7# Signal 2 Noise

I feel like I am finally getting into a rhythm where I can start focusing on the letter. The registration and onboarding flow will hopefully be completed today. I will also have a trial period so that I can get people I am close to on the mailing list for feedback.

As I say all the above it feels like every time I work on the portal something breaks. What I am going to do for the time being is make the newletter the focus and not stress if some of the dynamic process on the portal are broken. 

On that topic I was told a couple of weeks ago that the economic data vendor who I am accessing via Quandl has given them unexpected notice. So a lot more of my economic models will break in the coming weeks as I replace the api to a new data source. I will keep you posted in this section.

While the SP500 did not make a new high yesterday, its 3.39% move in the first two weeks of the month has been noteworthy. Bitcoin is also on fire, having crossed $50,000 for the first time in 2yrs.

Will be interesting if Gold makes new highs in the near term as all markets seem like they want to rally. CPI numbers coming out later today may provide some direction.

Still, nothing stands out here. The yield spread inversion seems on track to normalise. Let’s wait and see before making any firm forecasts.

There were more than enough signals generated yesterday. I will just comment that it is interesting to note that the VIX seems to have woken up from its sleep. Take note at the chart, the move tells us nothing from a technical point of view at this stage.

The big news today is the US CPI numbers. We are trending lower at the moment on the back of the big numbers posted a year ago, so I wouldn’t read too much into good numbers today.

It is worth noting that despite the new all-time highs in the SP500, which is a market cap-weighted index, the equal-weighted index has not yet made new highs. Let me explain what a market cap-weighted index means. The impact a single stock has on the SP500 index is dictated by its size as measured by market capitalization. So the bigger the stock, the more it impacts the index. An equal-weighted index gives each of the 500 stocks comprising the index an equal impact on the overall index. What it means is that the heavy weights are dictating the overall movement of the index. The broader (as measured by the equal-weighted index) the market trend, the more confidence we can have in it.

A.I. has all the signs of a bubble. It has been a little while since we experienced the mania associated with a bubble. Probably the last major bubble was crypto.

A.I. was already sexy 5-yrs ago, but it really took off with the launch of Chat GPT at the end of 2022. 5-yrs ago, I started an A.I. postgraduate university in Europe to ride the growing trend. It’s definitely a story for another time.

One of the biggest beneficiaries of the Chat GPT large language models (LLM) success is the graphic card manufacturer NVIDIA. I am including a chart of this stock, which has gone parabolic this year after an incredible year last year. I always fear too much of a good thing, and this chart is a textbook bubble.

Joining the party with a 29% rally yesterday is a company I hadn’t even heard of: Arm.

Arm has nearly tripled since its shares debuted in September and now has a market value of more than $150 billion, making it more valuable than Boeing Co. and AT&T Inc. The Cambridge, England-based company is still 90% owned by SoftBank Group Corp., which acquired the business in 2016 for $32 billion.

Look at the chart of big wave surfer Masayoshi Son’s SoftBank. I was pretty sure that this guy was going to file the largest bankruptcy case in history during the COVID crisis. All credit to him, he has managed to paddle out and get back on the wave, riding some A.I. success. SoftBank’s 14-day RSI is the highest it has ever been. Is this the last hurrah, or has this baby got more to go? I will step aside from any long-term bet, but my guess is that we are close to a near-term top.

I will end this segment with a further point about why I think we are in a bubble. Sam Altman, the guy leading the A.I. charge with Open A.I., announced last week that he is working on a project that will require trillions of dollars to build the infrastructure to power the new A.I. revolution.  A trillion dollars is a lot of money. I sense that this nonchalance is a clear sign that we are in an unsustainable environment. I understand that increased productivity will help economic growth. However, increased productivity might also lead to a steep rise in unemployment, and its multiplier effects on the consumer economy will possibly drown out the productivity benefits. This all ignores how the trillions are financed.

I am out of time to go into this in more detail, but I want to pose the question for future analysis. A country of more than 300 million people. The superpower of the world. The richest country in the world. Something is seriously wrong with American society that they have an 81-year-old senile man running the country, and worse, he is planning to run for another 4 years later this year. 

Then you have a narcassist, meglomaniac 78-year-old baby who has already been president and wants to do it all again. This after causing an insurrection after losing the last election.

Anyone with half a brain has asked themselves this very question, so the question stands: why?

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