Replies to post #2224 on Mining Sector Ideas

[gfp927z]

Bigworld, >> beginning of the end of the AI Bubble <<

That's possible, I guess time will tell. On the individual stock side, I tried to own mostly non AI Mag-7 stuff, and most are not in 'bubble' territory like the big techs are. But when the Mag-7 craze does end, it won't be pretty. I figure the S+P 500 allocation could be sold quickly, so at least that would be out of the way. The individual stock side is only a 10% allocation, so I'll try to ride with that LT.

Well, have a great trip to Arizona. Nice to get away for a while, and it should be warmer there :o)

Btw, here in the Phila area, everyone is excited about the Eagles being in the Super Bowl. Historically the Phila teams do best when the country / world is having a crisis of some sort, so maybe this will be our year, lol.



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[gfp927z]

>>> How to Protect Yourself From the Tech Bubble Bursting


By James Rickards

January 29, 2025


https://dailyreckoning.com/how-to-protect-yourself-from-the-tech-bubble-bursting/


How to Protect Yourself From the Tech Bubble Bursting

In the 1920s, Radio Corporation of America (RCA) was the hottest stock in the world.

Radio was cutting-edge tech, and RCA was dominant in the sector. The company was the largest manufacturer of radio sets and operated the largest broadcasting company, NBC. They owned key patents and had attracted many of the country’s best engineers.

In 1921 RCA shares traded as low as $1.50 (split-adjusted). By 1929 RCA rose to a peak of $549. A 352x return.

At its highs in 1929 RCA was trading at a P/E of 72x. Speculation had driven the price far beyond rational levels.

The bubble popped in 1929, and by 1932 RCA shares were trading at $15. That’s still a 10x return over 11 years, but the majority of investors had bought in at much higher prices. The use of margin borrowing was commonplace, and added fuel to the fire (sound familiar?).

Of course, we also saw a similar mania during the dot-com bubble. Cisco, Intel, and a few other tech leaders soared to unimaginable heights, then crashed back down to Earth.

You could say RCA was the Cisco of the Roaring ‘20s. And possibly the Nvidia of its time.

Is DeepSeek the Pin?

China’s new AI model DeepSeek R1 has the potential to be the pin that pricks the AI bubble. But it hasn’t happened yet.

On Monday, Jan. 27, Nvidia shares fell 17% after the market had digested China’s AI developments.

But yesterday shares rebounded by almost 9%. The dip was bought, for now at least.

I don’t know if this Chinese AI model will be the catalyst that ends the AI mania. But the bubble will inevitably end.

The market is poised for a crash, it only requires the right catalyst. Something frightening. A bank run, financial crisis, war, or even an AI breakthrough from our primary competitor.

Whether this latest Chinese AI model is that catalyst remains to be seen. But the 17% one-day drop in Nvidia shares does demonstrate that this market is easily spooked.

Profits (and Risks) Concentrated

The rise of AI in America has severely concentrated market risk. Even before the AI boom, markets were already heavily tilted towards big tech.

Today it’s far more pronounced. Anyone investing in the S&P 500 has more money in the Mag 7 stocks than they do in the bottom 400 companies put together. These 7 big tech firms make up about 34% of the entire S&P 500.

This is what happens during bubbles. A handful of companies dominate the market.

Make no mistake, these periods are driven by real advances. But they inevitably get out of control. It has happened with every major technological development. Railroads, internet, crypto, and now AI.

Anyone who has studied manias can clearly recognize the signs. Problem is, it’s difficult to know exactly when it will end. But judging by the market’s recent action, we’re getting closer.

Go Analog to Hedge Digital

If you own almost any American stock market index, you likely have plenty of exposure to Nvidia, Microsoft, Google, Amazon and the rest of the Magnificent 7.

Now is not a time to jump into these names as the tech sector remains vulnerable. I much prefer to buy areas the rest of the market is ignoring. Gold, silver, miners, oil and gas, residential real estate. Hard assets.

Despite all the hype around this tech cycle, we are still entering a hazardous monetary period. The U.S. and much of the world have entered into debt spiral territory. Once debt/GDP broaches 120%, as it did recently in the U.S., it almost always leads to a debt or monetary crisis. Even in a best case it leads to a prolonged period of slow growth, which is also poison for stocks.

AI is powerful, but it cannot save us from mathematics. So if you don’t have any, go buy some hard assets. The easiest place to start is gold and silver coins. I suggest that everyone should have 10% of their portfolio in these assets. They remain the ultimate diversifiers.

<<<



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[gfp927z]

Bigworld, Nice day for the metals :o)

The tariffs should boost inflation, so that could be driving some of the gains in gold in recent months. But on the other hand, the tariffs could create more global demand for dollars, and that aspect wouldn't seem to fit with higher gold. There is also gold buying by global central bank, so who knows what is the primary driver right now.

I noticed that Trump's advisors have been trying to downplay the tariff risks, but Trump himself sounds like he wants to plunge right in with large tariffs. He's been saying that February is when the tariff announcements will come, so that means as early as Saturday. Fwiw, I lightened up on the stock side today (Flex side), and am down to 13% (from 17%). I'm starting to feel queasy about these tariffs, and what could happen if Trump goes big and early.

Wall St isn't expecting a big announcement this weekend (25% tariffs), so it could get ugly if that's what Trump has decided on doing. The new administration hasn't 'managed' Wall Street's expectations very well on these tariffs. Trump says one thing, his team says another. That's one thing the Fed does very well --> managing Wall Street perceptions, via forward guidance, carefully crafted 'Fedspeak' updates, plus frequent Fed Governor speeches, and media mouthpieces like Timiraos, etc. The idea is to avoid a mismatch between Fed policy and Wall St expectations. They want minimal surprises, since surprises lead to wild swings in the financial markets that can throw a wrench into Fed policy.

But Trump and his team have not telegraphed their tariff plans very well to Wall St, and there's way too much uncertainty. If he starts off 'small and slow', the stock market likely has a big rally. But it's the opposite if he plunges right in with 25%.



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[gfp927z]

The tariff announcement approaches, likely over the weekend. It was surprising to see the market up this morning, so I reduced the stock allocation again, down to 10% from 13%. So basically down to the 'Core' position, which is spread among 88 individual stocks and 4 sector ETFs (link to list below). The plan is to use these as a 10% LT Core, and have a 15% Flex in the S+P 500, so a max allowable stock allocation of 25%. The Core stays in place LT, while the Flex can be traded depending on circumstances. If we get a sizable pullback, then time to re-enter on the Flex side. If the market gets overbought and vulnerable, then the Flex is reduced. Sounds like a plan anyway.

Looks like 2025 could be another choppy year, but once things settle down on the 'Trump policy' side, the market trend should become more apparent. The tariffs are the big worry, since if Trump goes big, we have almost instant inflation, which throws the Fed's plans all to hell, and shortens the debt bomb timeline. If the high tariffs are prolonged, that increases the chance of recession. So -->. high inflation combined with recession = the dreaded Stagflation. So not the outcome anyone wants.

The tariff idea is a loser imo. The idea of restoring the US manufacturing base makes sense, but would take many years, and the US doesn't have the luxury of time. The US debt bomb will likely reach a crisis stage in ~ 3-5 years, and with the tariffs keeping % rates up, the timeline to disaster is shortened. Another aspect is that tariffs will likely chase other countries further into the arms orf BRICS, even faster than is already happening. So a double whammy, and if the tariffs also precipitate a recession, we get a triple whammy.

Hopefully Trump is merely using the tariffs as a bargaining tool in trade negotiations. But it sounds like he wants to use them to enable the long term re-industrialization of the US. Normally this would be a good idea, but there isn't enough time due to the looming debt bomb. Job #1 should be to delay the US debt bomb (cut spending), while simultaneously slowing the expansion of BRICS. Even with ideal leadership the US will be facing the grim reaper in just a few years (end of empire). With a major policy blunder (tariffs), the timeline is shortened.



https://investorshub.advfn.com/Stock-Karma-46109



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[gfp927z]

Bigworld, Well, I decided to exit the individual stock side and go back to just using the S+P 500, possibly in combination with the 'equal weight' version (RSP). I had some decent profits built up in the individual stocks, so figured it's best to take them before they evaporate. It was either that or try hedging the long position with a short ETF like SH, but I decided to keep it simple. Anyway, zero in stocks right now, so will have to figure out a new strategy.

Trump reportedly decided to give Mexico another month before the tariffs take effect, which reinforces the idea that Trump is mainly using the tariffs as bargaining chips. But listening to him, he appears to be a big believer in permanent tariffs to facillitate the re-industrialization of the US. His main trade advisor is Robert Lighthizer, who is a big believer in the long term permanent tariff approach (link below). Lighthizer was also Trump's main trade adviser during the first administration, so Trump is likely now a 'true believer' in the approach. Rickards has discussed this in some depth, and it's a modern version of the 'American System' which was in place in the 1800s with Hamilton, Clay, and Lincoln. In addition to Rickards, historian Webster Tarpley has also discussed this approach in depth. It's actually a great system for a country that wants rapid industrialization. and in addition to the US, it was used by Germany under Bismark in the 1800s.

One problem with trying to use that approach right now is that it takes a fairly long time -- more time than we have. The US debt bomb is a looming existential threat (in addition to the rapid rise of BRICS), and by keeping % rates elevated, the tariff approach will accelerate the debt bomb. As great as a re-industrialized US would be, there just isn't enough time before the debt bomb hits (3-5 years), and by keeping % rates high, the tariffs will merely hasten the debt bomb unraveling, and accelerate BRICS expansion as countries flee the US orbit. So not the right strategy for today's situation. Trump started the tariff / reindustrialization strategy in his first term, and had won in 2020, there could have been time for it to work. Back then inflation and % rates were low, and the debt bomb was not nearly as imminent.


https://en.wikipedia.org/wiki/Robert_Lighthizer




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