Dear Reader,
I’ve had a bunch of questions from readers about Nvidia’s earnings, so I wanted to address that here today.
Nvidia reported fabulous earnings last week – just killer.
It shows the strength of AI.
But then Nvidia sold off.
Why?
It really speaks to a massive “risk-off” mood Wall Street seems to be in right now.
As investors start to get past the euphoria of Trump’s pro-business agenda and start to look more calculatingly at our nation’s debt, which we’ve talked about here, plus inflation…
And now a word we haven’t heard in a long time… the fear of stagflation.
We’ve seen pending home sales just fall to their lowest levels in recorded history.
Jobless claims came in much higher than forecast.
And the decline in fourth quarter non-residential investment was revised down from -2.2% to -3.3%.
So we’re starting to see big asset purchases deflate…
But on the other side of the ‘flation equation we’re seeing higher services inflation, higher input costs.
Input costs have spiked for U.S. factories, which speaks to tariffs on stuff we’re importing to make products.
The materials we need to manufacture a product in America have become much more costly due in part to tariffs.
Wage growth is a good thing, but it’s increasing too fast – up .05% in January alone.
People are now starting to perceive the markets a little differently.
Remember, leading up to the election a lot of folks started betting on a Trump win.
The bull market’s been crazy the past two years. But after Trump won, it went bonkers.
A lot of euphoria built up and popped.
But many professional investors have been selling because the market was high as the risk factors kept going higher.
So what we have right now is people starting to say…
The economy’s not bad, but inflation’s starting to come back.
Last week they started talking about raising interest rates again, which is pouring cold water on people.
So of course this is showing up in a stock market very high by historical standards.
For the past few months sophisticated investors have sold their off big gains to less sophisticated investors.
Specifically, retail investors caught up in the euphoria of the Trump trade, of everything.
So at this point, sophisticated investors are out and what’s left is retail investors holding up the market.
Professional investors are sitting back, picking their spots.
We are being very selective with where we’re going with our money.
We are not going to be silly about things.
We see a lot of signs of recession…
The Fed’s inverted yield curve has gone haywire…
Small-cap stocks, which we have some of in our portfolio, have gotten hammered in the past month.
You’re starting to see a market regime shifting from crazy optimism to more neutral.
So, what’s happening?
A mixed picture.
We see good economic news – Nvidia earnings, tax breaks – but there’s also bad economic news, which we’ve talked about.
So it’s a very mixed picture, leading investors to have a risk-off kind of mood.
A really good barometer of risk-on vs. risk-off is Bitcoin.
You look at Bitcoin and it broke below $80,000 last week.
That’s a real speculative investment.
When people are feeling gangbusters, they go risk-on and bid Bitcoin up to $100,000.
When they’re feeling risk-off, they want to sell it down, take off the risk.
We’re seeing that all over the place.
The good news is, there are certain areas that will do well despite this.
Companies that can raise their prices more than the rate of inflation without sales slumping are great companies to own in any environment.
Also, 21st century defense contractors, as we redesign our military and shift government money toward newer, smaller defense innovators – we are all over this.
And biotech – we’re already in a biotech bear market and there’s such a value play there.
So, welcome to March – we have a lot of opportunities right now which we’ll be talking about in the coming days and weeks.
Meantime, sell your crazy, speculative stuff down to your sleeping level – an amount that allows you to get a good night’s sleep.
And we’ll ride this out just fine.
We’ll get to the other side. We’ve had plenty of these in 30 years. We’ll be okay.
Hang tight.
I’ll speak to you tomorrow.
And if you haven’t downloaded our bear market survival guide yet, go here to get it right now.
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