After hearing testimony from Jerome Powell the past two days on Capitol Hill, and after hearing from a slew of Fed speakers over the past week, the takeaway is that the Fed is comfortable not messing with an economy that seems to be doing well (for the moment) with a Fed Funds rate above 5%.

Still, despite highly restrictive monetary policy, we head into the February jobs report tomorrow morning with stocks on record highs.

On jobs, as we discussed yesterday it was a hot January jobs report and a big upward revision of the December payroll number that sent yields screaming higher in early February (to the tune of almost 50 basis points).  That said, the 10-year yield is down almost 25 basis points in just the past nine days.  Perhaps in anticipation of some downward revisions to come (in the jobs data)?

If we’re looking for a trigger in the economic data, at this point, that might disrupt the current drum-beat narrative of the Fed, it would be a softer employment situation (i.e. a threat to the “maximum employment” component of the Fed’s mandate).

Let’s take a look at gold …

Gold is making new record highs by the day.  Today was the sixth consecutive higher high, and higher closing price.  That has coincided with five consecutive lower daily closes on the dollar index.

If we look back at the events that aligned with the prior highs in the chart above, we have 1) the oil price shock and broad inflation shock of early 1980… 2) the collapse of Bear Stearns … 3) thirty-one years later gold finally surpassed the 1980 highs, and the catalyst was rising global sovereign debt risks, in the aftermath of the global credit bubble burst (gold spiked on the downgrade of U.S. debt and a European sovereign debt crisis)… 4) global war risk on Russia’s invasion of Ukraine … 5) 2023 bank runs and risk of contagion … 6) an 18% two month rise to a new record level originating from the October Hamas attack (global war risk) … and 7) currently gold is, unusually, sustaining these record high levels.

Notably, with the explosion in the money supply, the new record high prices in gold are clustering — which is bullish. 

With that, we’ve often looked at this longer term chart of gold over the years.

This is a classic C-wave (from Elliott Wave theory). This technical pattern projects a move up to $2,700ish.  The price of gold has continued to make progress along that path.  

How do you play it? 

Get leveraged exposure to gold through gold miners, or track the price of gold through an ETF, like GLD. 

Full disclosure, we are long gold miners, including Barrick Gold in our Billionaire’s Portfolio.  

We heard from Jerome Powell today, at his semiannual Congressional testimony.  His prepared statement, which he’ll repeat in a visit with the Senate tomorrow, was short and uneventful.  

So was the Q&A.  For those looking for clues on some sort of incremental change, there were no clues.  In the prepared remarks, he said “our restrictive stance of monetary policy is putting downward pressure on economic activity.”  But he repeated the recent mantra of needing “more confidence” to make a move on rates (i.e. more data to assure the low level and falling inflation trajectory is sustained).

He did acknowledge increases in insurance prices as “adding meaningfully to inflation.”  And as we’ve discussed in my daily notes, the good news is, this (rising insurance premiums) is a lagging feature (likely a late stage feature) of a hot inflationary period.

Now, we talked yesterday about the recent Fed commentary on risks to employment, if the Fed were to stay too restrictive, for too long.  

On that note, we get the February jobs report on Friday.

This will be a big one.  It was the January jobs report (which came in on February 2nd) that reset the market outlook on interest rates. 

As you can see in the chart of the 10-year yield, a hotter jobs number sent the 10-year yield from 3.87% to as high as 4.35% by the end of last month. 

And the interest rate market swung from fully pricing in 50 basis points of rate cuts by June, to now pricing in a bit better than a coin flips chance for just a 25 basis point cut by June.

So, what was that hot payroll number?  It was 353,000 new jobs added.  Expectations were for 185k.  Moreover (maybe more importantly), there was a big upward revision to the December jobs number.  It was revised up from 216k to 333k. 

Now, this is especially interesting, as we head into Friday’s numbers, because the Bureau of Labor Statistics has a history of making large revisions in the jobs data, under the current administration.  

Remember, we talked about this back in January (here).  As you can see in the table below, the BLS revised UP eleven of the twelve months of nonpayroll numbers in 2021.  And it was significant.  For the full year, the initial monthly reports UNDER reported job creation by 1.9 million jobs. 

So, the job market was much stronger than was initially reported in 2021.  And the view of a relatively modest job market recovery was used to justify the Fed’s claim that inflation was “transitory.”  And the Fed’s claim that inflation was “transitory” was used to rationalize Congress’s pursuit of even more fiscal stimulus (which was more fuel on the inflation fire). 

You could argue the opposite has happened in 2023 …

With a December revision remaining, the BLS has OVER reported job creation by over 300k jobs.  They’ve revised DOWN ten of the twelve months.   

So, 2023 looks like the opposite of 2021.  And the Fed has the opposite policy stance of 2021 — now highly restrictive, with job growth that is weaker than was initially reported.

With the above in mind, we may see some meaningful revisions to the December and January data, within Friday’s job report. 

A month ago, the “advanced” report on Q4 GDP showed the economy grew at a 3.3% annual rate.  Tomorrow we’ll get the second estimate.

Remember, the theme on economic growth has been “positive surprises.”  Incorporating all of the data from Q4, the consensus view from the economist community undershot by two percentage points.  The Atlanta Fed’s model undershot by about one percentage point.

If we look back at Q3, the economists were looking for a little better than 2% growth. It came in at 4.9%.

The worst offender has been the Fed.  Coming into 2023, they were looking for just 0.5% growth — for the year!  They revised it up to 2.6% by the end of December (in the Fed’s most recent Summary of Economic Projections).

At this point, it looks like they’ve still undershot by half a percentage point.

Maybe they’ve learned something from this past year?

It doesn’t seem so.

As you can see in this screenshot from the Fed’s Summary of Economic Projections, they entered 2024 looking for just 1.4% economic growth on the year.  The Atlanta Fed model is already tracking better than 3% growth for Q1.

The Fed has clearly underestimated the impact of the money supply boom on economic output.  And they’ve underestimated the sustainability of productivity gains, which increases the growth potential of the economy, without stoking inflation. 

 

Stocks reversed the losses of recent days to finish on new record highs.  And it was fueled by the earnings and insights from the most important company in the world, Nvidia.

Keep in mind, not only does the opportunity ahead of Nvidia make it the most important company in the world, but the numbers they are putting up right now, put them in a class of their own (maybe in history).

Take a look at the hyper-growth (both relative and absolute) in this 2024 financial summary from Nvidia … 

 

And for perspective on the durability/credibility of this growth, keep in mind the biggest, most powerful technology companies in the world (Meta, Google, Amazon, Microsoft) are not only making record-level investments in building AI infrastructure, but they are completely transforming their companies to focus on generative AI. 

So, as we’ve discussed here in my daily notes, with the events of the past year, it’s clear that we are in the early stages of a new industrial revolution.

And that statement should be the answer to the question: Is it too late? 

It’s not too late.

For those that have been calling the boom in AI stocks unsustainable, they are underestimating, if not misunderstanding, the significance of this technology revolution.  It’s productivity enhancing, and a formula for a boom-time era in economic growth.

As we’ve discussed throughout the past year, the generative AI impact will mean bigger companies, in a bigger economy — a bigger pie.

It’s already happening.  Just in the past month, we have our first $3 trillion company, in Microsoft.  Nvidia is nearing a $2 trillion valuation, and yet the price you pay for the stock today, relative to its earnings, is cheaper than it was back in May of last year, when they shocked the world declaring “a rebirth of the computer industry” was underway.

With that, as I said in my Feb 2nd note, the best time to get invested in this technology revolution was November 30, 2022 (when ChatGPT launched), the next best time is today. 

Remember, the CEO/Founder Jensen Huang has said “every company, every industry, every country” will go through this computing transition.  He sees “significant total addressable market expansion.”  That’s the pie growing. 

Already he sees the cost to “retool” the world’s data centers to accelerated computing climbing from $1 trillion to $2 trillion within the next five years.  Given that Nvidia is supplying about 90% of it (at the moment), and they’ve done under $50 billion in data center revenue over the past year, this global data center transformation has a long way to go.  It’s very early. 

So, what comes next? 

Huang has said the future of this accelerated computing will power the “next big reinvention,” where “the digital world meets the physical world.”

He says Nvidia’s Omniverse technology will power it, and it will reshape $100 trillion worth of global industry.

On that note, earlier this month, Apple debuted the Apple Vision Pro.  Here’s how they describe the product:  “Apple Vision Pro seamlessly blends digital content with your physical space.”

The CEO of Siemens, when he presented earlier this year at the Computer and Electronics Show (CES) in Las Vegas, called 2024 a “turning point” where real and digital worlds will converge.

And he introduced the “Industrial Metaverse” where generative AI is making reality better and building it faster and more efficiently, by using the virtual world.  And the virtual world is all about the “digital twin.“

The digital twin is driven by generative AI and can create highly realistic and dynamic digital representations of a physical asset or system (products).  Builders/developers/engineers and all stakeholders can see the products perform (as a digital twin), have fully immersive interaction with the product, before and while building it. 

We now have 15 stocks in the portfolio, since we launched in June of last year.  

We started with a focus on AI infrastructure stocks.  These are the “picks and shovels” of this technology revolution.  And we’ve since added massive SaaS companies that will deliver the capabilities of generative AI to companies around the world.  

Yesterday, ahead of the Nvidia earnings, we made another addition to the portfolio — the cheapest of the giants leading the technology revolution, and they own perhaps the most valuable data on the planet.  

As for the industrial metaverse, we also recently added a pioneering infrastructure engineering software firm that’s been leading this metaverse technology since 2016.  It’s founder led, with double-digit growth, high profitability, and high gross margins (already).  And this company is actively shaping the digital transformation that will drive the infrastructure/building boom. 

Again, it’s still early in this technology revolution. There are tremendous investment opportunities, in an era that has already brought us the multi-trillion dollar companies.  More are coming.

If you aren’t yet a member, and you’d like to join us and get all of the details on these stocks and the rest of our portfolio, you can do so following the instructions below. 

The next wave will be the tremendous potential for new businesses to form around generative AI, and for old businesses to adopt and realize the benefits of generative AI.

Here’s how you can join me…  

The AI-Innovation Portfolio is about allocating to HIGH-GROWTH.

For $297 per quarter ($99 per month), you’ll gain exclusive access to my in-depth research, expert analysis, and timely investment recommendations focused on the generative AI revolution — all email delivered to your inbox. 

You can join me by clicking here — get signed up, and then keep an eye out for Welcome and Getting Started emails from me.

(Cancel anytime by emailing support@billionairesportfolio.com and requesting to cancel.)  

Best,

Bryan