PODCAST: AI Isn’t a Bubble… But There Are Risks | COT 146

Hey everybody, welcome to the sense of things. Another week with Jeff and Ron.

On today’s show, Ron’s going to go over the leading economic indicators. He’s going to talk about S&P 500

concentration as well as some looking at other indices and their concentrations.

Sometimes we say the S&P is bad. You have no idea when you look at some of these other markets. So, Ron’s got a good breakdown on that. Not a lot of

economic news this week. So, I actually went on a little bit of a technical analysis thing and want to talk a little bit about some of my observations

technical analysis wise of the S&P and the QQQ and oil and all that kind of good stuff. Also, one economic thing to

this week was Richmond Fed. What I did is I actually pulled several of the Feds and we’ll kind of do a little comparison of those to see what manufacturing looks

like right now. So, stay tuned. We’ll be right back on in just one second.

Hey everybody, welcome to the show. Ron, how are you my friend? Good morning. Forget about spring. Summer is upon us.

Actually out in Philly and the Jersey area, they had 94 95 degree weather with humidity. We actually dropped below

triple digits. It’s been gorgeous. High 70s, low 80s in the morning, high 80s, low eight, low 90s in the afternoon with no humidity. It’s wonderful.

We have had air you can wear every day for the last two weeks. And we’re going to have about at least a week and a half of rain.

They’re saying Yeah, they’re saying that May and June are going to be the wetest months that we’ve seen in a couple time.

We’re rolling into an El Nino and it just that just means that we’ll have a wet summer and then our winter is going

to be cold as crap and and a lot of precipitation. So, it is it [clears throat] is good and bad. It’s nice getting rain in the summer, but

yeah, it that usually leads to a really damn cold winter, which is it. Yeah.

Yeah. But, you know, let’s not go by the old adage, sell in May and go away because that’s only worked about, I think, 30 or 35% of the time.

Yeah, exactly. I always remember that was the thing. And I’m like, just stay invested. Stay invested. Adjust your cash.

Rally. Who knows?

Who knows? Yeah. I don’t know. We’ll talk about that.

All right. Here we go. This week in history, 1785, hot air balloon crash becomes

world’s first aviation disaster in Ireland. That’s a long time ago.

It’s amazing they figured some of that out.

I can’t remember when the Montgier brothers were when they did their first hot air balloon, but it had to have been close to that time period.

Yeah. 1804, Louiswis and Clark depart to explore the Northwest.

You know what I got to tell you? I was up in Sedona last weekend on an overnight and you just go up there going, “How how did somebody find this?”

Like, how did they even get here? And what made them decide it’s a town? And if you just think of even how much of our country is just rocks and woodland.

Yeah. Especially out in the west where you live.

It’s just people just people piles of Yeah. Hey, we’re going to go north. I don’t know what we’re going to fish, but we’re going to go north. Yeah, if

somebody if you want to if you want a good look at the Louiswis and Clark expedition, Stephen Ambrose’s book on that was really the best book I’ve ever

read on it. It was just outstanding. And I love Stephen Ambrose’s stuff, but it was it just talking about literally

you’re like, I don’t know where we’re going. We’re just going to keep going until we hit water someplace.

Really good diaries and records which helped.

But even I don’t know, did they have compasses?

They were navigated by the stars, but even traveling during the day. So, yeah. I Yeah. And Clark was a surveyor, so he

Yeah. So, he had had like all his survey equipment with him and all that stuff.

So, yeah. They had compasses and stuff, so it just The problem is there’s no maps out there, so they had to map their way through that whole thing and figure it out.

They created the map.

Yeah. And then the interesting part of that book is when they talk about when they got to like what is now Washington

and the the main river that kind of runs between Oregon and Washington.

They got there and it was like, “Oh crap, we can’t go any farther because it go it literally the water went both ways and it’s oh crap, we can’t keep going.”

So they literally had to portage these ginormous boats around all that stuff so that they could get to the other side and go down

the main thing. So it’s a really interesting story. And you then you got out there and you Yeah. You get out all the way out there and you got to turn around and come all the way back.

All right. 1924 begins his 48year tenure as the FBI director in putting on women’s clothes.

That’s fantastic.

That too. and having something on everybody in the government at one point or another.

I thought this happened a few years before 1940 Winston Churchill becomes prime minister of Britain and then I think it was 1947 he is ousted because

he did a terrible job. He did a terrible and within two years he was right back in the place because they’re like, “Oh crap, these guys suck.”

1941 first Allied jet propelled aircraft flies.

Interesting. Actually, they found out that the Nazis were about the same time.

And if they would have perfected it because they put their money and resources elsewhere, who knows, could have been a big change in the war back then. If they would have had jet airplanes.

Yeah. The Emmy 262s were actually a really dang good airplane. If they could have produced more of them, they would have been Yeah, they would have been hell for bomber planes.

They were about two or three years away in 1945 from really doing mass production on it. If they would have started four years earlier, I mean,

yeah, they spent a lot Yeah. They spent a lot more money on rock. Yeah.

Yeah. They spent more money and time on rocket engines and stuff like that and not as much on jets or if they didn’t fight the Russians at the same time as the West.

Yeah.

Anyway, we keep going down that road for a whole episode. 1948, state of Israel proclaimed.

1947, BF Goodrich announces development of tubeless tire. I thought this was interesting. There’s a couple of other

things here, but I don’t know. Is BF Goodrich even still around? Oh, yeah. Yeah.

Yeah. I think they’re owned by Goodrich is owned by Firestone if I remember correctly.

1961, President Kenny orders more troops to South Vietnam. And of course, they were for police action and not for

fighting. Eisenhower started it with the advisors. Kennedy escalated it. We all know what happened from that point forward. But even that it was still yeah

it was still military advisers and then of course LBJ came in and listened to all the doofuses that thought that they could make it into a conventional war

and then we get mired into it for 15 years.

Lame and West Morland they were the two controlling it and McNamera listen to them too much. All right moving on. 1965

Rolling Stones record satisfaction which came to Keith Richardson asleep. And the other part of this story was he was in

such a stuper that actually he had recorded it on tape, woke up the next morning, didn’t remember doing it.

It wasn’t actually in this article, but I remember the story of the riff in the beginning, which is the most one of the most famous and most recognizable

opening riffs to a song probably ever.

Now that is talent a few years ago, so I guess the creativity is gone.

Yeah, I don’t know. He’s 175 years old now, so he looks or at least he looks it. He gave up cigarettes and he gave up

alcohol. So he he might go a few more years, but gave up cigarettes internals must be turning to dust.

Yeah. I think he’s replaced his entire blood supply at least 40 times in his life.

Yeah. 1973, Bobby Riggs and Margaret Court face off in the first Battle of the Sexes. He was 55. And actually,

quick story. So that when he played Billy Jean King, the story was he was in debt to gamblers and he threw the match.

I actually met a guy many years later.

We had to go around the room. It was when I was in the tech world and he introduced himself. He goes, “I played both John McEnroe and Bobby Riggs. I

beat one and I lost a semester’s worth of college tuition to the other. You figure out who was who.”

Obviously, he beat John Maro when he was like 14 years old. Wow.

He did. He lost semesters of tuition to Bobby Riggs. That’s hilarious. Yeah.

And knowing Bobby Riggs, that would not surprise me that he would take somebody’s tuition money. He was a scumbag. 20 years old at the time.

Yeah. I’m sorry. I don’t buy that that he threw the Yeah. threw the match because she was a badass player. No,

actually I do think he threw the not threw the match. I think he lost on purpose.

Don’t get me wrong. I’ve heard from some people that he could have played better because if you saw how he played against Margaret Court, and I’ve watched video, not the

whole thing. I mean, he still had it at 55. Billy G. King was an awesome player.

I’m not saying she wasn’t, but Yep.

Yeah. You don’t know. You’ll never know the truth. He’s dead. Yeah.

All right. 1973 America’s first skies first for space station Skyab is launched. Okay.

1980 government approves $ 1.5 billion loan which is a minuscule money today

for Chrysler Liakoka took over from Ford and the rest is history and they made a bunch of crappy cars

throughout the entire car.

It did. It was awful but yeah it saved them. I actually I actually it was one of the first stocks when I was 12 years

old I bought the symbol was C at the time which eventually City Bank took or City Corp took and I actually made some

money on it. I think I had two shares or three shares or whatever.

Anyway, 1981 Bob Marley dies at 36. I thought that movie they did was horrific. I saw a couple of good

documentaries on him. He actually died of an infection from getting cut when he got kicked playing soccer. There was

some It was his toe of all. Yeah, it was he played barefoot soccer basically and hurt his toe and it just became it was

actually cancer that killed him. But yeah, it came from a wound on his foot on his toe of all things.

1985 Philadelphia police dropped bomb on move headquarters killing 11. Now, rather ironically, I was working, this

was the third 345. This was the third year I worked this summer at the Philadelphia Stock Exchange. And this

had happened, that was my third summer, two months before I was starting to work there again for my last summer. And the

interesting story, these were people that wanted to be off the grid. They had a an apartment. It wasn’t an apartment

building. It was like a brownstone, considering it a brownstone. And they had livestock in the back that they were

killing for food. They were like climbing the wall. They were doing all these things like making a bunker. And

Philadelphia had they were trying to remove them legally and everything else.

Couldn’t do it for months. And then for whatever reason from a helicopter they they dropped some C4 on the roof or

whatever and the whole house caught fire and killed 11 people.

Okay. This is just the weirdest thing ever. I did not even the story. Yeah. Oh yeah. The I don’t know how the mayor survived the next election because it was his decision.

But they should have brought in the FBI or SWAT team or I don’t know. But you knowbody Yeah. Don’t just take a bomb and fix up.

I hate to say it. It was like a Waco, Texas situation eight years later where these people won’t move. What do you do?

They tried to go in and get them, right?

They actually set fire. You know, the Waco, Texas thing with Caresh, they set fire internally. They didn’t The FBI or

whoever it was didn’t do that. They just crazy. When you get these people that are hellbent, draw a line in the sand, what are you going to do?

Yeah, it’s the problem. And then they bring in all the other innocent people that are there. You have the few crazies that are in charge. But everybody literally in the branch devidian thing,

everybody was just the ones that were left were just so nutso that they were willing to die for their beliefs.

Was basically a Jonestown and Waco. Yep. Without the Kool-Aid.

1997 Deep Blue IBM defeats Gary Casper in chess match. Yep.

Then I think he beat Then I think he went back and beat him or something. I don’t know. All right, here we go. We always talk about the overconentration

in the S&P of the top 10 stocks and obviously Nvidia is a big percent. You take a look, everybody else knows these other ones. But actually, if you take a

look at another index, which is the MSCI, MSCI stands for Morgan Stanley Composite Index for EM, the emerging

markets, it’s way out of whack. You have TM TSMC, it’s 14%. Samsung I think has

actually increased its share there is at 6%. I don’t know who SKHEX is. I’ve heard of [clears throat] them but I’m sure they’re tech.

Yeah. Then Tencent and Alibaba Chinese companies.

Yeah. We were having a conversation like I never use the S&P 500 as a as a as a benchmark. Uh even RSP which is the

equal weight you can use but even so there’s there’s an over concentration of the top 10. Not as bad as 39%, but it’s still pretty bad.

Yeah. Now, and you look at the S&P 500, look at what percentage are chip makers. That’s 40% of the index are chip.

The baby NASDAQ 100. Yeah. It’s just nuts.

All right. And leading economic indicators, we haven’t touched this in a while, but here’s the interesting thing behind all this, and not much has really changed. Uh, we’re still going down.

Yeah, that didn’t change much. And we never got into a recession when we crossed through because we all thought we were going to hit one here in 23 or

early 24 happened. But meanwhile, all the lei numbers are on the decline. And on the

right side here, you could just see where we where we are, where the changes are. Look, consumer expectations for

business conditions. Wow. Nobody’s expecting anything good. Now, this was March, right? This was the beginning of the war, during the war. All right. So,

maybe this is a little sentiment slanted. But even I don’t know what your thoughts are here. I got one more slide, but I mean, when is the ice going to break on this?

We’ve been talking for a while.

And the funny part is we’ve talked about this before. I’m like it the media’s obsession with one hating the president

and two this just it’s just like this neverending kind of negativity about the economy.

What do you think people are just going to it’s what they think and what they do that’s the problem. What they think is consumer sentiment’s horrible but then they still go out and spend money.

So it’s not just the media my man. I mean, it’s nobody believes anything that comes out of the White House or Congress anyway because yeah,

what whatever they say today is different tomorrow. Remember, military operations were winding down six weeks ago. We all knew that was

right? So, my whole point is that at some point, people get callous to anything that is coming out. So, of

course, either they’re negative or they’re just turning a blind eye and just, “Hey, man, I’m just going to live.

I’m going to do what I need to do.” Yeah, and that’s the reality of it is I so I don’t know if consumer sentiment means crap at this point. People are

just flatout negative. It have been for years. Consumer sentiment has been complete crap as long as I can remember

back at this point. Yet we still still people spending money. We see people

even in the face of massive increases in the cost of flights and everything else.

Flights are full. Flights, vacation destinations are off. Bookings on cruise lines are out almost two and a half

years at this point. So, especially on a on any of the big new cruise ships, you can’t get on to them for about two years in most cases.

See how the antivirus spreads, maybe that goes down.

Yeah. Whatever. And Ebola and everything else. So let me let me kind of show my take on some of this too because I what

I’m seeing just from techn or technical analyst point of view.

Yes, consumer sentiment’s down. Yes, the market, you know, with with the beginning of the war really the entire

year this year, this is the UKQ, so the NASDAQ, the entire year has just been flat and then went down with the war.

And then with that one point, the beginning of April where we started talking about, okay, this thing’s winding down. We’re not bombing the crap

out of them anymore. Of course, the market took off. Now, from a technical analyst standpoint, here’s a couple things that I look at. The different

lines that are on the screen here, you have the 50-day moving average, the 100 day, and uh the 200 or the the 200 day

moving average that I keep on here. And then this gray spot is what’s called the Ballinger bands. And so Ballinger bands

just measure volatility of the market on any given day. The farther apart they are, it means that the market’s kind of

moving in a big direction one way. When they start to pinch down, it means that it’s volatility is shortening up a little bit. So, you could see Ballinger

bands were pretty tight up until that point where things took off. And from a technical analyst standpoint, I look at

this and I go, look at the volume of the market here. It was really strong. There was a lot of volume going into this

downward trend for a while. Then we had this turn in the market and we took off like a rocket ship exponentially on not a whole hell of a lot of volume here.

Probably about a maybe twothirds of the volume that we had prior to that even going into the beginning of the year.

So, what that tells me as a technical analyst is yeah, we’ve had a good rally and it’s been fun hearing from my clients going,

“Oh my god, this is amazing and we’re making all kinds of money.” But what I would say is it makes me somewhat

uncomfortable that it’s been kind of not a yes, it’s been a rally, but it’s been a rally on not a whole lot of strength

when it comes to volume. And you see the same thing with the S&P 500. So, yes, it’s been great seeing this shot up.

What my take on this is, and I think we’re rolling into another period of are we going to have to go in and bomb the

crap out of them again to get them to break. I think at the very least point, we could see things go sideways for

quite a while here as we go through the summer. A big reason for that, of course, is oil. Oil was its usual just

cutter along until, of course, we went into active combat. oil went up. One thing that I would say is the volatility

of oil is getting down. It’s still elevated, don’t get me wrong, but it’s really started to mellow out a little

bit. The best way to explain it, it’s still way more volatile than it was, and that explains a lot. I think finishing

stuff up or getting some kind of agreement where we get the straight support moves open, we see this go back down. And I could easily see this kind

of moderate back to where it was just puttering along at that point. Thoughts, Brian?

Let’s go here and let’s go back to the S&P. So, I told you, we’ve talked about this.

I don’t recommend anything that’s pegged to oil. And I always show the chart over the last three or four years that oil’s traded in a very tight range. I said,

unless there’s some geopolitical or exogenous shock, here we go. So here’s the problem and the conundrum which is I

it’s going to go back down to 60 65 at some point. Yeah.

Problem is we all know and I’ve said this multiple times nothing in the Middle East gets settled quickly. So n

let’s just say and I don’t think it’s going to happen. Something happens peacefully soon within a month.

It’ll come down maybe into the high again mid 80s. I still think because of we’ve already basically turned up the

heat, right? And even if we turn the heat down a little bit, I still think everybody’s on edge because nobody trusts each other. It’s going to hover

in the 80s and 90s for a while. I think it’s going to be a while before maybe even a year before it comes back down into the the 60s again, which is where it should be.

Let’s go back to the S&P 500. So, I’d been here.

Okay. So, I’ve used the Ballinger bands before. So, at the minimum, it’s going to come back to the medium part, the medium line. Yep.

That’s the what’s going to happen. And usually the way I’ve used Ballinger bands is that when it breaches the top

and the bottom band, that’s when you look for reversals. Well, that’s what happened at the end of March, right? It closed below the Ballinger band.

Usually, I always look for three days of closure. I think you only had two there in a row. And then when it got to the

top side, it actually did have three days of actually more than three days.

It ran a little bit before it went sideways and then went back up again.

Typically, it always there’s always a reversion to the mean one way or the other. This is a good way to look at it.

And I’ve always talked to people and I’ve been doing our client reviews and saying the same thing. On average, there are three 5% pullbacks a year. Last

year, we had two. We’ve already had one this year. I think we may get a flush out June or early July and one more in

October because we always get one in September, October time frame and we go from there. Whether or not we finish the year positive, we’ll see. But certainly

with these earnings, Nvidia coming out last night beating the top and bottom line. Nvidia’s down a little bit for the day, but I think the price action got

ahead of its earnings anyway, so it’s going to go up there. Crazy thing is Nvidia is right now sitting at 219.

Price targets have already been breaching 300. I saw 300 and 325.

I think that puts it at an 8 trillion dollar company or 7 trillion.

Yeah, they’re such a beast and and there’s so much.

What it tells me is it’s not just an Nvidia story. Like I said, my themes when we talked about this the beginning of the year, my themes were around the

data centers and the really the picks and shovels of the data centers. And I still see so much opportunity in those

areas. And it’s funny because I I hear from clients and they’re talking about I’m concerned because we’re up so much and all this and I’m like, yeah, but what you got to understand is I’m not necessarily investing in the market.

I’m investing in very specific areas of the market that you just don’t data

centers are not a hey we’re just going to throw them up now and go. It’s going to be a trend for quite a while and you got to have all those picks and shovels.

So, I think you’ve got to really I think this is much more of a stock pickers market and it’s a trend followers market more than anything at this point because the S&P’s been kind of for the year.

The story is not over with AI. But yeah, they’re going to it’s going to step into a few potholes. The problem is and it’s

so brutal to watch CNBC. Is this a bubble? Is this 99 all over again? You got to be crapping me, man. I just

Yeah, these are real companies with real actual money. Yeah. That make actual money. It’s like there. Say what you

want about Nvidia, but I’m like it’s a company. It’s a ginormous company that is making money hand over fist. It was what earnings were up like what 180%.

Sales were revenues were up like 85% on a three or4 trillion dollar company. That is insane. But it’s the reality.

It’s like there is so much going on and I was listening to Jensen Long this morning on on the news and he’s like

guys we’re in like inning number two in this. He was inning one was like okay we just need to make AI start working. He’s

now we’re in inning two and there’s a lot of innings ahead of us with the agentic and I don’t even understand half

of the stuff because I’m like it’s accelerating so fast and increasing. I don’t even understand all of it, but I

do understand at least from the standpoint, my standpoint, I understand that we got to have the data centers to

make this stuff work. So, if you I’m not investing in the gold miners. I’m investing in the guys that make the picks and shovels for that because

that’s those are the people that are going to make money handover fist in this. I agree. It’s just a matter of time.

watch Temple’s Horizon Line and everybody look we were doing the client reviews going through your performance reports. Hey, I tell it I know I look

like a hero and I tuck in my cape under my shirt but I mean and I warn everybody. Hey, we’re going to step into a pothole here and be

prepared. Nothing panic. I said if you want to if there’s anything to worry about it’s geopolitically right now.

It’s not these companies and a slowdown of what they’re doing because 30% of Nvidia’s revenue plus or minus I heard

this stat last year is from four companies. Apple, Meta, and Amazon.

Yeah, that’s 30% of of Nvidia’s revenue. I may have gone higher now. Who the hell knows?

Yeah. And it’s and I don’t see it stopping. Yeah, now it’s starting to spill out into the other areas, but they there’s so much of a need from those

four companies. They can’t even keep up with production to go out and beyond that. There there’s so much room to

expand beyond that, but they just can’t produce enough because the there’s such an massive demand from the hyperscalers at this point.

I hear you. All right. Until next week, I’m sure it won’t be a dull week.

Absolutely not. never is seems it’s all weak anymore. So, we’ll see what goes on. And let me stop sharing here. Hang

on. Stop sharing. I don’t want to share more.

But yeah, folks, make sure that you are signing up for the channel, subscribe, and we will see you guys back here the very next time.