The Morning Line
Enjoy Tariff Hubris While It Lasts
The stock market is priced for perfection in a grotesquely imperfect world. Trump provided a fleeting respite by showing us how the Art of the Deal works in trade negotiations. Fox News rightly rubbed the legacy media’s face in his success while the President took a half-dozen victory laps to muted global applause. This may turn out to be more than he deserves, since no one can predict what will come of the new taxes that have been imposed on global trade. Because eggheads, editorialists and Bloomberg’s talking heads have no deep understanding of tariffs, here’s an interesting thought from someone who does — Reagan budget director David Stockman. The point he makes is too basic to ignore: If capitalism is truly free and functioning, he points out, America doesn’t need a dealmaker in the White House.
Affordability is our big problem anyway, as the nation’s erstwhile middle class continues to sink into poverty. Nearly everything we buy has become not merely expensive, but too expensive, particularly big-ticket items like homes and automobiles. The average price of a used car hit $32,000, up from $23,000 just three years ago. It can cost $400 or more to take a family to a ballgame, where a hot dog and a beer are now $25. The $9.99 breakfast special in Las Vegas has risen to $29.99. And if shrinkflation at the supermarket gets any worse, we’ll be buying staples by the gram rather than the ounce.
Putin’s Hole Cards
Inflation will not be the worst of our problems if the Ukraine war takes a turn for the worse. Putin is Trump’s only equal in global power and influence, and he will not bend to Trump’s ultimatums like the pantywaists who run Europe. Whatever Trump intends by repositioning U.S. nuclear subs closer to Russia, going to war is not an option. That leaves sanctions, which have never been known to change Putin’s mind. He has his own cards to play as well: China, North Korea, Syria and Iran.
Celebrating America’s easy victory over its trading partners may play well on Wall Street, the planet’s main source of feel-good balderdash. But the hubris is arguably just a distraction from grave economic problems that could collapse the bubble economy and stock market overnight.
AI Profits Nowhere in Sight
Although the biggest players in the tech world have sunk trillions of dollars into AI research and development, none of them has made a dime. Will they ever? That’s a reasonable question, considering no one really knows how AI will reshape the economic world, other than eliminating many millions of jobs. The investment frenzy continues to gain momentum nonetheless, recalling the South Sea Bubble of the ‘roaring’ 1720s. A widely quoted item from that era was a prospectus for a company claiming to be carrying on “an undertaking of Great Advantage but no one to know what it is.” One could argue that it’s different this time, but is it really? Quite possibly not, considering that Bitcoin, a currency with no intrinsic value, has increased in value from an initial $0.003 in 2010 to a current $118,000. These are crazy times, and nothing drives people crazier than the prospect of thousandfold returns on their savings. However, before you plunk down your own hard-earned dollars on a flight of fantasy, check out my recent interview on Howe Street. (Note: I make an exception for Nvidia shares, for reasons that are explained in the interview.)
Is Obama About to Get His Comeuppance?
The stock market continues to waft higher with the riskless predictability of loaded dice. DaBoyz have trained their firepower on just a few high-flyers, chiefly Microsoft and Nvidia, in order to squeeze the broad averages skyward with an absolute minimum of capital. I’ve explained here before in exhaustive detail how this carnival midway trick is performed, beginning with a short-covering gap on most mornings that precipitously reverses overnight selling after it has dried up.
Putting aside the fakery and tedium of the seemingly endless bull market, along with the Epstein saga and Trump’s tiresome tariff antics, the most interesting story in the news last week was Tulsi Gabbard’s tweets implicating Barack Obama in treason. Although Biden, frequently photographed slurping an ice cream cone, would seem to have a lock on Worst President Ever, it is Obama who will go down in history as the leader who did America the most harm, all of it deliberate.
A Years-Long Coup
Treason is not too strong a word here, although we shouldn’t get our hopes too high that his punishment, assuming he is charged and convicted, will fit the crime. When he summoned Comey, Clapper and Brennan to the Oval Office on December 9, 2016, they had already stated publicly there was no evidence Russia had interfered in the 2016 election. Despite this, said Gabbard, Obama directed them to fabricate a new narrative asserting that the Russians had in fact worked behind-the-scenes to help Trump beat Hillary.
The three men and their staffs proceeded to reverse their findings, said Gabbard. Then, two weeks before Trump took office, they “unveiled the new, Obama-directed politicized assessment, a gross weaponization of intelligence that laid the groundwork for a years-long coup intended to subvert President Trump’s entire presidency.”
Gabbard, the director of national intelligence, said she has turned the matter over to the Justice Department for action. Can a former president be prosecuted? The Supreme Court has already ruled against Trump on this question, concluding that presidents have no immunity for “unofficial acts,” a category that would surely include conspiring to discredit a political foe. If Comey, Clapper and Brennan go down but Obama somehow dodges the bullet, we can rest assured he is unlikely to evade the severe judgment of historians and posterity.
AI Story Gooses Stocks into the Ozone
Nvidia became the world’s first $4 trillion company last week, leapfrogging Microsoft, Tesla, Google and every other company struggling to stay in the AI game. Our money is on Musk to compete the hardest. He is Nvidia’s biggest customer for their most powerful chips, which sell for as much as $200,000. Musk has been buying them by the tens of thousands.
He recently converted a vacuum cleaner factory in Tennessee into a site for the world’s largest supercomputer. It draws so much power that the cooling plant alone cost will cost $80 million. The machine will be used to train Grok, Musk’s horse in an AI field crowded with corporate strivers. Grok reportedly overtook competitors recently with a demonstration that showed the app capable of thinking almost like a human. Even skeptics were impressed with the way Grok figured out a novel way for hospitals to save power. What startled them, however, was that Grok hadn’t even been asked about this; the AI assistant simply inferred and suggested it based on another, seemingly unrelated, energy solution it had worked on that even MIT-trained engineers hadn’t thought of.
But even if Nvidia has yet a few more prospective customers in Musk’s league, is the company worth $4 trillion? A physicist friend of mine who uses AI intensively in his business said the stock is only warming up and that NVDA’s current price is a certain bet to double yet again. But exactly what will their chip customers sell to the world that could possibly justify such astronomical valuations? It would have to be much more than mere gains in productivity — or even that old investible standby, a cure for cancer.
Monsters from the Id
In an earlier commentary, I suggested facetiously that Nvidia and companies immediately downstream of it were being priced as though AI had the potential to become all things to all people. How this could actually happen was vividly imagined in the 1950s sci-fi movie Forbidden Planet. The story, loosely based on Shakespeare’s The Tempest, concerned an advanced civilization called the Krell that had been destroyed by an unknown force. That force turned out to have been their own primitive subconscious — Monsters from the Id — conjured forth by a reactor they’d built to materialize all of their needs.
AI can practically do that now using a 3D printer and a storehouse of raw materials. “How about Fettucine Alfredo for dinner tonight, Grok? And while you’re at it, make me a three-carat engagement ring with some graphite I bought for the occasion.” This arrangement would not only cut out the middle man for all of our daily needs, it would also eliminate most jobs. Whether theoretically possible or not, no one believes that having our needs met in this way would make us happier. Concerning the insane bidding war for every investible tied to AI, we had better be careful what we wish for.
T-Bond Bottom Could Herald the Start of Trump’s ‘Golden Era’
We’re all waiting anxiously to see whether Trump’s bold initiatives usher in a golden economic era. If this is going to happen, we should see the Dow Industrial lurch toward 100,000 at any time. Just a few short weeks ago, you could have counted me among the skeptics. It is a habit that has become deeply ingrained in me after writing collapsitarian essays and editorials for the last 30 years. However, I have been so wrong about this for so many years that I would never, ever insist that such a seemingly outrageous rally is impossible. Skeptics aside, there are perhaps 80 to 100 million Americans rooting with all their might for the President to fall on his face. This is Trump Derangement Syndrome at its stupidest and most hateful, since a really bad year for the President could mean our children will have to suffer through a Second Great Depression.
The good/bad news is that we should know soon how things are likely to turn out. That’s because the stock market is in fly-or-die mode, so dangerously pumped with crazy, Wall Street hype and AI hubris that it cannot possibly sustain altitude unless investors decide to go all-in, and soon. It would be a peculiar time for stocks to take flight, since U.S. consumers are tapped out and falling increasingly behind on car and house payments, and GDP shrank by 0.4% in the first quarter. We may have entered a recession, and it has the potential to become a devastating one because, publicly and privately, the nation is so deep in hock. It is not yet so deep, however, that an adroitly engineered bear squeeze could not prevent a potentially fatal, contractionary mindset from taking root.
America Ascendant
The graph above holds the key to our best hopes and worst fears. It shows TLT, a proxy for Treasury bonds, in a so-far mild upturn within the context of a horrific bear market that began in March 2020. I’m convinced we are witnessing the start of a major bull-market in T-Bonds, and that this is a good time to start buying them hand-over-fist. Bonds are rising on investor perceptions that Trump is fully in charge of the nation’s fortunes. America is ascendant at a time when Europe, under feckless leadership, is circling down the toilet. This has begun to drive global capital into Treasury paper, lowering long-term rates. This dynamic can only feed on itself, and it is why a golden era, even if illusory and unable to outlast Trump’s leadership, is hardly unthinkable.
The Huge AI Story May Not Be Quite Huge Enough
The S&Ps and Nasdaq hit record highs last week, a surreal milestone that only the Wall Street toadies at Bloomberg and the Wall Street Journal who fabricate the news could take seriously. These are the same folks who bestowed the name ‘Magnificent Seven’ on a bunch of high-flying stocks whose short-squeeze histrionics qualify them for membership in a stock-market Hall of Shame. Portfolio managers, who surely know better, are go-along buyers at these heights and will remain so until a tsunami of redemptions bends them to the impending reality of massive deflationary write-downs when the Everything Bubble bursts.
That reality darkened last week with news that the U.S. economy shrunk at an annualized rate of 0.5 percent in the first quarter. Perennially giddy investors would seem to be betting either that the recession that probably already has begun will be short, or that the statistic itself is a meaningless outlier caused by the world-class uncertainties of Trump’s tariff policies.
A popular explanation for the staying power of the bull market against a backdrop of global storm clouds, geopolitical mayhem and economic sclerosis is that AI will save us from…everything. As the story has it, artificial intelligence will boost worker productivity, improve outcomes from brain surgery, make steering wheels obsolete, turn $20-an-hour paralegals into Clarence Darrows, and lay to rest the arguments of Talmudic scholars. In unfortunate reality, the driving force behind AI is its ability to put people out of work, particularly white-collar employees whose jobs have been untouched so far by robotics.
Can Joe Six-pack Deliver?
That raises the question of how lunatic-sector companies that have invested trillions of dollars in AI development, and who say they plan to invest much, much more, can ever hope to recoup their money, let alone multiply it voluminously as they seem to expect. To state the question another way, what additional goods and services can they possibly sell us to generate untold trillions of dollars in new revenues? Since houses and cars have gone out of reach for the broad middle class, and because AI will put enough people out of work to make the affordability problem even broader and deeper, you have to wonder how we consumers will be able to satisfy the insatiable greed of Mark Zuckerberg, Bill Gates, Sam Altman, Reed Hastings, Jeff Bezos, Larry Page et al. The GDP pie is only so big, and if cutting into Taylor Swift’s share of it is part of their plan, they are in for the fight of their lives.
One could argue that healthcare is the most significant area of the economy where job cuts are unnecessary for AI to create value. Indeed, if AI provides an economical way to construct robust hearts, lungs and pancreas with a 3-D printer, or leads us to a cure for cancer, the economic benefits would be enormous. But they would come mostly in the form of savings, rather than from any vast new sales by providers. Unfortunately for the megacapitalists, any savings, no matter how large, would not remotely suffice to reward the lot of them together with a sustainable growth-stock multiple. But unsustainable growth that need only be imagined? We’ve got a cosmic surfeit of that now, so enjoy it while it lasts. [AI hubris was the focus of my recent interview with Howe Street’s Jim Goddard. Click here to access it.]
Wall Street’s Epic Bunco Game
Tulipmania and the South Sea Bubble have nothing on the bunco game Wall Street has been running with Microsoft shares. I write on this subject often because the numbers are so huge, and because the game, which is intertwined with the biggest financial con-job in history, is not one you will ever read about in The Wall Street Journal or on Bloomberg.com. It thrives on the madness of crowds and grows bigger with every uptick in MSFT and the galaxy of stocks in its vortex. Microsoft’s share price has gone from 393 to 483 since April, adding roughly $687 billion to the macro ledger. That is twice the size of California’s budget for 2025. It would buy a Porsche 911 for every man, woman and child in New York and Chicago, or a super-deluxe Disney World vacation for every family in America.
A clue to how the game works lies in the relentless smoothness of MSFT’s ascent. You could comb through a thousand charts without finding one remotely like the one pictured above. You don’t have to be a technical analyst to see that the long rally has been tightly controlled every step of the way. This kind of price action is quite rare, but what makes it extraordinary is that it is not happening to just any stock, but rather to the most valuable stock in the world, a $3 trillion company with a lock on the operating systems of a billion-and-a-half desktop computers. The stock has been ratcheting higher on relatively thin volume and a dearth of bullish buying. Short-covering has done most of the lifting, with more urgency and power than merely optimistic investors could ever supply.
Ka-Ching!
MSFT’s manipulators knew what they were doing when they goosed the stock into a sensational short squeeze on April 30. On that day, after the close of business, Microsoft announced earnings of $3.48 per share on revenues of $70.07 billion, beating the consensus estimate by 24 cents a share. That might not sound like much, but it was enough to spook wrong-way bettors into gapping MSFT $48 higher on the opening bar the next day. Ka-ching! Another $366 billion worth of instant wealth-effect. Even Wall Street’s perpetually bullish analysts couldn’t have imagined the rally would add another $321 billion of unearned gains since then. And yet, here we are, with the stock in record territory and no top in sight. It doesn’t get any better than this, which is why MSFT cannot continue to climb. When it falls hard for no apparent reason, which it will, that will mark the end of the bull market and the hubris that has sustained it for 16 years.
Wall Street Too Stupid to Worry
There were few headlines out of the Middle East over the weekend, mainly because only Israel and Iran are capable of judging the damage, and neither is saying much. Wall Street, on the other hand, seems quite confident that whatever is happening, and irrespective of the outcome, it will be quite bullish for stocks. As much was evident on Friday, when the lunatic sector (aka ‘the Magnificent Seven’) bounced back from heavy losses early in the session, then spent the remainder of the day building a plateau from which stocks can launch anew when the all-clear signal comes. This would be appallingly reckless behavior, but we have become used to it as the stock market has increasingly decoupled from geopolitical and even economic reality over the last decade or so.
It’s possible investors are simply envisioning a brighter tomorrow, with Iran no longer able to export terror to the world. China and North Korea will continue to threaten, of course. But their ability to spread malice and death will be significantly impaired once Israel has cut off the arms and legs of their Iranian proxies. Jihadism will still be with us, and active to the extent its chief sponsor, Qatar, has plenty of crude oil to sell. But perhaps with the inspiration of nuclear terror in remission for a few years, and an entire generation of jihadi leaders rubbed out by Israel, the world might enjoy a period of relative peacefulness. How odd would that be? [Check out my latest interview on This Week in Money. It delves into the mania that has seized investors in stock and real estate assets.]
Summer Topping Process Could Get Messy
The stock market is in a topping process, brazenly manipulated by white-collar carnies who cut their teeth at Sloan, Wharton and Stanford. These newly trained ass-bandits have been working Microsoft shares to hold the broad averages aloft while they offload inventory to widows, pensioners and assorted other bag holders. I described in detail how this game works in a previous commentary. Even though Microsoft, the world’s most valuable company, has a $3 trillion capitalization, it costs the perpetrators almost nothing to drive the stock vertically higher, adding hundreds of billions of dollars of gaseous asset inflation (aka ‘wealth effect’) to the global ledger.
Flimsy Reasons
When last week ended, the world’s largest-cap stock was poking its greasy little snout marginally above the previous all-time high at 468.35 recorded last July. This breakout will not have gone unnoticed by a million dip-buying homunculi, since it is no longer a dip they are buying, but the latest move into thin air. Although MSFT will continue to outperform all other stocks for reasons implied above, I doubt it’s short-squeeze histrionics can drag the lumpen mass of securities significantly higher. At best, the also-rans will make marginal new highs until the last buyer runs out of flimsy reasons later this summer.
It has never been clearer that mass mental-illness, far more than invented ‘fundamentals’, is what drives stocks higher in the late stages of a bull market. If news mattered, the 1914-ish darkness of today’s headlines would have crushed the Dow six months ago.
Watch this Latest Bitcoin Crime Start a Wave!
The internet has evolved into the perfect medium for spreading crime into every household and every age group, and now Bitcoin is fast becoming the perfect medium for pushing a more violent kind of crime out into the streets. There was a time when one could avoid getting mugged simply by not wearing Italian shoes, a Burberry coat or a Rolex watch in certain neighborhoods. Nowadays, though, any schlepper in a hoodie could be carrying a password in his head with access to Bitcoin enough to buy two-dozen solid-gold Rolexes. The assailant wouldn’t even have to risk carrying a gun, since a small pair of pliers to yank out the schlepper‘s fingernails would be the only tool a thief who uses unfriendly persuasion in its most recently popularized way would need. Don’t laugh, because you damned well know this is going to happen in some alley somewhere: a schmuck who wouldn’t give up an alphanumeric key stored in his head will lie disfigured in a pool of blood, and the story will instantly be at the top of the news across America.
It’s impossible to know whether Bitcoin’s pseudonymous creator, Satoshi Nakamoto, is feeling remorseful over the current blizzard of headlines concerning the New York crypto investor held captive, tortured, peed on, beaten and threatened with death by two or more young men sadistically determined to pry a bitcoin account password out of him. If Satoshi has any humanity, he is asking himself ‘What have I wrought?’ Hadn’t he simply wanted to invent a mathematically perfect money that would allow people to spend without being watched by the banks and the shadowy regulators who watch them? How ironic, then, that bitcoin has instead turned out to be an all but unusable medium for ordinary transactions while filling the heads of ten-year-old boys with the enticing idea that crime can pay much, much better than honest toil.
Something to Keep the Kids Busy
And anyone can do it! If not in a dark alley, then online in the virtual company of complicit friends. That is the power of social media, and even now, the New York abduction will already have energized the imaginations of enough copycats to unleash a crime wave such as none of us, not even the most inspired MAGA do-gooder, could have imagined just six months ago. Before long, a cottage industry will spring up on the dark web to provide the purloined names and local addresses of millions of Bitcoin and Ethereum hoarders. What’s surely coming as a result will make us nostalgic for a bygone era of pickpockets, three-card Monte grifters and charming bank robbers like Willie Sutton.