The Spread of the AI Brain Worm

Let’s shift the narrative… [Morning Reckoning] May 30, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The Spread of the AI Brain Worm - The market has been infected by AI… but it’s giving tech the boost it needs - This was one of the strongest earnings reactions I’ve ever seen… - Does the hype have staying power? [Facebook Would Ban This Video Within Minutes]( [Click here to learn more]( I just blew Biden’s cover on his sinister plan for complete manipulation of the U.S. economy ahead of the U.S. Election… It’s a plan that he’s betting will land him in the White House in 2024, while, at the same time… Puts you, me, and every other American at risk of financial ruin… This video would NEVER be able to be posted on Youtube or Facebook so please [CLICK HERE to watch on my private website](. [LEARN MORE]( Baltimore, Maryland May 30, 2023 [Greg Guenthner] GREG GUENTHNER Good morning Reader, The artificial intelligence boom has taken the market by storm. In fact, I believe it’s possible that the market’s sudden fascination with all things AI is the main driver of the tech sector’s strong performance so far this year. And I’m not just talking about the bubble basket of smaller AI pure-plays, either… The Nasdaq 100 is now up 30% year-to-date, easily topping the S&P and the Dow. The biggest and best tech firms in the world are destroying everything in their paths — and the frenzy is being led by companies that have been the most vocal about their involvement in the burgeoning artificial intelligence industry: names like Microsoft Inc. (MSFT), Alphabet Inc. (GOOG), and NVIDIA (NVDA). During the first quarter, we discussed the bubbly action in some of the smaller AI names and how traders were grabbing shares of every AI-adjacent stock they could find as the financial media cranked out breathless essays on the newfound power and potential of these innovative companies. Sure, we saw some serious froth. Pure-play AI bubble superstar C3.ai Inc. (AI) jumped more than 200% to kick off Q1 in style. It’s even managed to cling to these gains despite some sloppy consolidation, proving just how serious these speculators are at white-knuckling even the most volatile stocks involved in AI tech. But the insane earnings reaction to NVDA last week shows just how much the AI brain worm has proliferated in just a few short months. Not only did the company beat estimates, management also projected huge sales of chips to meet demand for the coming artificial intelligence boom. What resulted was one of the strongest positive earnings reactions I’ve ever seen… [Has World War III Just Begun?]( NATO sends tanks to Ukraine… Russia prepares for a winter offensive… [Is the beginning of World War III?]( [Click here to learn more]( I’ve just released an urgent message with my thoughts. But more importantly, I’m offering to send you an [exact playbook]( on what I see playing out in the world and what you need to do to prepare. [Simply click here now to watch my short message and to see how to claim a copy completely free of charge.]( [LEARN MORE]( Occasionally, you’ll see a thinly-traded microcap double overnight due to unexpected news. Or maybe a stock will rocket higher following a buyout. But to see NVDA — which was already a top ten stock by market-cap — soar nearly 30% after hours following a guidance raise is total insanity. The exuberance continued through the week — and NVDA didn't even give back a penny. [chart] NVDA has now gained more than 160% year-to-date and is closing in on a $1 trillion market-cap, jumping Warren Buffett’s Berkshire Hathaway to become the fifth-largest publicly traded company in the US. A Catalyzing Moment The morning after NVDA launched into the stratosphere, I explained to [The Trading Desk]( members that the effect this has on the market can't be understated. Every bubble needs a catalyzing moment. NVDA blowing out earnings and propelling the Nasdaq Composite to new nine-month highs could very well become that moment for AI. We won’t know until we have the benefit of hindsight. But the strong participation from the mega-caps — combined with the speculative action down the cap scale — could be the fuel this fire needs to continue burning through the summer months. To be clear: I’m not suggesting you have to pull up your brokerage account and buy as many NVDA shares as possible this very second. If this bubble is indeed in the early stages, you’ll have ample opportunities to ride the wave. But in order to profit from these emerging trends, you need to know roughly where we are in these market cycles, as well as how similar scenarios have typically played out in the past. Narrative Shift The NVDA post-earnings rally could have solidified a powerful narrative shift for the AI movement. It’s hard to believe, but NVDA was not a stock anyone wanted to own last year. In fact, NVDA lost almost 70% of its value from its apex in late 2021 until it bottomed out in early Q4 2022. Crypto mining had tanked, demand for the company’s higher priced units was soft, and (most importantly) no one wanted anything to do with tech stocks. In a vacuum, nothing is fundamentally different with the company. And the stock is expensive by almost any metric we can concoct. Instead, investors' perceptions of NVDA and its potential are the main forces at work here. Markets are forward looking — you probably hear that all the time! But it’s important to remember that this is especially true when it comes to those magical bubble themes that manage to capture everyone’s imagination every few years… The big question now is staying power. Artificial intelligence hype felt like it came out of nowhere just a few months ago. Will it disappear just as quickly as it emerged? Or, will it continue to snowball into and convert more market participants into true believers over the next several quarters and beyond? These are the questions the market will have to answer. In the meantime, we can stay active in the AI space by watching for a rotation into the smaller names when NVDA begins to consolidate its earnings bump. I suspect traders will be itching to dive into the next hot AI stock as soon as NVDA slows down, fueling a rotation into other names in the space. We should also watch to see how NVDA and some of the other big-name players in the space digest their respective gains. Sideways corrections — rather than sharp pullbacks — would indicate the underlying trend remains strong. If that’s the case, buying bounces off support will be a great way to get involved without chasing any of the big gaps higher. What do you think? Is the AI zeitgeist here to stay? Or is it destined to crash and burn? Let me know by emailing me [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Warning: Will “Bidenflation” Destroy Your Retirement?]( [Click here to learn more]( If you’re like most Americans, you’ve worked hard for decades to build your financial legacy. And now, as a result of Biden’s disastrous money printing policies, that’s all at risk. According to one top retirement expert, “Bidenflation” threatens to destroy your retirement and make your hard-earned savings worthless. That’s why you must take action right away to protect yourself… [Click here now to get the simple, step-by-step actions to survive “Bidenflation.”]( [LEARN MORE]( In Case You Missed It… Good Luck Getting Social Security Sean Ring, Editor [Sean Ring] SEAN RING Good morning Reader, Greetings from a soggy Asti! As I wrote, we got loads of rain, and the ground is just starting to get used to the water again. Last summer, we went almost 90 days without rain. This year, thankfully, we’re getting pummeled with sky water. Good friend and Daily Reckoning Grand Poobah Brian Maher asked if I wanted access to the DR’s mailbag. I politely declined, thinking there were enough hands there to manage it. But I simply didn’t realize how many people had written in. And I apologize for that. To make up for it, I will do a Morning Reckoning Mailbag piece today, like I’ve done for the Rude this week. I’m not sure I’ll get everyone’s excellent comments, questions and issues in this edition of the Morning Reckoning, but we’ll give it a go. Central Banks Tell us in 3 to 5 bullets why people are WORSE off as a result of Central Banks. Nice and simple, so we can feed the masses and start pushing back against the madness. Jerry M. Thanks for writing in, Jerry. What a great idea! Here are my bullet points: - Lack of Accountability: Unelected officials have the “independence” to raise and lower interest rates without fear of public reprisal. I’m all for bringing back tar, feathers, and, if need be, the guillotine. But I’m not sure who’s with me on that… - Economic Manipulation: Central bank interventions distort the markets, starting with interest rates. Like anything else, interest rates can find their clearing level without the help of twelve old folks. Their rate settings wreck the pricing mechanism of the economy. This makes it harder for entrepreneurs and business owners to accurately forecast future supply and demand. - Fiat Currency: Central banks have the authority to issue and control a country's fiat currency, not backed by a physical commodity like gold. With an “elastic currency,” central banks can - and do - print far more of the stuff than needed, creating bubbles in asset markets (see 2009-2020) and price inflation in consumer product markets (2020 to present). - Bailouts and Moral Hazard: During financial crises, central banks provide emergency liquidity and bailouts to troubled financial institutions to prevent systemic collapse. These bailouts result in losses, shifting the burden of financial mistakes onto taxpayers. This creates a moral hazard by encouraging banks and financial institutions to engage in risky behavior. In a free market, these banks and FIs would go bankrupt. [Shocking Backdoor Crypto Play – LIVE on Camera!]( Crypto millionaire James Altucher just received a strange box that could COMPLETELY change how you look at cryptos: [Click here to learn more]( [CLICK HERE to See What’s In the Box]( He opens it live on camera, and shares details on the strange device that’s delivered everyday Americans over $1,170 per month in passive crypto income. [Click here to discover it for yourself now](. [LEARN MORE]( Vivek Ramaswamy Good day, Sean, from the sunny and warm Piedmont of the Carolinas. Thanks for your daily Rude and today’s ‘Morning Reckoning’. One question - in your list of presidential candidates, you didn’t list Vivek Ramaswamy. I just started hearing about him, first from George Gammon, and it appears he has the “Creature” in his crosshairs. I realize he is currently a distant 3rd for the Republican nomination and I don’t trust ANY politician, but it is refreshing to hear one speak about the real issues as a regular citizen. I’m interested in your opinion. Thanks, Ed C. And a good day to you, as well, Ed! I’m a big fan of Ramaswamy. He’s an entrepreneur worth over $600 million and utterly loathes the Fed. And that’s why he doesn’t have a snowball’s chance in hell of securing the nomination. He just makes too much sense to become President. You know, like Ron Paul. But I did write about him in the [Rude on May 3rd](. And funnily enough, this ties in perfectly with Jerry’s query above. Ramaswamy wrote this in [The Wall Street Journal]( “The global market will hang on every word of every FOMC press conference to see what a dozen central planners have to say. That won’t be because these planners have any special insight. Everyone will listen to see what the Fed may destabilize next.” Right in the coconuts! If you have a free minute, click on those links to read my Rude assessment of him and his op-ed in The Journal. The Clinton Years’ Budget Surpluses Sean, If there were truly surpluses, why did the outstanding federal debt increase each of those years? I heard that the accountants changed the way social security was being treated on federal books. They reasoned that because there was no real trust fund, social security receipts and payments should be included on the general books instead of being separate. With receipts being greater than expenses at that time, it was a favorable change. But I have never verified this claim. Jeff C Jeff, this is brilliant. You know, I’ve always just looked at the year-to-year deficits. I just assumed the debt fell. You are correct. The debt increased! [table] Now how in Sam Hill did that happen? Jeff, you are correct in that it concerns Social Security. And my goodness, the problem has ballooned to one that will never get solved. If you look on my favorite financial doom website, [usdebtclock.org]( you’ll see the unfunded liabilities of the US are $187.8 trillion. Yes, $187,800,000,000,000 or so. That’s 187 with twelve zeros behind it. Of that $187.8 trillion, $22.6 trillion is the amount the USG is supposed to pay out to Social Security. Good luck with that. But this number wasn’t nearly as gigantic back in Clinton's days. Here’s what may have happened to the surpluses: - Interagency Borrowing: The federal government operates through various agencies, and during periods of budget surplus, some agencies may have excess funds while others may not. To meet these needs, the government engages in interagency borrowing, where surplus funds from one agency are used to cover deficits in another. This practice can temporarily reduce the reported budget surplus and contribute to an increase in the national debt. - Intragovernmental Holdings: (Editor’s note: this is the likeliest reason.) Most of the national debt is held as "intragovernmental holdings." These are essentially IOUs issued by the government to certain trust funds, such as the Social Security and Medicare trust funds. When these trust funds generate surpluses, they invest the excess funds in Treasury securities, effectively lending money to the government. So, even though the overall government budget may be in surplus, the national debt increases as the government owes money to these trust funds. - External Debt: The national debt also includes debt held by foreign entities and investors. While the budget surplus may reduce the need to issue new debt to the public, the government still needs to repay existing debt obligations. If debt repayment exceeds the budget's surplus, it can increase the national debt. The fact that Social Security is essentially an off-balance sheet item — a la Enron — is a crime in and of itself. [“Biden Blackouts” coming this summer?]( [Click here to learn more]( A former advisor to the CIA and Pentagon just made this dark prediction: Calamity Joe’s sabotage of the Nord Stream pipeline [His Evidence Here]( was suicide. In the next 75 days, Americans will face fuel shortages… …widespread blackouts… …empty grocery shelves… …up to $1000 energy bills… …drained retirement accounts, and… …a massive crime wave. This former CIA advisor says most Americans will suffer this winter. But a few will WIN big from the turmoil. [Here’s how to be one of them](. [LEARN MORE]( The Debt Ceiling Hi Sean, Does the treasury really lack the money to pay the bills, so the only option is to raise the debt limit? Or…. They do have the money to pay their obligations, but they would rather spend that money on green new deal stuff, Ukraine, welfare galore (with no work requirements), 87K IRS agents, etc... There is an ex-congressman and author (Power Divided is Power Checked) from Minnesota by the name of Jason Lewis who says that there is plenty of money in the Treasury to make every single payment that needs to be made. How right/wrong is he? Could you possibly shine some light on this and maybe explain in layman’s terms what is actually going on, as you so eloquently do through your no-nonsense, direct, and clear style we’ve all gotten used to? Thank you! Rafael V. Hi Rafael. Thank you for the kind words. No pressure, then… Let’s define it first. The debt ceiling is the statutory limit the United States Congress sets on the national debt the Treasury Department can issue to fund government operations. Essentially, it’s the maximum amount of money the USG can borrow to meet its financial obligations. I look at it as a completely made-up number. And not because I don’t think Congress should control its spending. It’s because the USG is so far gone these arguments are pointless. The USG will never, ever be able to pay back its obligations. So instead of trying to stop digging, it should dig harder and get the inevitable over with sooner. And though I can’t stand the Democrats, thinking Republicans don’t spend is complete horsefeathers. We need a debt jubilee or a massive debt forgiveness program. But the Chinese are fresh out of forgiveness. As Jim Rickards wrote in the [DR]( There are always warning signs of a crisis, which are mostly ignored. The warning signs today include a dollar shortage, high-quality collateral shortages to support derivatives (made worse by the debt ceiling, which prevents net new issuance of Treasury bills), inverted Treasury yield curves, negative swap spreads, auctioned Treasury bills yielding less than the Fed overnight reverse repo facility and the flight of cash from banks to Treasury bills and money market funds. That means the Treasury can’t issue new bills without redeeming old ones first. And that just clogs up the whole system. If a deal isn’t struck, you may get these consequences: - Government Shutdown: Ok, this would be great. I’d pay them all to take an extended vacation. - Payment Delays: Here comes at least the threat of Social Security payment delays and angry old folk voting out incumbents. - Economic Uncertainty: this would hasten de-dollarization and further erode America’s leadership role. - Credit Rating Downgrade: This would suck, but it would just be a consequence of the uncertainty wrought above. In the face of these consequences, the government may use these measures to continue to fund itself: - Prioritizing Payments: Essential obligations must be met first. This typically includes debt payments, Social Security benefits, military salaries, and other critical expenditures. By prioritizing these payments, the government avoids defaulting on its debt obligations and maintains essential functions. - Using Available Cash: The government holds a certain amount of cash in various accounts. The government would rely on these cash reserves to cover its ongoing expenses. - Implementing Extraordinary Measures: These measures can include suspending the issuance of certain types of securities, redeeming existing debt early, or tapping into federal employee pension funds. These actions are meant to free up cash and provide additional funding flexibility temporarily. - Seeking Additional Revenue: This could be stopping non-essential programs, implementing emergency taxes or fees, or exploring other extraordinary revenue-raising measures. So, yes, the government can still function to the extent the Treasury will make sacrifices. Honestly, though, they’ll cut a deal. Wrap Up I didn’t get through half of what I wanted to. But please keep writing in. Your intelligent comments, questions, and issues get my creative juices flowing. I’ll look at the mailbag more often, I promise. And I’ll try to get to the rest of the questions soon. If you have a question you want answered, be sure to email me [here](mailto:feedback@dailyreckoning.com). Have a wonderful rest of your week! All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com Twitter: [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. 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