Minds Off, Profits On: AI Revival Begins

Melt-up Madness! [Morning Reckoning] November 28, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Minds Off, Profits On: AI Revival Begins Baltimore, Maryland November 28, 2023 [Greg Guenthner] GREG GUENTHNER Hey Reader, Before we get started, I want to invite you to join me this morning at 11 a.m. ET where I’ll be going LIVE on Zoom to talk about what I’m seeing on my trading screen. With stocks rallying into the winter, there’s a ton we need to talk about. I’ll share predictions for where I believe the market will go before the end of the year and provide tips about how to trade in this environment. And put away your wallet, because this event is completely free to attend. I just want you to take advantage of fast-moving markets. So I’ll highlight my favorite company and how you can profit from it. Plus, I want to hear from you and what you’re most interested in when it comes to markets… trading… and everything in between. But you MUST sign up to attend. [>> Click here to sign up for my Top Trades LIVE, today, Nov. 28, at 11 a.m. ET. <<]( Clicking the link above automatically registers you for Top Trades Today, but does not obligate you in any way to attend the event. By reserving your spot, you will receive event updates. We will not share your email address with anyone. And you can opt out at any time. [Privacy Policy]( I’ll be going live every Tuesday morning to share my thoughts on where the market might be headed any given week. Sometimes I’ll share a big-picture view… Other times, I might share a chart I like… But no matter what, you’ll have a better grasp on what the market might throw your way. Speaking of stocks… Following nearly two years of rate-hike induced panic attacks, investors suddenly found inner peace following this month’s cooler-than-expected CPI report. Everyone’s now convinced the Fed has whipped inflation and won’t raise rates again this cycle. The herd can’t stop buying semiconductors, languishing IPOs, and beaten-down tech stocks. Melt up season has begun — and there’s very little standing in the way of the rally as the averages blast higher into 2024. Now, I know what you’re thinking… More than a few of these eager speculators scooping up stocks right now might be suffering from short-term memory loss. Wasn’t Jerome Powell just saying he’s not confident that the Fed is making the necessary headway to get to its magical 2% inflation goal? How could anyone feel comfortable buying stocks into the end of the year with wars raging, mega-cap valuations stretching, and squishy economic data? Do yourself a favor and table those concerns for the next few weeks. Right now, we need to be good little traders, scooping up stocks with both hands alongside the unwashed masses as the averages explode higher. I’ll be blunt: If you want the chance to book outsized gains during these ideal market conditions (which only come around two or three times per year), you need to turn off your brain and start buying. One of the most critical market lessons you’ll ever learn is that profitable traders need to reject the idea that fundamental or economic information has any predictive power over short-term price fluctuations. It’s undeniable that fundamental and economic analysis are important in the long run. But they will never help you time your buying and selling. In reality, the market isn’t going to wait around for “perfect conditions” before it begins to rally. In fact, the action we’re witnessing right now is happening because the herd was way too bearish during the October washout. The gloom and doom hit nosebleed levels during what’s typically a seasonally weak period for stocks — just as the major averages threatened to drop below key support levels. It was the perfect storm for an end-of-year melt up to emerge. [Last week]( I briefly mentioned a few ideas that I believe have a shot at streaking higher into 2024. I’m focused on rate-sensitive growth names in tech: software stocks, biotechs, and the former tech-growth darlings are ripe for huge short-covering rallies. These fundamentally flawed names sporting hot charts will be the best trades over the next seven weeks. Today, let’s narrow our focus to pinpoint some of the best potential plays in these newly resurgent groups. [Urgent Income Demo]( Jim Rickards calls him The Banker. He’s a financial anomaly He doesn’t target 1,000%... 3,000%... or 5,000% gains. Instead, this former hedge fund manager is all about steady – and fast – income. And he’s among the absolute best in the world at that. That’s why YOU should [click here now to learn his strategy]( . [LEARN MORE]( Time to Re-inflate the AI Bubble? Here’s an important question heading into the holiday season: Can a fresh melt-up rally help breathe new life into a sagging bubble? More importantly, when was the last time you peeked at the speculative artificial intelligence stocks that captured investors’ imaginations earlier this year? To be fair, the artificial intelligence bubble isn’t completely dead and buried. But NVIDIA Corp. (NVDA) did put most of the speculative AI names on life support. The semiconductor behemoth has captured the bulk of the artificial intelligence hype since the first quarter, logging an insane 225% year-to-date gain. Meanwhile, the more speculative names have fallen out of favor. That could change as traders look to rotate out of the big, year-to-date winners and into riskier plays as the melt up matures. We’re already starting to see the news cycle refocusing on AI developments. AirBnB Inc. (ABNB) recently acquired Gameplanner.AI for $200 million, proving there’s still plenty of cash sloshing around in the coffers of some of these pandemic darlings. Even more impressive is the fact that the artificial intelligence startup Gameplanner.AI has only been around since 2020. The buzz — and impressive valuation — loves to follow the company’s CEO, who just so happens to be one of the founders of Siri, Apple’s famed voice assistant. To put this into context, I do think there’s an AirBnB bubble out there in many destination cities — a phenomenon that’s beginning to unwind. So it’s probably a good idea for ABNB to backstop its business with what will probably become some sort of AI concierge to better connect users with vacation properties. You might even see the acquisition as a bullish development. But ABNB shares have only rallied modestly since the announcement — and the stock remains stuck well below its year-to-date highs. But perhaps we can look forward to some additional catalysts for these potentially bubbly names. Then there’s C3.ai Inc. (AI), the quintessential artificial intelligence bubble pure play that ran laps around the value crowd earlier this year, exploding higher by more than 370% at one point back in late spring. But AI (the sector and the stock) fell off the radar following the summer tech rally. AI shares faltered as the tech-growth trade started to unwind, and were promptly chopped in half in just three months. While AI has regained some of that lost mojo in November, it has yet to recapture the magic of its early 2023 run. [CHART IMG] Perhaps a favorable earnings announcement will help AI recapture its lost momentum. THe company is set to release earnings on Dec. 6 as the stock claws its way back toward the $30 line in the sand. Can AI become one of the market’s dominant trading vehicles once again? It’s possible. There’s still plenty of hype and mystery surrounding the AI movement, which can certainly give a speculative runner the edge it needs to attract rabid buyers. The year-end melt up also offers a helpful tailwind. Of course, snagging shares ahead of earnings adds an extra layer of risk to any trade. A more prudent option is waiting for the reaction, then playing for a post-earnings drift on any positive momentum. If you’re bullish AI and you want a safer bet that’s less susceptible to earnings madness, the Global X Robotics & Artificial Intelligence ETF (BOTZ) is another solid bet. What do you think? Will the AI bubble find new life into the holidays? Or is it a dead trade walking? Let me know by emailing me [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [“The Supply Chain Crisis Is About To Get A Lot Worse”]( According to Wired, “the supply chain crisis is about to get a lot worse.” That’s why we're announcing a big new project… to help you prepare for what’s coming. [Click here for the details.]( [LEARN MORE]( In Case You Missed It… Will Dollarization Make Argentina Great Again? Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, This week, we were joined by former Fed insider Danielle DiMartino Booth on the Paradigm Press YouTube Channel. She revealed what you might not be seeing in this market environment, why a commercial real estate collapse will tank residential house prices, and how the Fed's latest moves will play out in 2024. Plus, she gave ways you can make sure you're prepared for what's to come. You can check out that interview by clicking below… [[ And tomorrow, Matt Insley will talk with Jim Rickards about the Biden-Xi Summit that happened last week and why it was such a disaster. To be notified when that interview goes live, make sure you [subscribe]( and click “all” notifications so you can be the first to know when we upload! Speaking of foreign leaders… Libertarians the world over wet their pants in unison — not collectively, mind you —when Javier Milei won the Argentine presidency on Sunday. I must admit I was gleeful, as nothing makes me happier than The Left taking one in the gooey bag (or whatever they’ve got in their pronoun pants nowadays). But upon closer inspection, should I — or anyone else — be overly hopeful that Milei will deliver Argentina from its inflationary evil? Let’s face it: his policies are contradictory. He called the world’s second-largest economy and largest military power China an “assassin” and embarrassed Brazilian President Lula da Silva by saying Argentina would not enter BRICS. This is despite Lula’s heavy lobbying for his reluctant partners to drop Algeria in favor of Argentina. “How many Arab countries are we taking in? Wouldn’t a South American country that partially controls the southern sea routes around the continent be better?” India was thrilled, as France pushed them hard to reject the Algerian application. Apparently, India owed France, Algeria’s ever-beneficent former colonial overlord, some favors. Algeria was not pleased, to say the least. Milei also wants to drop the peso, adopt the dollar, and be America’s (and Israel’s) unquestioning partner. Let’s get this straight: he wants to burn down his own central bank (Praise Ron Paul! Hallelujah!)... but wants to adopt the currency of a country over whose central bank he has no control. And worse, that central bank has absolutely no obligation to consider Argentina’s position when making its decisions. Heck, it barely takes into account what’s best for Americans! If Donald Trump doesn’t get back in the Oval Office in 2025, Milei’s plan will be in tatters. But let’s leave the politics for now and look at the economics. I’m neither a South American political expert nor an Argentinian economic expert. But we can still make a few inferences about Milei’s plans by looking at what he wants to do, where it’s been done before, and how successful it’s been. And with all the talk of de-dollarization, Argentina looks to buck that trend by dollarizing its economy. What does that even mean? What Is Dollarization and Why Do It? First, let’s define the term. Dollarization of an economy refers to a situation where a country adopts a foreign currency, usually the U.S. dollar, in addition to, or instead of, its own national currency. This can happen in various forms: Official dollarization is when the foreign currency becomes the sole legal tender. The country gives up its own currency and fully adopts the U.S. dollar for all financial transactions. This is a more permanent and comprehensive form of dollarization. Unofficial or partial dollarization is when the U.S. dollar is used alongside the national currency. It often occurs in countries with high inflation or unstable local currencies. People and businesses may prefer to use dollars for savings, transactions, or pricing goods, although the national currency remains legally in circulation. Financial dollarization is what happens when residents of a country hold a large portion of their assets (like bank deposits and loans) in dollars, even if everyday transactions are still carried out in the local currency. The reasons for dollarization vary. It's often seen as a way to stabilize an economy, especially in countries with a history of hyperinflation or monetary instability. This is the most obvious reason Milei would opt for dollarization. Argentina’s economy is massively export-dependent. Removing the volatile Argentine currency from the buying decision would at least temporarily increase exports. Also, by adopting a stable, internationally recognized currency like the U.S. dollar, these countries can reduce inflation and interest rates, and potentially attract more foreign investment. But dollarization has downsides. Countries lose control over their monetary policy, including the ability to print money or adjust interest rates to respond to economic changes. This is akin to a loss of sovereignty. If you don’t own your currency, you don’t run your country. Just ask anyone in the eurozone. Dollarized countries also don't earn seigniorage, the profit made from issuing currency. That stays at the Federal Reserve. Dollarization has been adopted in various forms by countries in Latin America, Southeast Asia, and other regions. Examples include Ecuador and El Salvador, where the U.S. dollar is the official currency, and others like Cambodia or Lebanon where the dollar is widely used alongside the national currency. Examples of Dollarized Economies Here are some examples of countries adopting currencies other than their own. - Ecuador adopted the U.S. dollar in 2000 after a severe banking crisis and hyperinflation. Dollarization helped stabilize the economy, brought down inflation, and restored confidence in the financial system. However, it also meant that Ecuador lost control over its monetary policy. - El Salvador dollarized in 2001 to stabilize its economy and encourage investment. The move helped to reduce inflation and interest rates, and it simplified trade and financial transactions with the U.S., a major trade partner. But like Ecuador, El Salvador relinquished control over its monetary policy. Except now, El Salvador adopted Bitcoin as legal tender, locked up all its criminals, and looks like Valhalla as a result! - Panama has used the U.S. dollar alongside its own currency, the Balboa, for over a century. This unique system has contributed to Panama's financial and banking sector stability and has made it an attractive destination for international business and finance. - Zimbabwe. After experiencing hyperinflation in the late 2000s, Zimbabwe adopted a multi-currency system that included the U.S. dollar. This helped to restore value and stability to the currency system, though the country still faces numerous economic challenges. - Montenegro and Kosovo have adopted the Euro unofficially. While not unique examples of dollarization (since they use the Euro), their experiences are similar. Adopting a stable, internationally recognized currency helped stabilize their economies post-conflict, though they also face the limitations of not having control over their monetary policy. In these cases, dollarization brought immediate benefits like stabilizing prices, attracting foreign investment, and enhancing the credibility of the financial system. However, long-term success is more complex and involves trade-offs, such as losing the ability to conduct independent monetary policy and being vulnerable to economic conditions in the issuing country (like the U.S. for the dollar). The overall impact of dollarization varies widely based on the specific circumstances of each country. What’s “Losing Control Over Monetary Policy?” We’ve mentioned that phrase quite a few times already. But what does it mean? “Losing control over monetary policy” is a significant consequence of dollarization. Monetary policy refers to the actions a central bank or monetary authority takes to manage the supply of money and interest rates in an economy. It's a key tool for influencing economic activity, inflation, and exchange rates. When a country adopts another currency, like the U.S. dollar, as its official currency, several things happen: No Control Over Interest Rates: The country cannot set its own interest rates. It's tied to the interest rate decisions made by the foreign central bank - the Fed and Jay Powell - whose currency it has adopted. For example, if Ecuador, which uses the U.S. dollar, wants to change interest rates to stimulate its economy or control inflation, it cannot; it's subject to the U.S. Federal Reserve's decisions. Cannot Print Money: The country loses the ability to print its own currency. Normally, I’d love this, because it means the country cannot use tools like quantitative easing (increasing money supply) to stimulate the economy during a downturn. But just ask Italy, Spain, and Greece how they feel about this inability. It’s particularly challenging during economic crises when the country might need to inject more money into the economy. Reduced Ability to Respond to Economic Shocks: With dollarization, a country's capacity to react to local economic conditions is limited. For example, if the economy is in a recession, the country cannot devalue its currency to make its exports cheaper and stimulate growth, as the currency value is determined by the foreign central bank's policies. Again, southern Europe knows this all too well. Loss of Seigniorage: Seigniorage is the profit a government earns from issuing its own currency, especially when the cost of producing money is less than its value. By using a foreign currency, the country forgoes these potential earnings. The best place to read about this is Garet Garrett’s [The Bubble That Broke the World](. In it, Garrett writes about how the Bank of England made GBP 400 million per year in seigniorage and how the United States wanted to wrest what the French now call “the exorbitant privilege” from the British. Wrap Up In summary, dollarization can provide stability and reduce inflation, but it comes at the cost of losing crucial tools to independently manage an economy. This makes a country more vulnerable to external economic changes over which it has no control. Perhaps Milei thinks this is the most obvious way to get his country back on track. But it’s fraught with risk and contradicts his free market rhetoric. Still, I wish him luck. And to you and yours, I wish you a very Happy Thanksgiving! All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly 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. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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