Stock Prices: Are They For Real or is this a Crack-Up Boom?

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Originally published at: https://peakprosperity.com/stock-prices-are-they-for-real-or-is-this-a-crack-up-boom/

Welcome to this edition of Finance University with Chris Martenson and Paul Kiker.

Have you ever felt like the stock market is more of a riddle than a science, more of an enigma than a predictable cycle? Well, you’re not alone.

Recently, we’ve been seeing some peculiar trends that are making even the most seasoned investors scratch their heads. From the shift in the stock market from being a discounting machine to now acting as a liquidity measure, to the uncanny resemblance of Nvidia’s stock charts to the notorious tulip bubble mania and the internet craze, it seems like we’re in a whole new world.

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But hey, isn’t that the beauty of the markets? They’re constantly evolving, throwing curveballs at us when we least expect them. Like that time NASDAQ closed below those all-important levels back in October, signaling a downside risk. Or when our old friend, the Fed, decided to cut rates, causing a flurry of repositioning in portfolios and injecting a fresh dose of momentum into the market. It’s like a rollercoaster ride, isn’t it? But don’t worry, we’re here to make sense of it all, one crazy market trend at a time. So buckle up, and let’s dive into the thrilling world of stocks and markets!

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I have to disagree with you here on NVIDIA vs the tulip craze. Tulip bulbs were not built on the capability of fundamentally altering society and the economy. They were a fad through and through.

NVIDIA is an exponential technology company that might be a foundation for keeping our exponential growth going. A surge in stock price isn’t always a mania. The price is forward looking and while it’s a bet on growth, the potential is there.

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I have to agree data centers are going up like crazy around here. They are likely filled with Nvidia cards.

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I … full disclosure … have a NVIDIA GeForce RTX 3080 Ti card installed in my server. The only problem is, it runs too hot for my cooling fans to take care of. I really need to fix this rather than limiting the speed.

Here’s an SPX chart with the advance/decline line (5 MA) attached. Note that when prices rise, and the ADV/DEC drops below 0, that’s generally a bad sign, since ADV/DEC is a measurement of “market breadth”, and when it drops, it means most stocks are going down.

Right now the line is slightly positive, but it doesn’t look super healthy. Things seem to be fading, at least right now anyways.

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As with movies, we see only what the camera takes; the rest is dark. Today the movie scene is an uproarious tavern scene and the audience is enjoying it immensely. Everyone is ready to throw money at going to that tavern. Outside the reaches of the flat movie screen, things are different.
Nuclear weapons are under the control of a single senile, corrupt person. Our three branches of government are joined rather than balanced. Competing with the mental capacities and corrupt tendencies of the President is the US Congress. The Supreme Court focuses on lawbreaking as if all laws are Constitutional and has erected a barrier to review called Stare Decisis and other court rules. We the People have nowhere to turn politically. Indeed $34 trillion debt is not serviceable without a decades long economic depression and debt is growing faster than the only possible savior, namely economic growth.
The Financial structure is as “fixed” as any Mafia run Casino. In Washington DC, the power elites are hiding behind a senile old man like children who are staying with grandpa, their dad’s father, and grandpa has told them: “Help yourself”. Meanwhile they would be staying with mom who is divorcing their father. So, they know no matter how bad they are, they are protected. The children are old enough to get into grandpa’s savings account.
The President is not creating the policies and managing the welfare of the country anymore than grandpa is managing his house or his savings.

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Well, then, that would be the most exceptional growth story in the world… because NVIDIA is now worth more than the Chinese stock market collectively.

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Or we might note that it is worth more than the entire S&P500 energy sector combined.

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We’ve been here before.

Bubbles are bubbles.

“Eyeballs”

“Tesla is a data company”

“The potential is there”

At the end of the day, since NVIDIA is being measured in dollars, the only thing that matters is how many dollars is it earning and what it may earn.

On that front, the Coreweave vendor financing story (a scandal that’s being mostly over-looked) is quite instructive:

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https://twitter.com/JG_Nuke/status/1755010726773600752

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It’s certainly extraordinary, but we’re talking about a technology as or more revolutionary than the internet, except centralized to a small number of individuals players. I don’t know who the winners will be in implementing AI, but much like the Gold Rush of the 1800s, the miners didn’t get rich, the guys that sold the shovels did.

OpenAI is trying to raise trillions of dollars to purchase chips.

This is an absurd number, but the economic power this technology could unleash is an order of magnitude more than that. This technology could truly expand our output as a society, which represents true growth, a larger pie, not just someone taking a wider slice.

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I am less sanguine about this as AI will both offer greater productivity AND steal millions of jobs.

Net-net…is our economy stronger?

Also, when trillions are truly on the line, competition arises…most of the analyses I see make the bold assumption that NVIDIA doesn’t experience any competition.

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Regarding @thebiotechnologist 's objections, I somewhat agree, but not for the reason he states.

With humans, I have observed that when you introduce another abstraction, the “right” answer becomes muddled for a great many people. For example, stealing is wrong, but politicians doing insider trading doesn’t have the American public carting politicians out on rails to be tarred and feathered.

I do agree that it’s a bubble, though. The thing most people don’t understand is that these investments are exceeding the value of the things being automated and mostly replaced with things of lower quality. A human might see that I’m a serious person with a large down payment on a property when requesting a loan. An algorithm might decide I’m too atypical to approve.

Example $30K H100 GPU

In my experience, the vast majority of individuals implementing these algorithms have no sense of the machine required to execute their idea, nor the ROI. For many companies, this AI craze will be a giant furnace where massive amounts of capital will be pitched in, with little to show for it, except large datacenter build-outs.

Recently, I also saw this, which is likely to add even more fuel to the fire: Report: Sam Altman seeking trillions for AI chip fabrication from UAE, others

That said, it is an exponential technology. However, the winners and losers will be those who can navigate the waters. I suspect that NVIDIA is well past where it makes sense to invest and you are just betting you can time the market exit better than other participants.

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To that I say… good.

I work for a biopharma/CDMO that manufactures viral vectors and designs our own. We have an incredibly hard time attracting talent. There are still plenty of jobs that need filling with no accessible AI solution on the horizon.

If there are jobs that can be replaced with AI and jobs that need humans that cannot be filled, net-net this will improve the economy. We need more brainpower and skilled hands working on the tasks AI and robotics are not appropriate for.

This is just an extension of capitalism. Previously it was efficient allocation of monetary capital. They key to growth in the new economy will be allocation of human capital.

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AI has the potential for good, no doubt. But then I think about the other new technologies that started out with great potential. Is TV living up to its potential in today’s world? Is social media? I think not. On balance, I think potential gets squandered (if not downright killed) whenever greedy billionaire psychopaths gain control of them. And the way I see it, psychopaths are already in control of rapid AI development and deployment. The overriding potential I see for AI is the potential for authoritarian financial controls to be imposed on everyone. In other words, our freedoms could very well be throttled. In the blink of an eye.

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AI has some neat advances right now but we are way way waaaaay over the top in claims of capability.

Over Hype = near bubble peak

Investor psychology doesn’t change. It goes through phases for sure but humans are gonna human.

“It’s a new paradigm!”

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PS - notice the “return to normal “ bull trap? That’s what I suspect is happening in the stock market overall and possibly with BTC.

No guarantees in investing - except the game is rigged and the house gets a cut either way. Strap in and place your bets.

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It’s funny too how the new paradigm marketing hype pops up historically.

Japanese real estate bubble: The Imperial Palace in Tokyo was worth more than all of California

1980s Japan bubble: movies and tv predicted Japan would buy up everything in the US.

Repeated Florida land bubbles

Even further back… John Law and the Mississippi bubble.

Etc etc

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I think we’re losing track of the conversation here. Good or bad for for humanity isn’t the salient point. Is the price justified is the point.

There are scores of things that have been a net drag on society that have been incredibly profitable.

Social media has been a cash cow over the last decade. I would argue that it has decrease our productivity. AI, for good or bad, will be even more disruptive but with the promise of increasing economic output.

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I believe we are coming at this from different mindsets. It seems to me you might be assuming that capitalism and free markets will run relatively unfettered in the “new economy”, and that AI will be able to be freely developed; that it will extend and improve capitalism through a more efficient allocation of human capital. The new economy will thrive.

I see the most powerful, influential AI developers aiming to use it for controlling human behavior and limiting consumer spending. We are meant to live serf-like lives, financially imprisoned by CBDC, Digital IDs, and a “social credit” system informed by massive databases of surveilled data. All of it coordinated and executed using AI. I don’t see much room for a growing economy. Economic growth would emit far too much carbon, so it cannot be allowed. The unwashed masses must not thrive. Only the “protected class” can truly thrive. Because they’re better than us and they deserve it. Some AI projects will be allowed, of course, but almost exclusively for the benefit of the privileged few.

If this sounds like a dystopian view, it is. At this point I don’t see how the runaway train wreck can be stopped, save by a coordinated full-on rebellion. And as I’ve said elsewhere, I’m not holding my breath.