and inflation has not fallen to its 2% target.
I wish this was the end of this disturbing exercise, but it’s not: the Fed is also letting housing bubble up again. The reason? You guessed it, real estate is the single most owned asset class in the U.S. And boosting home prices during an election year is likely to sway voters.
TheS&P CoreLogic Case-Shiller U.S. National Home Price Index rose 6% in January. This is up from 5.6% in December 2023. As HousingWire notes, this represents the seventh consecutive month of annual price growth. It’s also the biggest increase since November 2022.
By the way, inflation was around 6% at that time!
So we’ve got both real estate and stocks bubbling up again, courtesy of the Fed playing political games. In the near-term this is fantastic for Americans, who will see their net worth rise as a result of this.
The bad news is that there’s no such thing as a free lunch. And the Fed’s political shenanigans are unleashing a second wave of inflation.
Gold has figured it out. It recently exploded to new all-time highs.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Yesterday, I detailed how the Fed is a political entity… and it leans left.
By quick way of review…
1) The Bernanke-led Fed launched QE 3 just three months before the 2012 Presidential election. At the time, the economy was growing, unemployment was falling, and there were no signs of systemic duress in the financial system. So this was a clear intervention to aid the Obama Administration’s 2012 re-election bid.
2) The Fed kept rates at zero for seven of the eight years President Obama was in office. Once it finally got around to raising rates, it engaged in one of the feeblest hiking schedules in history, raising them only once in 2015
and once in 2016.
3) Donald Trump won the 2016 Presidential election in a major upset to the political establishment. At that point the Fed suddenly began raising rates three to four times per year while simultaneously draining $500 billion in liquidity from the financial system.
It is possible that the above items are all coincidence. It’s also possible that Bigfoot could actually be Elvis living in disguise in the woods.
So what is the Fed up to now?
It’s trying to help President Biden win the 2024 Presidential election by juicing the two asset classes that have the largest impact on Americans’ net worth (stocks and housing ).
Today we’ll be assessing the stock market.
The Fed is supposed to be draining liquidity from the financial system via its Quantitive Tightening (QT) program. However, the Fed is ALSO providing $155 BILLION in liquidity via its overnight credit facilities. To put that into perspective, it’s more liquidity than the Fed was providing via this facility in MARCH 2009 right after the worst financial crisis in 80 years!
As if that’s not egregious enough, the Fed is ALSO providing nearly $500 billion in liquidity via a process called Reverse Repurchase Agreements.
Small wonder then that the stock market has been roaring higher. The Fed is providing EMERGENCY levels of liquidity to the financial system at a time when the economy is growing! So much for QT!
In the very simplest of terms, the Fed is juicing stocks higher to boost the Biden Administration’s 2024 re-election bid. And rest assured, I’ll detail how the Fed is doing the same thing with housing in tomorrow’s article.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
It’s time to tell the truth when it comes to Fed political interventions.
One of the biggest myths concerning the Fed is that it is politically independent. This is laughably false to anyone who has paid attention during the last 25 years.
Consider that in 2012, the Bernanke-led Fed announced QE 3, its largest QE program in history at the time (an $80 billion per month, open-ended program), a mere THREE MONTHS before the U.S. Presidential election.
Bear in mind, the U.S. economy was growing and the U.S. financial system wasn’t under significant duress at the time. So this was blatant political interference to aid the Obama Administration’s re-election bid by boosting the stock market and economy.
A second major example of Fed political bias concerns its major shift in monetary policy once Donald Trump became President. To fully grasp this, we need to provide a little historical context.
Between 2008 and 2016, the Fed engaged in eight years of extraordinary monetary easing, maintaining interest rates of 0.25% (zero), and engaging in over $3 trillion worth of QE from 2008 to 2015. Bear in mind that throughout this time, the U.S. economy was technically NOT in recession. Economic growth was steady:
And the unemployment rate was in a clear downtrend:
Once the Fed actually ended easing, it embarked on one of the feeblest campaigns of tightening monetary policy in history, raising rates only one time in 2015 and 2016. I would note that all of this took place under the Obama administration.
Then Donald Trump won the 2016 Presidential election, and suddenly the Fed “got religion” about normalizing monetary policy. It raised rates three times in 2017 and another four times in 2018. In 2018 it also began shrinking its balance sheet via a process called Quantitative Tightening or QT. It would ultimately drain $500 billion in liquidity from the financial system via QT in 12 months. That is quite a shift considering the Fed had maintained rates at or close to ZERO for eight years prior to this.
Throughout 2016-2018, the Fed ignored numerous signals that this pace of tightening was placing the financial system under duress, right up until the junk bond market froze and the U.S. stock market crashed 20% during the holidays in December 2018.
For those who would argue that the Fed’s sudden shift from maintaining easy monetary policy for the better part of a decade to aggressively normalizing policy in the span of 20 months had nothing to do with Donald Trump being President, consider that former Fed Vice Chair Stanley Fisher admitted in an interview that the Fed’s raising rates in December 2018 was done specifically to hurt the economy because the Fed was annoyed with President Trump’s constant tweeting about them.
So again… the Fed IS a political entity… and it leans LEFT.
I’ll detail what this means investors as we head into the 2024 President election in tomorrow’s article. But for now, gold is giving us a clue.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Last week, the Fed confirmed that it intends to cut rates three times this year, despite the fact inflation is NOT near its target of 2% and is in fact turning back up.
If you’re scratching your head on this, there’s a very simple answer:
It’s an election year. And the Powell Fed is stacked with political hacks.
It is clear that the Powell Fed is full committed to aiding the Biden administration in its re-election bid. After all, why else would the Fed talk about triggering an easing cycle when:
1) The stock market is at all-time highs.
2) Financial conditions are looser now than they were BEFORE the Fed starting raising rates in 2022.
3) The economy is growing, NOT slowing down.
4) Inflation is turning back up.
These are the sorts of conditions in which the Fed usually RAISES rates. Instead, the Fed is going to start cutting rates AND reducing the pace of its Quantitative Tightening (QT) program.
Both of those are HIGHLY inflationary.
In this context, it is clear the Fed has become a political entity. There is no credible economic/ financial reason for the Fed to commit to these policies. At the very least, the Fed should remove one rate cut from its forecast for 2024.
Instead, it is clear that the Fed is committed to pushing stocks and housing as high as possible going into the 2024 Presidential election. This will be a boon for Americans in the short-term, but the consequences will be devastating in the coming months as inflation eviscerates incomes and investment portfolios.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
I’ve previously explained in great detail that the official inflation measure, the Consumer Price Index or CPI, is massaged to the point of being a work of fiction.
Among the more egregious gimmicks employed by the BLS:
Data collection consists of surveys with low response rates.
Those being surveyed are asked to remember what they paid for goods and services (as if anyone keeps an excel spreadsheet of that stuff).
The CPI doesn’t consider food or energy prices.
The CPI doesn’t use real world measures for shelter, instead relying on carefully crafted artificial metrics that have no connection to reality.
And so on.
However, if you’re looking for one simple explanation that the CPI is fiction, you need look no further than the Biden administration’s poll numbers.
President Biden is an historically unpopular President. This is truly astonishing when you consider that his opponent for the 2024 election (former President Trump) is one of the most polarizing and unappealing candidates in history.
Why are Biden’s polls so bad?
Inflation.
Americans vote based on many factors, but ultimately, they tend to vote with their pocket books. And inflation is a MAJOR problem for the bottom four quintiles (lower 80%) of Americans based on net worth/ income.
The media shills and hacks like to argue that Biden is unpopular because Americans are “wrong” or “misguided” due to “disinformation.” But we have to remember that these are the same people who told us inflation was “transitory” for most of 2021 and 2022. Their track record is truly abysmal when it comes to accurately assessing reality.
Bottomline: inflation has NOT come down, no matter what the BLS and media tell you. And those investors who don’t prepare for what’s coming are in for a world of hurt.
I’ll detail what this means for the markets in tomorrow’s article.
If you’ve yet to position your portfolio to profit a resurgence in inflation, we just published a Special Investment Report outlining the clear signals that inflation is back as well as THREE unique investments that could EXPLODE higher as inflation takes hold of the financial system later in 2024.
This report went live just four days ago. And already two of these investments are up.
The Fed is screwing up… again. And investors who don’t prepare for what’s coming are in for a NASTY surprise in the coming months.
To understand what I mean by this, let me provide some context.
Starting in November of 2023, Fed officials began proclaiming that inflation had been tamed. The argument, at the time, was that inflation data was clearly trending down, while rates were much higher, so the Fed would need to start cutting rates soon to avoid crushing the economy.
I realize this is difficult to picture, so I’ve included the below image for you. The Fed Funds Rate is the red line. The official inflation measure, the Consumer Price Index, or CPI for short, is the blue line. As you can see, starting in mid-2023, the red line was much higher than the blue line.
During the last 25 years, any time the Fed Funds Rate has been much higher than inflation for long, something BAD has happened (a recession or crisis). I’ve illustrated this on the below chart with red rectangles.
This is why the Fed started talking about cutting interest rates in November 2023, despite the fact inflation was still well above 3%, while the Fed’s target for inflation was 2%. In the very simplest of terms, the Fed was “betting” that inflation would continue to trend down, therefore giving the Fed the excuse to cut rates.
However, since that time, the CPI has stopped declining as rapidly. The trend, while still down, isn’t nearly as strong.
Indeed, the situation looks much uglier when we include food and energy prices to inflation. As I noted in yesterday’s article, the ONLY reason inflation appears to have declined as much as it has is because energy prices have collapsed year over year. Once you include energy data in the inflation measure, things look like this:
Put simply, the Fed has screwed up… again. The Fed promised it would cut rates base on an assumption that has proven false. This opens the door to a serious upset for the markets in the coming weeks.
If you’ve yet to take action to profit a resurgence in inflation, we just published a Special Investment Report outlining the clear signals that inflation is back as well as THREE unique investments that could EXPLODE higher as inflation takes hold of the financial system later in 2024.
Throughout 2023, I warned that inflation was not really disappearing from the financial system. Time and again I noted that the ONLY data in the inflation measure that had declined was energy prices.
This trend continues to this day, by the way. See for yourself.
Take out energy prices (and used cars) and the inflationary data is still RISING in every category.
And things are going to get worse soon.
Why?
Energy prices will soon no longer be DOWN year over year. For 12 months, the CPI has been calculated by comparing the prices in the blue rectangle to prices in the purple rectangle. However, in 2024, prices will be compared to the blue rectangle for inflation calculations.
We’ve now had two months of the CPI surprising to the upside. And this is while Energy prices are HELPING the inflation data. What happens when Energy is no longer down on a year over year basis?
Hint: gold has already figured it out. Other asset classes will soon.
If you’ve yet to take action to profit a resurgence in inflation, we just published a Special Investment Report concerning THREE investments you can use to make inflation pay you as it rips through the financial system in the months ahead.
The report is titled How to Profit from Inflation: Three Investments to Make Money”. And it explains in very simply terms how to make inflation PAY YOU.
We’re picking up where we left off our A Deep Dive Into What AI Means For Corporate America investment series. If you missed the first two parts from this series, you can access them hereandhere.
By brief way of review:
Artificial Intelligence (AI) is the dominant theme in the investing world today.
Currently AI is capable of accessing vast swathes of available information and integrating it in such a way that AI appears to be creating something from scratch.
Current AI models are being deployed in practically every sector of the economy from entertainment to marketing, operations and more.
While the areas of the economy that AI is impacting are different, the implications are all the same:
Improving productivity (getting more results for less effort).
This is why AI is so exciting for the economy and investors. In a best-case scenario, AI will lead to a massive increase in profitability as revenues grow and costs decrease. And that is what has triggered a kind of mania for AI-related stocks.
The flipside of this is that AI is currently a kind of Wild West in which “anything goes.” There are no legal, legislative, or societal frameworks for this technology. As a result, advances are being made with few if any ethical considerations.
In this sense, AI is following a pattern we’ve seen with other technological revolutions in the past. That pattern consists of two phases is:
The initial breakthrough phase, which occurs before social/legal frameworks are in place.
The “normalization” phase during which social/legal frameworks are implemented, giving the technology a societal and financial legitimacy.
If you need a real-world example of this, think of the electronic music file or MP3 revolution.
The first phase was Napster in 1999, which featured the sharing of music in what was later deemed as illegal activity (the legal framework was not yet ready for the technology). During this initial phase Napster exploded in popularity particularly among young people. At its peak Napster had tens of millions of users. Then came the lawsuits, Napster went bankrupt, and social/ legal frameworks were introduced for this new technology. During this time Apple introduced iTunes: a version of MP3 technology in which MP3s could be bought and sold in a legally acceptable form.
Napster is still around. Its marketing promotes the fact it is “100% legal.” And it has about five million users. By way of contrast, at its peak, iTunes had 500+ million users and accounted for 63% of all digital music sales. It is now in the process of being converted over to Apple Music, a new service that also offers music streaming and other services in order to compete with Spotify which is the new market leader. So once again, the technology has changed and requires adaption.
AI as it stands today, is in its “Napster” phase. As investors we can profit from this by riding key players in the space, but we need to do so with our eyes open to risks, in particular the risk that at some point, the threat of a regulatory framework for AI will appear. And when it does, much of the “froth” in AI stocks will disappear as hot money/ momentum investors leave the space out of fear.
This doesn’t mean that AI will be “dead” at that time. Indeed, the BIG money will be made as market leaders emerge from the ashes of that collapse.
We’ll delve deeper into this in tomorrow’s article…
In the meantime, if you’re interested in profiting from this technological revolution, we are currently putting the finishing touches on a special investment reporting that outlines some of the larger implications for AI as well as several of the most likely market leaders.
To receive this special report when it’s published later this week, all you need to do is sign up for our FREE daily investment commentary Gains Pains & Capital.
We’re picking up where we left off our A Deep Dive Into What AI Means For Corporate America investment series. If you missed the first part from this series last week, you can access it here.
By brief way of review:
Artificial Intelligence (AI) is the dominant theme in the investing world today.
Currently AI is capable of accessing vast swathes of available information and integrating it in such a way that AI appears to be creating something from scratch.
We’ve already detailed the impact this technology will have on the entertainment industry: creating videos/ movies/ commercials used to require dozens of people (directors, actors, lighting technicians, sound technicians, editors, etc.) Courtesy of AI, ONE person can serve all of those functions.
Today, we’re going to assess the impact AI can have on other industries.
In the corporate world, AI can perform many tasks that previously required several people if not entire departments. AI can write an entire marketing piece and even create a visual advertisement for a product using a few words/ phrases entered by one user.
Interactive Investor recently used to AI to develop an entire online marketing campaign including thousands of ads and keywords. The results saw an increase in account creation and decrease in acquisition costs.
AI can do legal work as well, performing document review, analyzing contracts, and even preparing a deposition. There are now several examples of AI “legal assistants” located online.
AI can even alter business operations. Whole Foods has begun introducing “Just Walk Out” stores in which you simply walk in, take whatever you want from the shelves, and walk out. Sensors and cameras take care of the payment side of things.
The above examples of AI technology pertain to very different areas of the economy: making movies, performing legal diligence, shopping for groceries, etc. However, for investors, the implications of AI all boil down to just two items:
Improving productivity (getting more results for less effort).
This is why AI is so exciting for the economy and investors. In a best-case scenario, AI will lead to a massive increase in profitability as revenues grow and costs decrease. And that is what has triggered a kind of mania for AI-related stocks: Nvidia, Super Micro Computers, etc.
The flipside of this is that AI is currently a kind of Wild West in which “anything goes.” There are no legal, legislative, or societal frameworks for this technology. As a result, advances are being made with few if any ethical considerations.
We’ll be assessing those in tomorrow’s article.
In the meantime, if you’re interested in profiting from this technological revolution, we are currently putting the finishing touches on a special investment reporting that outlines some of the larger implications for AI as well as several of the most likely market leaders.
To receive this special report when it’s published later this week, all you need to do is sign up for our FREE daily investment commentary Gains Pains & Capital.
Artificial Intelligence (AI) is the dominant theme in the investing world today.
If you’re unfamiliar with AI, the concept is as follows: AI represents technology that can “think for itself.”
That sounds pretty advanced, but the reality is that AI in its current form is something of a misnomer. What I mean by this is that the technology doesn’t actually “think,” rather it accesses vast swathes of available information and integrates it in such a way that AI appears to be creating something from scratch.
The results can be incredible or ridiculous, depending on your perception.
For example, below is a screenshot from a video that was generated by an AI technology called “Sora.” The image on the left is a photo of a real person. The image on the right is a still shot from a video that was generated by AI to show the woman singing the lyrics to a pop song. AI took the fixed image from the left and generated a full 90 seconds of facial movements to make it appear as if the woman was singing a song. It’s astonishing.
H/T Min Choi
The obvious implication here is that AI will be highly disruptive for the entertainment industry. Previously, creating movies required dozens of people (directors, actors, lighting technicians, sound technicians, editors, etc.) Courtesy of AI, ONE person can serve all of those functions. This is why the Writers Guild of America (screenwriters) writers went on strike last year: many if not ALL of these people are in danger of losing their jobs as AI progresses.
The entertainment industry isn’t the only part of the economy at risk of disruption by AI.
I’ll detail what AI means for other industries tomorrow. But in the meantime, if you’re interested in profiting from this technological revolution, we are currently putting the finishing touches on a special investment reporting that outlines some of the larger implications for AI as well as several of the most likely market leaders.
To receive this special report when it’s published, all you need to do is sign up for our FREE daily investment commentary Gains Pains & Capital.
I’m about to share the single most important thing about investing in Artificial Intelligence (AI) today…
If you keep this in mind, you’ll avoid the basic mistake that 99% of investors are making when they put capital to work in AI.
Are you ready? Here it comes…
Over 99% of commentators have no idea what they’re talking about.
I’m not trying to be rude, nor facetious. There are plenty of brilliant, insightful people commenting about AI today. But investors often act as if strategists and analysts are psychic.
They’re not.
Human innovation is too messy, chaotic, and ever-changing for lots of people to accurately predict. This is especially true when it comes to technological revolutions with far-reaching implications.
If you don’t believe me, let’s consider what happened with search engines, one of the recent technological revolutions that produced incredible profits for investors who played it correctly.
Today, Alphabet (GOOGL) is THE search engine of the world, accounting for over 90% of global searches. At a market cap of $1.7 TRILLION company, it is one of the 10 largest companies in the world. It routinely produces tens of billions of dollars in profits. In fact, its 2023 profits were greater than the market capitalizations of Ford (F) and U.S. Steel (X) combined.
However, back in the 1990s when search engine technology first came to market, Alphabet (then Google) wasn’t a market leader. Rather, the company was competing for market share with numerous other firms including Yahoo!, Hot Bot, Excite, Ask Jeeves, AltaVista, AOL Search, MSN Search and others.
Indeed, at that time, Yahoo! was the largest search engine company with a market capitalization of $125 billion. In fact, Yahoo! had a chance to buy the Alphabet for just $1 billion in 2002! Fast forward to 2017, and Yahoo! was sold to Verizon for less than $5 billion… by which point Alphabet was a $730 billion company.
Who saw that coming?
My point here is that, the internet, specifically search engines, represented an incredible revolution that changed the world. However, few if any people were able to accurately predict how it would play out.
And this didn’t just concern picking winners vs. losers… it also concerned the technology as a whole: many investors thought that the Tech Crash of the early ’00s meant that the opportunity for profiting from search engines was over. They couldn’t have been more wrong as the below chart illustrates.
The great news is that those who were able to navigate the markets to profit from search engines made truly STAGGERING amounts of money. And if you could pick the future market leaders in advance… while riding the booms and busts with proper risk management… well, the above chart of Alphabet shows you the kind of returns you could generate.
Thus, the key for investing in AI today is determining who the future leaders will be. That’s where the REAL money will be made.
We are currently putting the finishing touches on a special investment reporting that outlines some of the larger implications for AI as well as several of the most likely market leaders.
To receive this special report when it’s published, all you need to do is sign up for our FREE daily investment commentary Gains Pains & Capital.
Inflation is going in the wrong direction again… and that is BAD news for stocks.
If you’ll recall, the primary driver of the recent rally in stocks was the Fed suggesting that it would soon begin cutting rates. Indeed, it was a speech by Fed Governor Waller concerning that exact topic in late November 2023 that ignited the move from 4,550 to new all time highs for the S&P 500.
However, with the economy still growing at an annualized rate of 3%, stocks at new all-time highs, and financial conditions looser today than they were before the Fed starting raising rates in March 2022, the ONLY way the Fed could cut rates without looking like a group of political activists is if inflation is at or close to target.
It’s not. In fact, the latest inflation data is going the WRONG way for the Fed.
The Consumer Price Index (CPI) for January was supposed to show a month over month (MoM) increase of just 0.2% and a year over year (YoY) increase of 2.9%. Instead it showed a MoM of 0.3% and a YoY of 2.9%).
That 0.1% difference in MoM and 0.2% difference in YoY don’t sound like a big deal, but this was the reason the market dropped like a brick last week on Tuesday.
Then, on Friday, January’s Core Producer Price Index (PPI) came in at 0.5% MoM vs. expectations of 0.1%. Now that is a legitimately big deal as Core PPI is the Fed’s PREFERRED inflation measure.
This means there will be NO rate cuts in March. And investors will be lucky if they get a rate cut in April/ May.
This sets the stage for a significant stock market correction. I’ve warned repeatedly that stocks are quite stretched above their primary trend. I believe the S&P 500 will be working its way down to 4,800 and then eventually 4,600 in the coming weeks. I’ve illustrated those levels on the chart below.
If you’re looking to take your trading to the next level, we’ve identified a simple strategy for riding rallies, avoiding corrections, and potentially beating the market by a wide margin. And best of all, it only takes about five minutes a day to use it! And despite this simplicity, it is INCREDIBLY profitable.
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The S&P 500 looks primed for a correction of sorts.
As I’ve noted previously, the S&P 500 is quite extended above both its 10-week moving average (same as the 50-DMA) as well as the 40-week moving average (same as the 200-DMA). Historically, this degree of extension above both trendlines has marked a temporary top as the below chart illustrates.
Beyond this, NO sector is outperforming the S&P 500 at this time (maybe with the exception of Communication Services).
Below are three charts showing the ratio performance between each sector in the S&P 500 and the broader index. When the individual sector outperforms, the line rises. When the individual sector underperforms, the line falls. As you’ll note, NO SECTOR is leading the market higher right now.
Tech, Healthcare, Consumer Discretionary and Financials:
Communication Services, Industrials, Consumer Staples, and Energy.
Utilities, Real Estate and Materials:
Looking at the above ratios, we note that Tech, Consumer Discretionary, Financials and Real Estate lead the market higher during the rally from early November until the end of 2023. However, today, not one single sector is leading the overall market higher (maybe with the exception of Communication Services). Even the Tech sector, which usually is a market leader has been underperforming the broader index since January.
So how has the market held up despite every sector underperforming?
A handful of stocks have pulled the overall market higher. Specifically, Nvidia (NVDA), Amazon (AMZN), Meta (META), and Eli Lilly & CO (LLY). Remove those companies from the S&P 500 and stocks are effectively flat.
Add it all up, and the above analysis suggests that “under the surface” the S&P 500 could see a decent correction of 5% or more in the coming weeks. Only a small handful of stocks are holding everything up. This combined with our overbought and overextended the market is suggests the momentum for the next market move will be DOWN.
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Yesterday, I outlined how the Fed and the Treasury are actively working to juice the financial system to aid the Biden administration’s re-election bid.
By quick way of review:
1) The Fed will soon begin cutting interest rates while stocks are at all time highs, the economy is still growing, and financial conditions are in fact looser than they were before the Fed raised rates for the first time in March 2022.
2) The U.S. is running emergency levels of social spending at a time when the economy is still growing. It’s added $5 trillion in debt since President Biden took office. And the pace of debt issuance is speeding up, not slowing down: the U.S. has added $2 trillion in debt in the last 12 months alone. You can thank Treasury Secretary Janet Yellen for signing off on this insanity.
Today, I’d like to delve a bit more into one of the more nefarious schemes the Fed is using to juice stocks higher. To fully grasp this, we need to wind the clock back to March 2023, when the U.S. regional banking system was on the verge of collapse.
At that time, a number of large regional banks collapsed due to:
1) Bad risk management: their leadership teams failed to appropriately hedge their interest rate risk while the Fed was raising rates.
2) Banks were only paying 0.1% on deposits, while money market funds and short-term Treasuries were yielding 4% or more. As a result of this, depositors were pulling funds out of the banks, resulting in the banks having to sell large portions of their loan portfolios at a loss (banks must maintain certain capital requirements based on deposits).
The Fed took action to stop a crisis from unfolding, pumping $400 billion in liquidity into the financial system in just three weeks. Prior to that, the Fed’s balance sheet was falling due to its Quantitative Tightening (QT) program. The Fed reversed NINE months worth of that program in just three weeks!
That staved off a crisis from hitting. But the Fed then began a back-door bailout of the banks through which it gave them additional access to credit and liquidity. And not just a little… but a LOT.
The below chart shows this facility’s use running back to 2005. And no, you’re not imagining things: the Fed’s use of this facility to juice the financial system in 2023 was greater than what it did during the pandemic, and almost as great as that used during the Great Financial Crisis of 2008! In fact, today it’s higher than it was during the absolute depth of the pandemic in March 2020!
We’re now almost a year out from the regional banking issues and the Fed continues using this facility to the tune of over $200 BILLION. So again, the Fed is juicing the financial system for political purposes. It’s abhorrent and corrupt, but it’s reality. And well prepared investors can take steps to insure they profit from what’s happening with the right investments.
I’ll address how to profit from this in tomorrow’s article. If you’d like it delivered to your inbox, all you have to do is join our FREE daily investment commentary GAINS PAINS & CAPITAL.
The Fed and the Treasury are juicing the markets to help the Biden administration with its 2024 re-election bid. And their actions are going to result in a massive crisis hitting some time in 2025.
The Fed is supposed to be politically independent, but everyone knows that is a fairytale. The Bernanke-led Fed introduced QE 3 a mere two months before the 2012 election to help the Obama administration. Moreover, former Fed Vice-Chair Stanley Fisher admitted that the Powell-led Fed intentionally raised rates in December 2018 (triggering a stock market crash) to hurt the economy under former President Trump.
Put simply, anyone who tells you that the Fed doesn’t play politics hasn’t been paying attention. And it is clear that today’s Fed led by Jerome Powell and today’s Treasury led by Janet Yellen are actively juicing the markets and economy to help the Biden administration with its claims that the economy is booming and everything is great.
Case in point, the Fed is talking about easing monetary conditions at a time when the stock market is at all-time highs and financial conditions are LOOSER than they were when the Fed first started raising rates! Why do this? To keep stocks higher for the election.
The Fed is not the only one in on this scheme.
The Treasury is pulling out all the stops to help the Biden administration. Typically, the U.S. runs a massive deficit during recessions in order to cushion the economic contraction. Today the U.S. economy is technically still growing… and the Biden administration is running the U.S.’s largest deficit as as percentage of GDP in history (outside of World War II).
Put another way, the U.S. is running emergency levels of social spending at a time when the economy is still growing. And this is adding trillions of dollars in new debt to the U.S.’s liabilities every year.
The U.S. owed $28 trillion in debt when Joe Biden was sworn into office in 2021. It owes $33 trillion today. And the pace of debt issuance is speeding up, not slowing down: the U.S. has added $2 trillion in debt in the last 12 months alone. You can thank Treasury Secretary Janet Yellen for signing off on this insanity.
Worst of all, the above items are happening for political purposes. There are ZERO fundamental reasons for the Fed and the Treasury to be implementing the above policies. But in today’s world of political corruption and systemic abuse of power, it’s simply how things are.
I’ll address how to profit from this in tomorrow’s article. If you’d like it delivered to your inbox, all you have to do is join our FREE daily investment commentary GAINS PAINS & CAPITAL.
