Since Jerome Powell signaled the end of the tightening cycle in October of 2023, we’ve talked about the long-awaited narrowing of the performance gap between mega-cap tech and the rest of the market (particularly small caps).

It hasn’t happened.  It’s been a series of headfakes.

Why?

Because the Fed has been tapping the brakes all along (through real rates and messaging), countering an economy with fiscal and industrial policy tailwinds.

But as we entered 2026, we’re finally seeing monetary and fiscal policy moving in the same direction.  And as we discussed last week, the “diffusion” (the spread/distribution) of AI and the productivity gains are beginning to show up in the data.  That’s a setup for capital to spread across the market.

And we’re seeing it in the new year.  Small caps are finally outperforming.

Now, here’s the other chart we’ve been watching — the one that tends to signal regime change … 

Over time in these notes, we’ve tracked this gold/silver ratio as a signal of extreme moments of safe-haven demand.

Importantly, in the chart, the extreme peaks line up with big events (WW2, the Gulf War, the pandemic). 

And the sequence is consistent:  Gold leads as global capital flows to the relative safe-haven asset.  Silver later follows (higher) partly as a cheaper “safe haven,” but also because it’s an industrial metal. 

And in the prior peaks, as we’ve discussed along the way, it’s the outsized rise in silver that pushes the ratio back down. 

That’s exactly what we’ve seen.  Since we revisited this ratio in the fall, silver has ripped, and the ratio has now “puked” lower from an extreme reading.

So what is it communicating? 

Historically, this represents a new phase where fear of war turns into wartime behavior: military buildup, reshoring, supply chain hardening.

That’s happening. 

On that note, let’s talk about the National Security Strategy document the White House posted in November (you can see it here). 

This document explains many of the events that have taken place in the first couple of weeks of 2026, including this about the Western Hemisphere:  “we will assert and enforce a ‘Trump Corollary’ to the Monroe Doctrine.”

And there are two other key assertions in what Trump called this “roadmap.”

First, on China, the document says deterring a conflict over Taiwan is priority, mostly because of the threat to global shipping through the South China Sea.  It says it requires a vigilant posture, a renewed defense industrial base, greater military investment, and winning the economic and technological competition. 

And it’s blunt on Europe.  It calls out the European Union and “other transnational bodies” for undermining political liberty and sovereignty through migration policies, censorship, and loss of national identities and self-confidence. It explicitly questions whether or not they will be strong enough “to remain reliable allies.”

Expect this to create some fireworks next week when Trump gives a speech at the World Economic Forum (to a room full of the parties he is calling out).    

We’ve talked about the formula for an early 40s-like boom time economy.

We got some data today that supports it.

As we’ve discussed over the past three years in these notes (since the May 2023 “Nvidia moment”), we are (still) in the early days of the what should be the most productivity enhancing technological advancement of our lifetime — generative AI.

On that note, Q3 productivity data was reported this morning.  And it was big, 4.9%.  For perspective, we averaged less than 1% productivity growth for the decade prior to the pandemic.

Remember, hot productivity growth does two things: 1) creates the opportunity for the continuation of much needed real wage growth (to restore living standards, which were eroded by inflation), and 2) increases the long-term potential growth rate of the economy.

With that, if we look at the four engines of GDP — consumption, investment, government spending, and net exports — they are all firing.

The Fed is backstopping liquidity and cutting rates (more this year), which makes borrowing cheaper, makes saving less attractive and creates the confidence necessary to promote hiring.  That will keep consumption going.

We know the investment story.  It’s “build it here” policy incentives, which includes full expensing in year one.

The One Big Beautiful Bill is driving government spending tailwinds.

And tariff policies are aggressively narrowing the deep trade deficit — which lessens its drag on growth.

With all of this, we had a hot net exports number today.  And, related, we had a hot Q4 GDP estimate from the Atlanta Fed model (now running 5.4%).

This is the kind of growth you’d expect (nominal growth around 8%), or better, after blowing up the money supply — 10 years worth of money supply growth over just a two year period in response to the pandemic.

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Yesterday, we talked about the “diffusion” of AI.  As Nvidia founder Jensen Huang suggested in his recent CES keynote presentation, not only will AI touch every part of the economy, it will discover new frontiers.

With that, we’ve been waiting for Wall Street to begin pricing in the reach of AI, and the benefits to the entire stock market, beyond just big tech. 

This chart below clearly shows the disparity.     

This is the Nasdaq and the Russell 2000, indexed at 100, from the date of the ChatGPT launch. 

Nasdaq futures have done 29% annualized since — almost three times better than small caps, almost three times better than the equal-weighted S&P 500.  

Moreover, the S&P 500 is on record highs, but a quarter of the constituent stocks have a negative three-year return (the post-“ChatGPT moment” era). 

Clearly the “Mag 7” stocks (NVDA, GOOG, META, AAPL, TSLA, AMZN, MSFT) have been priced as if AI would make everything else irrelevant.

That goes against Jensen’s AI “everything, everywhere” vision.

To start 2026, the wealth is indeed beginning to spread (so far).  The equal-weighted S&P 500 is outperforming the equal-weighted Mag 7 by 4 percentage points to open the year.

Is it because of policy tailwinds?  Yes (favors value).

But it’s also because AI adoption is driving a productivity boom, and that drives higher potential economic growth. 

That said, it’s reasonable to think that some companies will be disrupted — AI will be existential.  But it’s also reasonable to think that the rising tide of the economy will float all boats, AND that AI will outright transform some companies — turning the old into new.

We’re seeing it in data storage.  What was considered “legacy tech” just a year ago, is now in the cross-hairs of the AI infrastructure boom.

The two top performers in the S&P 500 today were Western Digital and Sandisk (up 17% and 28% today, respectively).  We own both in our Billionaire’s Portfolio.

This followed Jensen’s discussion yesterday on Nvidia’s new data storage architecture, to answer the intensive demands for inferencing (thinking, holding long context and massive libraries of data in real time).  This highlighted the insatiable and exponentially growing demand for flash storage — which Sandisk will supply.

But we already heard this in the most recent earnings calls from both Western Digital and Sandisk.  The message: the AI models (and the meters) are running non-stop.  Demand is high, and the data storage companies are effectively sold out.

And the amount of data storage required will scale in parallel with the amount of data that AI produces (which Jensen says is running 5x per year). 

Happy New Year!  We start 2026 with a trifecta of tailwinds.

We have industrial policy, fiscal policy and monetary policy all pointing in the same direction.

On the industrial policy front, deregulation and government incentives (and outright subsidies) around re-shoring manufacturing, are perfectly aligning with the timeline of a new industrial revolution.

And on that note, we heard today from the person driving the innovation of the new industrial revolution.  Jensen Huang gave the keynote to kick off the Consumer Electronics Show (CES) in Las Vegas this afternoon.

We’re now a little more than three years removed from the “ChatGPT moment,” when it became clear that large language models would change everything.  Yet Jensen says we are still at “the beginning.”

If we look back to last year’s CES keynote, he told us the future was about “physical AI” — where AI systems integrate with the physical world ($100 trillion worth of global industry).  Physical AI is about robots, and he told us it was just “around the corner” (and showed us this slide).

Fast forward to today:  Jensen told us Nvidia’s autonomous vehicle AI (called Alpamayo) will be one of the largest robotics systems in the world — and he says it will be on the roads beginning this quarter.

So, the future that was “around the corner” has arrived. 

With that, Jensen highlighted this new slide today.

You’ll notice that physical AI is no longer at the end. 

But this is not a timeline.  This slide is subtitled, “Everything Everywhere All At Once.”

It’s about AI diffusion.  He is telling us that AI will ultimately fill all space. 

You train the AI brain.  The brain acts on its own.  The brain gets a body.  The brain understands the universe.  And through open models (like DeepSeek, Llama) the democratization of AI will lead to new discoveries and new frontiers.

So, not only should we expect a bigger economy, but a bigger world. 

As we head into year-end, the fundamental backdrop is very strong.

The Fed has resumed easing after holding policy too tight, for too long.  And a more dovish Fed regime is coming soon, that will align monetary policy with industrial and fiscal policy (a trifecta of tailwinds). 

Productivity is accelerating, led by AI and infrastructure buildout, which should be revealed more broadly next year, across industries (not just tech).

And hot productivity makes the economic pie bigger and should push wages higher, without putting pressure on prices (i.e. real wage growth).

That said, there will be noise and hand-wringing by the media and Wall Street, and the risk of shocks is real, but the Fed has already repositioned itself in a proactive stance to counter liquidity stress. 

With the above in mind, our top-down view has been validated this year in our premium portfolio services. Our Billionaires Portfolio is up over 40% on the year.  It’s a portfolio full of deeply undervalued stocks, with a catalyst for change.  And we are just in the early stages of a cycle that favors the portfolio: value over growth.

Our AI-Innovation Portfolio is up close to 100% since our June 2023 inception, and remains positioned in stocks that are (already) or will become cash flow machines, as AI moves from experimentation into deployment, including physical AI (robotics and automation). 

If you have been watching from the sidelines, this is a great time to get involved.  You can join our Billionaires Portfolio here, and our AI-Innovation Portfolio here.

As things are dialing down for the holidays, I’m unplugging to spend time with my family (some ski time in Colorado!).  So this will be my last note for the year. 

Thank you for being a loyal reader of my daily Pro Perspectives notes.

Wishing you a Merry Christmas and a Happy New Year!

Best, 

Bryan

We got November inflation data this morning.

The fall in the headline number from 3% to 2.7% (year-over-year) from the prior period was a big positive surprise.

And this cooler inflation report followed the soft November jobs report, from Tuesday.  That said, there were data points missing due to the government shutdown.

But these data points, for markets, had already been digested — last week.  Remember, Jerome Powell told us a week ago that the labor market was softer than had been reported, and that inflation was in the “low 2s,” once the one-time effects from tariffs were stripped out.

Moreover, the Fed already reacted (another cut, and a return to expanding the balance sheet).  So, the data points this week were less important.

Let’s talk about gold and silver. 

If you recall, we looked at this chart of the gold/silver ratio a few months ago …