AI: Wall Street’s Half-Truths
Overreaction Much?
To be sure, it’s not just tariff twitchiness that’s dragging down the stock market this year.
There’s also apprehension that the AI boom got too far out over its skis.
The Paradigm Press analysts have been in the forefront of warning since late last year that you can no longer hold Nvidia or a basket of mega-cap tech stocks (the “Magnificent 7”) and expect to generate consistent, outsized gains.
Indeed our trading pro Enrique Abeyta warned NVDA would see its market cap slashed by $1 trillion sometime in 2025 — which is exactly what happened between early January and early March.
AI is still lucrative and world-changing. But going forward, you’ll have to be much more selective with how you play the trend. Nvidia won’t cut it anymore. (Indeed, Enrique is tipping off readers to a “Nvidia killer” lurking in the midst.)
Furthermore, the AI sector is now prone to hasty sell-offs for no good reason — which opens up opportunities to buy quality AI stocks at bargain prices.
Example: In late February the investment bank TD Cowen said Microsoft was canceling leases for a substantial number of its U.S. data centers, totaling “a couple of hundred megawatts” of capacity.
Which was true as far as it went. What was already a steep sell-off in the tech sector that month became a rout.
But that wasn’t the whole story: “Microsoft came out and said that while it may move its capital allocations in the data center business, overall levels of investment remained the same,” Enrique tells us.
“And this is after the company raised its capital expenditure guidance for 2025 when it reported in January.”
Go figure: Last week the same Wall Street firm issued a new research note about the same company… generating the same overreaction.
On Wednesday, TD Cowen said Microsoft had stepped away from two data center projects — one in the United States, another in Europe.
Once again, tech stocks were overwhelmed with a wave of selling. Once again, it wasn’t the whole story.
“This time,” Enrique tells us, “further clarification came out that two other large data center operators (Alphabet and Meta) would take the capacity that Microsoft was not going to use.
“So yes, one of the Big Tech companies is switching up its AI data center investments. But for now, overall spending isn’t changing. And other major tech companies are more than happy to take the data center capacity that Microsoft doesn’t want anymore.
“Ultimately, this news does not signal an end to the AI bubble; it just shows that the investment cycle is entering its next stage — one where we will see investment growth move away from the early leaders like Nvidia and into others, like Amazon and Elon Musk’s businesses.”
Of course, Musk’s AI-related businesses aren’t publicly traded. And Enrique says there are better AI bargains for your money right now than Amazon.
He’s laid out three of ’em in a series of special reports delivered to anyone who subscribes to his new newsletter called Breaking Profits.
Worth noting: Breaking Profits is not a high-end trading advisory costing four figures. If you’ve been reading Enrique’s comments in our virtual pages the last few months, curious to learn more about his research and recommendations… well, now’s your chance to access them and learn about the fine art of trading at a truly affordable price.
Countdown to “Liberation Day”
Tomorrow’s the day we’re supposed to finally learn the scope and scale of the Trump administration’s tariffs — or as the president styles it, “Liberation Day.”
Yesterday he said he’d “settled” on what the tariff package will consist of — but he didn’t tip his hand about any details. If The Wall Street Journal is to be believed, “Trump’s comments that he had decided on an approach caught some White House advisers off guard.”
Perhaps not surprisingly, the online rumor mill is quickly spinning out of control.
On one Substack page we’re told that “Liberation Day” will go far beyond mere tariffs and mark the advent of a new and improved U.S. dollar…
Those who believe that either a revaluation of gold (as was done in 1934 with the Gold Reserve Act), or the issuance of a new currency backed by a diverse basket of commodities and assets such as gold, other natural resources and cryptocurrencies, are in the camp that “Liberation Day” will signal the end of the “Federal Reserve Note” with the withdrawal/removal of (FRN/USD) for exchange to the new rumored “Treasury Dollar” aka United States Treasury Note (USTN) also sometimes called the “Rainbow Currency” by those who believe in this theory of an overdue currency reset and global forex revalutions (RV).
It seems fanboys have even come up with designs for these “USTNs”...
Seriously? I haven’t seen this level of unhinged wishcasting since the “Operation Sandman” rumors around this time two years ago.
Wall Street is treading water ahead of tomorrow’s announcement.
By day’s end yesterday, the S&P 500 recovered its early-day losses. At last check today it’s up a quarter percent to 5,626.
Colleague Sean Ring doesn’t like the price action — anticipating a further decline to 5,350. And even that level might not hold. “If we don’t stop there, we’ll head towards the 5,100/5,000 level.” (You can see Sean’s chart-heavy monthly rundown of every major asset class in today’s Rude Awakening.)
Gold is holding onto most of yesterday’s gains at $3,126. But $34 is proving to be a stubborn ceiling for silver to break through.
Crude is little changed at $71.48 a barrel. Bitcoin is stuck in the mud a little under $85,000.
So much for the manufacturing revival.
The lone economic number of note today is the March ISM manufacturing index — which is back in sub-50 territory, suggesting the U.S. factory sector is shrinking.
This index spent nearly all of 2023 and 2024 under 50, finally moving back into growth territory in January and February. But no more. The March reading is 49.0, down from 50.3 in February.
All the internals of the survey are moving in the wrong direction. The “new orders” component of the index fell sharply from 48.6 to 45.2. It seems anyone who was loading up on inventory ahead of new tariffs already did so early in the year.
On the flip side, the “prices paid” component suggests inflation is screaming higher, rising from 62.4 to 69.4. In other words, anyone who hadn’t yet loaded up on inventory ahead of new tariffs had to pay through the nose for tight supplies.
The Fed Is Losing Money… and We’ll Survive
And now for a little myth-busting: It’s not the end of the world that the Federal Reserve is losing money — not according to Paradigm’s macroeconomics maven Jim Rickards.
“The Federal Reserve lost $77.6 billion in 2024,” says an article by gold expert Mike Maharrey that went semi-viral last week.
Typically, the Fed books a profit on its operations — but that’s not been the case since late 2022, the year the Fed began jacking up short-term interest rates at the fastest pace in 40 years.
“In simplest terms, as it hiked rates, the bank had to pay commercial banks more for the money they parked at the Fed,” Maharrey writes. “Meanwhile, its interest income remained static as the Treasuries and mortgage-backed securities on its balance sheet continued to yield lower interest income. From there, it’s a simple math problem.”
As Maharrey sees it, the Fed’s math problem translates to a loss for the U.S. Treasury — and a wider budget deficit that has to be covered by either higher taxes or (more likely) inflating the currency.
“You will ultimately feel the pain,” he writes, “because you (the taxpayer) are going to foot the bill.”
Mr. Maharrey has been a leading figure in the precious metals space for a couple of decades now; we have great respect for him around here. But in this instance, our Jim Rickards says he’s off the mark.
A reader of Rickards’ Strategic Intelligence wrote to Jim last week about this very subject: “When the Fed operates at a loss, is it a problem for the Treasury and taxpayers?”
Jim’s reply: “When the Fed operates at a profit, it sends the net profits to the Treasury (after covering its own operating expenses). When the Fed operates at a loss, the Treasury advances funds to the Fed to cover the gap. The Fed can repay those advances out of future profits.
“In recent years, the Treasury has allowed the Fed to keep some of its profits as a kind of rainy-day fund to cover future losses. Importantly, the Fed does not mark-to-market in its accounting, so it never has to recognize losses on its Treasury security holdings when interest rates rise.
“In short, Fed operating losses don’t matter much and hardly anyone notices.”
Timeless Wisdom
The following meme making the rounds of social media today is an authentic quotation…
Buffett said that on CNBC in 2011. Perhaps he was only half-serious, but his point was that politicians have no incentive to address the federal budget deficit: "A more effective threat would be just to say, ‘If you guys can't get it done, we'll get some other guys to get it done.'"
As it happens, this 3% of GDP target is one of the aims of Treasury Secretary Scott Bessent’s so-called “3-3-3” plan.
But with the deficit now 6.4% of GDP — unprecedented outside of wartime, a financial crisis or a pandemic — he’s giving himself until 2028 to get the job done.
We’re skeptical he’ll ever get there, a Republican-controlled Congress notwithstanding — but it’s interesting to see ol’ Uncle Warren weigh in on the same subject over a decade ago.
Mailbag: Tesla Takedown, Waymo on the Snow
After we hit “send” on yesterday’s edition, your editor encountered a historical episode that gets to the heart of the concerns expressed in this space about the Trump administration’s approach to the Tesla boycott.
I know readers are dismissive of my concerns that the feds are conflating legitimate protest with acts of arson and vandalism, but hang with me here…
Rewind to 1973, when a Nixon administration aide named Tom Charles Huston testified to Congress about the FBI’s covert and illegal COINTELPRO program that went after everyone from the Black Panthers to the KKK.
See, it wasn’t just people with violent tendencies who came on the FBI’s radar.
As Huston described it, the FBI constantly expanded its target list “from the kid with a bomb to the kid with a picket sign, and from the kid with the picket sign to the kid with the bumper sticker of the opposing candidate. And you just keep going down the line.”
As James Bovard wrote for The American Conservative last year, “At some point, surveillance became more intent on spurring fear than on gathering information. FBI agents were encouraged to conduct interviews with anti-war protesters to ‘enhance the paranoia endemic in these circles and further serve to get the point across that there is an FBI agent behind every mailbox,’ as a 1970 FBI memo noted.”
So no, I don’t think it’s too early to sound the alarm.
Just because the Biden administration overreacted to J6 doesn’t justify the Trump administration overreacting here. Yeah, I know that stance doesn’t satisfy either tribe’s thirst for the other tribe’s blood, but so be it.
Let’s move on to less weighty but equally interesting matters…
“I have not only had the experience of riding in Waymo's driverless cars, but I've also had the pleasure of talking with some of their employees about the cars,” a reader writes after Davis Wilson’s guest essay on Saturday. “There are a few things I had learned that hadn't come up in the article.
“There is a theme with all the cities mentioned: San Francisco, Phoenix, Los Angeles and Austin, as well as the future Atlanta, Miami and Washington D.C.: They are nice warm places in the South. This isn't an accident. This is because these places are all relatively warm with little chance of roads icing over in the winter.
“As of current writing, Waymos struggle with inclement weather. Heavy rain can blind lidar and slick roads change the entirety of the calculations needed to navigate safely.
“While no longer science fiction. Driverless cars are still a way off from being able to replace long-haul truckers or see regular use everywhere. To really drive the point home, Waymos even struggle with parking lots and as of my last ride aren't allowed on the highways.
“So don't be surprised if your autonomous taxi drops you off across the street from your destination or takes you on a scenic detour.”
Dave responds: For whatever it’s worth, a Waymo was spotted last Friday on the streets of Marquette, Michigan — which in a typical year gets nearly 200 inches of snow, and where an ice storm was bearing down that day.
Back in January Waymo said it would test things out in 10 cities this year — including a handful of other snowy locales such as Truckee, California in the Sierra Nevadas.
“The vehicles will be manually driven, and the testing operations are not necessarily a precursor to the launch of a commercial robotaxi service,” reported The Verge. “Rather, the Alphabet-owned company views these ‘road trips’ as an opportunity to see how well its self-driving system adapts to new locales with varying weather conditions and regional driving habits.”
No word on how the test-drive went, but we’re keeping an eye out…
Best regards,
Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets
