Commentary
The upcoming Kansas City conference (August 27-29), being held in Jackson Hole, Wyoming, is expected to dominate the financial headlines this week. Essentially, the financial news media loves following the Fed and other central bankers at Jackson Hole – a scenic summer vacation spot – so I am expecting upbeat news on inflation and some other Fed talking points. Although the 2-year Treasury note remains above the Fed Funds rate, due to a poor payroll report, better-than-expected inflation news, and a decline in retail sales in July, for now, it seems the pressure is off the Fed to raise key interest rates, so I am hoping Fed Chairman Kevin Warsh will talk about the deflationary benefits of AI productivity gains at Jackson Hole.
In the meantime, the bond vigilantes have resurfaced during these generally thin market conditions in August, as global bond yields have risen in Britain, France, Germany, Japan and the U.S. One of the consequences of higher yields is seeing new housing starts decline 12.4% in July to a 1.24 million annual pace. Technology industry borrowing to build data centers has also pushed rates up. With the 30-year Treasury bond at the highest yield since 2007, fixed income investors are nervous, since their principal erodes as yields rise. TLT, the iShares 20+ Year Treasury ETF, is now down by over 6% year-to-date.
Here are the most important developments recently and what they mean:
– Nvidia (NVDA) will be the grand finale to this incredible earnings announcement season on Wednesday, and Micron Technology (MU) will be the encore in subsequent weeks. Due to the anticipation of Nvidia’s spectacular quarterly results, plus the fact that the financial media will be all excited about their annual trip to Jackson Hole this week for the annual Kansas City Fed Conference, investor optimism is expected to improve.
– As Americans, we have to decide if we want to be manipulated by negative news and miss great investing opportunities or if we want to share in the success of many billionaires, like Jensen Huang (Nvidia), Sundar Pichai (Google) and Alex Karp (Palantir Technology). Interestingly, I have never recommended companies associated with the most popular billionaire, Elon Musk, because his companies have never passed my 8-factor Fundamental model. I am not anti-Musk and hope to invest in one of his companies when they pass my strict fundamental criteria. If we have learned anything in the past few months is that fundamentally superior stocks bounce right back, especially in the wake of better-than-expected sales, earnings, higher guidance, and rising order backlogs.
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– The order backlogs for AI-related stocks continue to rise, since AI developers are kind of like Captain Kirk on the Star Trek series demanding more power from Scotty, his engineer. Right now, the data centers are sounding like Scotty screaming “that is all the power she (USS Enterprise) has got.” We cannot stop the AI boom since ChatGPT, Claude (Anthropic) and Grok (SpaceX) are all demanding more computing power. As a result, GE Vernova (GEV) has a massive $176 billion order backlog that is expected to continue to rise.
– The key to getting rich in America is to identify great companies. I use my Stock Grader to identify these companies and ride them as long as they are scoring highly in my 8-factor Fundamental model. That is why I never sold Super Micro Computer (SMCI), despite relentless short-seller attacks, like from the Citron founder, Andrew Left, who was recently sentenced to 20 years in jail for market manipulation. Michael Burry is the latest short seller that the news media is glorifying. Investors should realize that negative news sells.
– On Fox Business, I mentioned that the Trump agenda is unlikely to be derailed by any leadership change in the House of Representatives, since the vast majority of federal spending for the next two years has already been front-loaded. As a result, I do not want investors to worry about the consequences of the mid-term elections. The good news is that after the decisive rhetoric associated with the mid-term elections ends, the news media should cheer up, since Thanksgiving and the holidays are a happy time of year, so we will finally have some positive news.
In conclusion, we should keep our heads down and not be distracted by any of the naysayers or market manipulators. Good stocks bounce, and fundamentals cannot be ignored for very long. I have had some clients question my massive holding in Nvidia, and I politely told them that there are no better stocks to go into, especially after incurring the tax consequences of selling a stock with a massive capital gain. So, I want investors to feel good about America, grow and prosper by investing with successful billionaires, plus enjoy an incredible earnings environment as well as explosive GDP growth.
