In an age of KAOS, pay attention to the signal…not the noise

Editor’s note: Eric Fry, here. On Tuesday, September 24, 8:00 PM ETa colleague of mine and I will sit down to talk about the chaos in the markets we’re seeing as early as 2020… and how to prepare for even more chaos to come. You can click here to book your place for the event.

According to my guest, several headwinds are converging on the markets at once and will have a drastic impact on the stock price of virtually every stock in the coming weeks. My special guest is convinced that this major event will happen because of a set of alerts he receives. He will show us more about how he gets these alerts at our event.

To prepare for the event, I’m sharing a recent essay from Mike Burnicka mutual colleague of ours who is deeply familiar with my guest alerts.

For you Mike…

Dear readers,

One of my favorite TV shows when I was younger was Be smart. As a secret agent, Maxwell Smart (Agent 86) was a bit of a clown.

But he was also cool, with his sleek red sports car and his good-looking girlfriend (Agent 99).

The show’s plot was a never-ending battle between the forces of KAOS and CONTROL (the agency 86 and 99 work for).

And despite their less-than-intelligent approach to intelligence work, CONTROL somehow always managed to come out on top.

But nowadays it seems that KAOS forces have power in politics, media and some parts of society.

Chaos certainly seems to reign in the financial markets today.

Since the global pandemic hit in 2020, it seems that the markets and the economy have gone through a chaotic ride.

In the past four years alone, stocks have experienced two bear market declines of 20% or more just two years apart (2020 and 2022). And two years of big gains to new all-time highs (2021 and 2023-’24… so far).

But fasten your seat belts because there may be no end to the mayhem. Let’s take a closer look at two of the biggest fear factors facing the markets and the economy today.

The money raised could tip the economy into recession

Let me be blunt about this: I don’t have much faith in the Federal Reserve. Never have, never will. Look back at the last few years.

First, the Fed cuts interest rates to zero in response to the pandemic. OK, I can buy this.

Second, shortly thereafter, inflation accelerates due to all the easy money printing. No surprise to anyone except apparently the Fed. At the time they said it was only “transient”. Not to worry – until the CPI reached 9.1% – the highest since the 1970s.

Third, the Fed does a quick job and starts raising interest rates faster and more than ever before, triggering the second of our two recent bear markets.

An inverted yield curve, when short-term interest rates are higher than long-term rates, has been widely considered a sure sign of recession.

Well, thanks to the crazy Feds, we’ve had an inverted yield curve for over two years now. But more recently, the curve has not inverted as markets now expect the Fed to cut rates soon.

But is it a good thing? History says not much.

That dark line in the chart above marks the path of the S&P 500 since the yield curve reached its maximum inversion.

All multi-colored lines trace the path of the S&P 500 after each reversal from 1959 to 2019, 10 times in total, not counting this time.

The trend of these multicolored lines is the most important, not the details.

At a glance, you can see that the stock trended lower every time at some point in the first two years after the yield curve inverted.

These market declines ranged from 6% to 53%.

Based on 35 years of experience in the financial markets, I can tell you that the Fed is usually behind the curve. Their misguided monetary policies often sow the seeds for the financial crisis and recession that it is their job to prevent.

Will this time be different as the Fed somehow pulls off the legendary soft landing? Maybe, but I wouldn’t rule out a crash landing.

Does the dawn of AI signal the end of the bull market?

AI has been all over the news. It’s the new big thing. And I have no doubt that you DO will fundamentally change the world.

It will have an impact not only on business and our economy, but will also have lasting influences on society as a whole.

And despite comparisons to the Skynet villain from finished films, I expect most AI-based changes to be positive. In fact, Eric’s members have already seen some of the benefits up close in his AI-powered recommendations in The Speculator and Fry’s Investment Report.

But game-changing technologies like AI are also disruptive.

This means that the big benefits don’t always appear immediately, but take time. Think back to the beginnings of modern technology and the Internet era in the 1980s and 1990s. The Internet was known as World wide web back then, and access to it was a mandatory technology.

“Welcome, you have mail.” Remember that greeting when you called AOL, via your dial-up dial-up modem? Or how about WorldCom, Global Crossing, Webvan or Pets.com. Do you remember him?

It was supposed to change the world, thanks to the Internet—and in the process, make investors rich beyond their wildest dreams.

In reality, most have had a spectacular rise and then an equally spectacular fall. Many of those darlings of the early Internet era are long gone.

The same will be true for some of today’s darling AIs. It is always difficult to tell when the boom ends and when the bust begins.

For investors, riding the boom for too long can be dangerous to your wealth.

Above is a graphic history of past booms and busts. Almost every example has the same thing in common: spectacular, parabolic, upward movements, followed by a large bust in most cases.

The dark blue line above traces the AI-darling’s spectacular growth Nvidia Corp. (NVDA). Once again, the details of the multi-colored lines are not that important.

It is trend in those lines after the parabolic peak, that’s the key.

Take a closer look at the thick gray line. This is the average of all 14 boom-bust cycles shown above. Most show a sharp downward trend, some steeper than others. But the drop from the peak averages exactly 50%.

As a side note, the two dotted lines stand out. That’s it Apple Inc. (AAPL) which managed to reinvent itself not once, but twice (in 2009 and again in 2019) to avoid bust. Perhaps the third time will also be a charm for AAPL.

Does the recent weakness in Magnificent Seven stocks, including NVDA and AAPL, mean the end of the recent boom and the beginning of the next bust?

Only time will tell, but I can tell you based on my experience that technology valuations are nowhere near as expensive today as they were in 2000. So maybe the AI ​​boom has more room.

However, it’s likely to be a more volatile ride from here on out.

The bottom line is that we are investing in volatile and chaotic markets today. No one knows exactly what the future will bring. But you can often make good, money-making predictions based on hard data.

Futurist John Naisbitt, author Megatrendsonce said, “We are drowning in information but starving for knowledge.” It is as true today as it was when his book was published in 1982, at the dawn of the last great technological boom.

And that’s why now more than ever we need to be smart about your finances. Use trusted sources of data and analytics to help you grow and preserve your wealth.

I’ve seen firsthand how the alerts and context they provide have helped make thousands of people better, more informed investors. It can do the same for you.

Eric and his special guest will talk about all of this during their conversation Tuesday, September 24th at 8:00 PM ET. To make sure you get an email or text message (your choice) right before you start, reserve your seat by going here.

Eric’s guest tells me he’ll reveal how these alerts might have even improved the performance of some of the most prolific billionaire investors out there—names you know like Warren Buffett, Bill Gates, and Ray Dalio. He performed an extensive backtester on the properties of over two dozen billionaires to prove this.

It all boils down to paying attention to the signal, not the KAOS market. Stay in CONTROL.

good investment,

Mike Burnick