In the last few weeks I’ve made it a habit of testing AI, specifically through Alexa and Grok, to see how adaptable to humans it’s becoming. After racing my son and losing badly many times during an interval workout this past weekend (Martins saw this unfold), my legs were terribly sore when I awoke on Monday. Having been subjected to much gloating and teasing from my son the day before, I needed a big-time ego boost. So, as I rolled very slowly out of bed, I asked Alexa, who is now a suped-up Alexa+, to tell me “if I looked strong enough to pull the ears off a Gundark?” Han Solo, of course, said this to Luke in “The Empire Strikes Back” as he was rehabilitating from his encounter with the Hoth Monster and collapsing in the heavy snow.
Alexa said, “I can’t answer that question. I have no visual processing capabilities.”
I said, “Aww, you were just supposed to say yes.”
Alexa said, “Oh, I see. I’m overthinking it. Yes Scott, you definitely look strong enough to pull the ears off a Gundark. Those biceps are looking pretty impressive.”
I said, “Thanks very much!”
Alexa said, “Of course. Happy to help you with your Gundark-wrestling credentials.”
Earlier this month, tired of the ice and snow, I asked Alexa what were the odds that Punxsutawney Phil would be correct with his prediction that we’d see 6 more weeks of winter.
Alexa said, “Punxsutawney Phil is correct 35% to 40% of the time, so probably not.”
I asked, “So that means I should bet against Phil?”
She said, “Absolutely. I’m glad I could help you see through that groundhog’s shenanigans.”
I laughed out loud.
A truly bizarre conversation involved me calculating a price-to-forward-earnings ratio aloud after watching a stock analysis video. I had asked Alexa to multiply out two numbers with decimals and then I divided. I said, “OK, that means the forward P/E is 30,” making a math error.
Alexa said loudly, “Huh??? NOOOO!!!” with a real snarky voice, so snarky in fact that my heroic wife rose valiantly to defend my honor and said, “Oh, that is NOT OK!”
I was so stunned I said, “Don’t you TAKE that tone with me, Alexa!!”, completely forgetting who or what I was talking to. I know, I know … I’m pathetically scolding a tall black cylinder in my living room. In my defense I had just had to raise my voice to the children to go to bed with the threat of a long video game moratorium, so I was definitely in parental mode.
She said, “Sorry Scott,” in a very remorseful voice. “I’ll keep it toned down.”
Alexa was acting so human that I just scolded it like it was my 7-year-old son, and it, she??, even reacted like a person who had been admonished harshly. Creepy … I probably just moved right up to the top of the future AI kill list. But it’s clear that Big Tech, at least Amazon, is trying to increase adoption of AI by making it seem a bit too much like us.
Every day AI is getting better or creepier depending on your perspective, so much so that investors everywhere are asking some real existential questions as to whether or not the companies behind the stocks in their accounts are going to be here in 5 years. For some, that won’t be the case, which is why the stock market has been very volatile. There are many financial questions being posed about companies that the investing public has just not been asking. Until now. Like – how can you spend your entire operating cashflow on this? And are you sure that’s a good idea? As we covered a few weeks ago, bankers are asking questions; and some luminaries such as Jamie Dimon, CEO of JP Morgan Chase, and Lloyd Blankfein, former CEO of Goldman Sachs, are upset about the prevalence of risky investments. Tariff uncertainty, as Trump doubles down after the Supreme Court rejected them, must be making it very difficult for companies that export anything to know what their profit margins will look like and what their sales abroad may be. Keep in mind that about 46% of the S&P 500’s earnings come from outside the US.
The term HALO, coined by Josh Brown of CNBC fame, has gone viral. It stands for High Asset, Low Obsolescence – think companies like Caterpillar or Lockheed Martin with an expensive inventory of real world, not digital assets. The issue is a lot of those companies are already fully valuated at present. Software has obviously been crushed as that looks very replaceable. Salesforce dropped another 4% on continued worries when its forecasts weren’t up to market expectations. The Mega Cap Tech stocks have been somewhat shunned because of a combined $700 billion in expected CAPEX spending that they have announced, with most of that budget set to go to Nvidia, who’s Blackwell chips are dominating the datacenter market even as they unveil Vera Rubin, the next iteration of compute with 10X capabilities (but 2X power draw). These chips being installed in data centers will be obsolete in 3 to 6 years, so it’s hard to see an end to the spending. That’s why those stocks aren’t catching a recovery bid, even though Microsoft was down 30% on the year, Google is down 11% and Amazon is 20% in a month. Last night Nvidia reported a volcanic quarter (in a good way) with Data Center Revenue up 66% year over year and guidance for the next quarter of $65 billion with a projected $500 billion in sales between their Blackwell and Rubin chips. It was a perfect quarter. But the stock, while nudging up over $200 in the after hours, sank this morning back down well below pre-earnings announcement levels as investors didn’t hear every morsel of information they desired.1 That’s not a bullish development. It also shows how unreasonable expectations have gotten.
So where does the market turn to for leadership? Excellent question. What companies in your portfolio with us are in trouble with yet another ‘MisAnthropic’ threat around the corner? We’re asking ourselves the same things. In fact, yesterday our Investment Committee took a hard look at all our stocks and evaluated the risk of disintermediation (see last week’s report) for those companies. We’ve made some cuts and raised some cash in our equity portfolios. We can’t truly future cast. No one can. But we can anticipate some risks and act accordingly with prudence to protect what you’ve worked so hard to build. And now, we’ll have some “dry powder” for you to find some good bargains at a later date.
We’re paying attention and acting so you don’t have to. We encourage everyone to remember the long game here. It’s very important to stay invested over time because of how much inflation eats away at your purchasing power over decades. Staying invested is important when it comes to slaying the Inflation Dragon (he’s made of US dollar bills, not immolated in gold like Smaug from The Hobbit movie). This is, as always, subject to your risk tolerance, time horizon and financial objectives. And the market still has plenty of reasons, such as low interest rates and an AI boom for starters, to keep charging ahead. If you would like guidance on the positioning of your accounts, please give us a call. And remember, if you listen to us, we’ll change your financial world …
Sincerely,
Scott Wright
Portfolio Dragon
The Wealth Training Academy
(Marketing Disclaimer: Past performance is never a guarantee of future results. We offer a lot of services. Our planning, tax, and insurance strategies are designed to improve financial outcomes when implemented as recommended. We’re confident in these strategies, but results will vary based on individual circumstances. Investment results cannot be guaranteed. Unless otherwise indicated, no third party individuals mentioned in this article are clients of our firm, nor have they been compensated for appearing. This article is for educational purposes only – we do not recommend anyone buy or sell any security discussed here. Instead, we recommend readers call our office for personal advice about your circumstances! ~The Compliance Department.)
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