God's Bubble
You know, the markets are truly the only place you can count on for good comedy these days.
The bears anxiously await a debt ceiling related sell off, meanwhile market action improves. They say AI is a bubble, they said breadth is bad - so of course the breadth of the AI rally is expanding into the ‘all important’ Nvidia earnings call Wednesday night. Hilarious.
How about semiconductors. It might have looked like it was the top. It’s not. But IT IS tricky. The SOX 3300 area is big time confluence area, which doesn’t show up on the chart. It’s always smart to be prepared for a little trap door action, but the K.I.S.S. base case looks good. In the QE times, you’d think the 3600s and then a move to the old high is coming.
Micron vs 65 looks like a good risk and tell. Leading the disk drive index higher..
The disk drive index is starting to emerge from it’s base as inventories clear and the ramp of the next generation of memory comes down the pipe.
What a base from the 90s we have here. Sure we’ll all be constantly surveilled and the freedoms, the liberties go down the shitter BUT the profits here on a breakout will be pretty good yeah?!
We Can Do Bearish
You want something to be bearish about? How about Real Estate as the S&P Real Estate Sector continues to make new relative lows.
The truth is the good ole United State of Apple has been dragging this space higher for the better part of a decade while financiers play extend and pretend. Long term whichever way this goes - it will be violent. It will be painful.
Moving over to XLRE we see how notable the 37.90 area has become of late. It’s the 200 day moving average, the 200 week moving average and the most recent swing high.
Of course the risk here is bears flock like moths to a flame and get burnt. (Full disclosure: i’m a moth)
Defense in general is looking pretty sketch as Utilities relative strength continues to break down
Consumer staples relative strength is also looking like an exodus is just getting started
After all, why not get out of defensive positions and participate in God’s Bubble
God’s Bubble
One of the things we’re learning here is - like it or not - asset allocators around the world base their actions on the Fed. Now that you aren’t exactly fighting the central banks - more players around the globe are doing deals, taking risks and entering markets that they couldn’t justify to anyone while the Fed is lighting money on fire.
Imagine if they get the debt ceiling done? At that point you’d have to wonder what if some things, any thing goes well? That would be uncomfortable and quite unpleasant for the adult child influencer complex..
What happens to bond volatility IE the MOVE Index? It’s possible the top is in. IF the bond volatility subsides perhaps it allows nature to take its course.
One of the lessons of bubbles is they’re often reinforcing in nature and go on and on until….pop. And when you put together the list of reinforcing mechanisms in play for AI here it actually checks a lot of boxes.
The big daddy here is the new factor in the chat: an actual productivity boost. Yes there’s actual substance here, which goes a long way. Increases in productivity = increases in living standards IE it’s how we fight this inflation problem. Investment is a must.
The electricity intensive nature means power and energy efficiency is everything. Which that entire space is simultaneously boosted by electric vehicle investment, solar, storage and retrofitting and rebuilding grids. Of course that’s helped along by that sweet sweet government spend
On top of that we have a new sphere of influence trying to hang with lady liberty. Regardless of what happens on the battlefield, STEM is the new space race as everyone just wants to prove that THEIR way is better. Sure China ‘can’t have the most advanced chips', but you better believe they’re doing everything they can to compete and find a way. NO ONE can afford to fall behind because - fuck those other guys
Thus everyone needs to build their own semi supply chain. We all know these last few points. What’s interesting is basically anything and everything that can be thrown in an AI ETF has other legitimate tailwinds supporting momentum, price and relative strength over time. We don’t even need Nvidia, Microsoft, Google or even the SMCI’s or RMBS to catch some of that ‘AI’ performance.
We’re living in the greatest moment in history for both the sex appeal and the fear factor of something to consume us. Further virality is guaranteed. A takeover of the culture is guaranteed.
The years of zero interest rate policy have kept many scientists and speculative projects funded. They say we don’t know the effects of all the QE and the spending. We sure don’t and technological acceleration is the source of upside surprise. Does machine learning and quantum computing accelerate that acceleration?
Finally and most importantly of course the AI is sentient and cannot be stopped
Sounds like God’s Bubble, does it not?
PEAK VALUE INVESTING
Value investing has become all the rage as a now out of print value investing book is being compared to ‘jewelry or a rolex watch’
CLEARLY this is peak value investing
Here’s a value investing book for ya:
Cheap stock trending higher over time, benefitting from an emerging theme and hitting on the relative strength scans? Sounds good
Example VIST: This Mexico energy producer was very cheap and started trending higher. Makes a lot of sense given many companies are looking to ramp up manufacturing there. What a winner. Base then higher, rinse and repeat
Deep value name in a downtrend? HARD PASS. There’s a lot of “deep value” between a failing business and 0.
Example: oh wait, we don’t have any examples because those companies have all filed for bankruptcy
You want a margin of safety? Do things others refuse to do
Of course all roads lead to AI - Data Refiners are sitting at the nexus of bright future and high valuation. Is this thing bottoming and just now getting going? Kind’ve looks like it. We’ll see. If we’re truly at peak value investing. Well, nobody owns these things.
We Can Do Value
You better believe our robot overlords are going to use a lot of steel, which trades at an area of interest
Of course the non threatening yet very smug “green” robots will be shelled with Aluminum. The aluminum index aka Alcoa is at a massive support area
Trade ‘em well