This is a special blog post to tie out the events from the past week...
Two major events took place this week in markets:
1) The artificial intelligence hype cycle exploded
Nvidia released its earnings after the close on Wednesday and at first the stock sky-rocketed after hours similar to what it did last quarter. But Thursday's open was the high of the day for Tech stocks. After that it was straight down.
This reversal of fortune is due to the confluence of several risks. First and foremost social mood has turned down on the right shoulder of the two year head and shoulders top. What was deemed great news in May was now deemed to be solely a Nvidia-specific story. There is no carry over to the rest of the Tech sector. Secondly, since that rocket launch in May, the majority of Tech stocks have already rolled over and imploded. Including semiconductors. So it would be hard to launch another hype cycle rally, when the last one is still imploding. AMD is a case in point. This company is developing their own AI chip to compete with Nvidia. They are the closest thing to a true competitor. And yet the stock is now re-tracing all of its gains from May. Which clearly is reminiscent of the all time high and the 2021 semiconductor pump and dump scheme that crashed in January 2022.
I will say this, that Nvidia CEO Jensen Huang is a quintessential salesman. He has convinced a majority of CEOs to invest in AI technology despite having no clue what it will do for their businesses. For their part, the CEOs were just trying to impress Wall Street by saying they were "investing in AI". The main benefit is that it's going to give them a write-off at the end of this year. One wonders why this serial criminality is allowed to continue.
For 2023, this artificial intelligence pump and dump was a total act of desperation for the crime syndicate of Wall Street, Silicon Valley and CNBS. These people can't afford another bear market in 2023 following the one in 2022. It would be the first back to back bear markets since the 1930s.
The question for the week is can bulls survive without artificial intelligence? And the answer is, NO. The outside of the right shoulder is the locus of maximum crash risk.
2) The next major event took place this morning with J. Powell's much-anticipated Jackson Hole speech. Once again, he was uber-hawkish. His overall thesis is that the Fed's fight with inflation is "far from over". At the end of his speech he invoked Paul Volcker when he said we will "keep at it", until the job is done. Which was the title of Volcker's autobiography ("Keeping At It"). In other words, what 80% of pundits said would happen earlier in the week, still somehow was not priced into markets. Today, the market is gyrating like crazy due to the weekly options expiration. Next week we will have a much clearer picture of the consequences of this hawkish speech. Needless to say with a jobs report and a few inflation reports due between now and the September FOMC, more rate hikes are most definitely on the table.
However, another related event this was week was the wholesale meltdown of retail stocks. Most CEOs complained that high theft is reducing profitability. High theft is a sign that consumers are getting squeezed by higher costs and higher interest rates. We can expect far more theft in the future. Whether that is morally right or wrong is not my point, only to say that people are getting desperate.
My key point is that clearly there is a major disconnect between the official economic data which is pointing to an almost 6% GDP print in Q3, versus what's happening to the consumer. As always, the Fed is solely focused on the data, while ignoring what CEOs are saying. After all, they have a 100% track record of over-tightening at the end of the cycle to maintain.
So, that's the week. All of 2023 risks have now been kicked into the last week of summer when liquidity will be at the low point of the year when it can do the most damage.
We will find out Sunday night in Asia (Monday) what they think about higher for longer.
