Postcards: Riding the Electric Centipede
How insane is the AI Bubble? More insane than you realize... and yet... we're still trading into the night to maintain our purchasing power as a corrupt, broken system reaches terminal velocity.
Dear Fellow Expat:
Like a Gonzo journalist speeding headfirst into the madness of Las Vegas…
Here we are as investors and traders… revving up the engine… fully aware of the dangers that lurk ahead… but armed with a deep knowledge of global liquidity, momentum, and when it’s time to fold the cards with our Equity Strength Signals.
As investors, we’ve been bullish since November… when our equity signals turned positive. Add on a lot of capital sloshing around and an ongoing wave into U.S. markets, and you end up with the Global Markets being overweight on America.
To be candid, it was hard to anticipate this frenzy. Markets didn’t even blink at the last two weeks of February, historically the worst seasonality period.
Tech stocks continue to hold their ground.
With four stocks still driving the Nasdaq 100 (QQQ) rally and Bitcoin now above $65,000, we are facing the throws of the most absurd portion of the frenzy.
This is where performance detaches itself so much from the underlying market and economic fundamentals that it feels like we’re riding an Electric Centipede at the speed of light.
Here we go, zipping through digital valleys and over the silicon hills, eyes bloodshot, wide, and aware of the technological madness and historical greed around us.
This is the frenzy of today’s Invesco QQQ Trust Series 1 (QQQ), which tracks the performance of the Nasdaq 100.
This index comprises 100 technology stocks much like a Centipede has 100 legs.
Over the next few weeks, college basketball’s March Madness will arrive… and you’ll hear much more about AI and other innovations on television. Former NBA star and sports anchor Charles Barkley is about to get a big check to tell you about semiconductor stocks between games.
The Invesco QQQ Index is one of the top advertisers during the annual NCAA basketball tournament. With women’s basketball getting even more popular, expect the ad revenue machine to spiral to 11.
Every speculator loves the attention mass marketing can bring to an existing financial mania. For traders, every dip and rise offers a stunning jolt of adrenaline.
Meanwhile, investors (especially those burned by previous frenzies) are eager to chase the recent high returns of a digital AI frenzy that seems to know zero bounds.
It will find its limits, my friends…
Yes… it will.
But for now, saddle up on the Electric Centipede…
But before you check your height and adjust your seatbelt, let me show you a few things that should make your eyes water.
This is where we are today… and why you need to play as much defense as possible in March… we’ll show you how.
This is a House (Not a Line of Code)
Drive South from Syracuse, New York, through some of the most beautiful land in the United States. You’ll experience a kaleidoscope of rolling hills and green expanses.
About an hour south, you’ll move through Whitney Point. There, jump on I-140.
Another 10 miles, you’ll turn right on I-12, and about a mile past the Dollar General, you’ll see Davy’s Last Chance Saloon. I
Stop by for a drink - it opens at 6 am and will stay open until the following 1 am.
Do yourself a favor, don’t mention former Governor Cuomo in there; you might find birdshot in your behind later. They do not like that man in there…
If that’s not for you, drive over that next bridge instead. You’ll now find yourself in a pleasant river confluence and town to hunt and fish called Chenango Forks.
It’s some of the best trout and bass fishing in the state.
Now, back by that Dollar General, up the road is Bear Swamp Road.
Turn there. Just up the street, about two miles is this cabin.
Now, it might not look like much. It is… a cabin…
But it has running water, septic, and prime hunting land. The best fishing in the state is a mile down the road on the Chenango River… and it has five acres of land.
Five acres… You can easily convert, at worst, 1/2 acre into farming operations and live off it for the rest of your life.
This cabin and its land sold in 2022 for $55,000.
Oh… and it was built eight years ago.
Again… this is a house. Some families in the Old West had eight people or more in a cabin like this. It could have been yours for less than the median income. My grandmother grew up in a family of 10 children and two parents before the Depression in less than 1,500 square feet.
I don’t care if the cabin doesn’t have “marble counters” and “central air conditioning.”
It has five acres of Land. Food. Water. Septic. Access to Cable. And Electricity.
You know the shit we actually need to live.
Meanwhile, Bitcoin - which is a bunch of lines of code - just hit $65,000… because… “it’s innovative and scarce…”
When tulipmania in February 1637 hit peak madness, Charles Mackay, author of Memoirs of Extraordinary Popular Delusions and the Madness of Crowds (1841) says that one single tulip bulb hit ten times a typical craftsman’s annual salary.
Reports also indicate from Mackay that a single Tulip Bulb was reportedly exchanged for these physical goods:
Two lasts of wheat
Four lasts of rye
Four fat oxen
Eight fat swine
Twelve fat sheep
Two hogsheads of wine
Four tuns of beer
Two tons of butter
1,000 lb. of cheese
A complete bed
A suit of clothes
A silver drinking cup
Now… there could be some level of exaggeration to this list… but based on how people behave during frenzies like this… would you doubt them?
Is this digital frenzy starting to register with central bankers?
With humanity?
How does this make justifiable sense?
It all speaks to the unsoundness of fiat money and the fact that people believe that the world just involves conveniently going to nearby stores and buying things…
What a foolhardy way of looking at the world. When things get real - does anyone remember 2008 or the start of COVID - the things that matter… matter more.
Yet, this situation probably won’t slow down because frenzies compound.
But getting off the electric centipede before it falls off a cliff is always best is the trick.
That’s where we come in at the Florida Republic, focusing on hedging strategies, momentum, and where to put gains for the long term once you’ve gotten off the ride.
Remember… no one ever got poor taking gains. It’s easy, however, to blow up a year or two of your wealth (which is the reward for your time and effort and the past days of your life) by riding the electric centipede for too long.
So how insane could all this unsoundness of fiat money get with Bitcoin?
There should be a small correction soon, based on past behavior… and another leg up.
The liquidity thesis goes that this can run fast and hard through 2025.
If Global Liquidity expands based on the projections of Michael Howell and others who follow this phenomenon, it might be worth $160,000 to $200,000 per Bitcoin.
(Note: You don’t have to buy an entire Bitcoin. Investors can buy fractions called Satoshis… and I really don’t feel like explaining this at the moment without a stiff drink. It’s just as confusing as explaining baseball to someone for the first time.)
Bitcoin could be $100,000 by the end of the year because of the simultaneous increase in allocation via ETFs and the expanding pool of global liquidity. Of course… I will say that the “Halving Event” in April 2024 may be a “sell the news moment.”
Regardless, I don’t plan to be on trying to ride BTC to those higher levels over $100k…
By then, the wheels are off…
That’s again where people start doing foolish things like we’ve read in every major financial bubble. They start doing reverse mortgages to buy more Bitcoin… or buying back in after taking huge gains only to lose it all (Sir Isaac Newton).
At those levels - which are slight possibilities, Bitcoin would put it above house and townhouse prices within driving distance of some major cities.
It might not be a “straight line” up move… because other issues are at hand.
There is, for example, the threat now that interest rates could go up… while the Fed’s governor threatens to sell mortgage-backed securities (which would likely negatively impact mortgage rates).
But, bring this irrationality on. I’ll set stops and take gains back at $50,000. Or I’ll just ride this electricity higher on the back of global liquidity expansion.
If I can buy a “backup house” with land next year for two Bitcoins in some random small town in Eastern Maryland… with land, acreage, and the ability to fish and hunt should things go awry… I’ll take it all day, every day.
This is a broken financial system.
We are just here to play it to protect our purchasing power… And get out of the way just before the next liquidity event starts…
That’s what we do so well.
This Is the Energy Sector Compared to One Company
It’s not like Bitcoin is the only issue.
AI is the primary driver of this bubble…
NVIDIA is now the crown jewel of the Electric Centipede, with apologies to Warren Buffett’s Apple position. But once again… here’s the problem with the valuation.
NVIDIA is now more prominent in market capitalization than the entire S&P 500 Energy Index.
That doesn’t make sense.
We don’t need semiconductors to live. We need cheap, affordable energy.
And yet, here we are, watching this insanity continue.
I’m bullish because of the stages of liquidity right now. But I’m certainly on guard for the time when and if this finally gives out.
Which brings me to a movie idea. While driving this new car, I couldn’t figure out how to maneuver the seat manually. Turns out - everything is electronic.
And that’s where things are going to get nasty.
I should have bought the 1989 Blue Chrysler LeBaron with the Jimmy Buffett tape deck.
My movie idea is a ripoff of Mad Max 2: The Road Warrior, where the dystopian outback of Australia turns into a hellscape where no one can find gasoline.
My version would be different.
In this U.S. hellscape adaptation, gasoline is abundant.
But semiconductors are not, and everyone is driving around like crazy people, getting violent, because they can’t find the chips to adjust anything in their cars, like the headrest.
How did we get to the point that a headrest can’t be adjusted by hand?
We are crazy, lazy people.
As I said, when the aliens finally excavate this planet, they will note that Americans were so lazy that they bought their cars out of vending machines.
Bubble Bubble Everywhere
Finally, I want to point out the Buffett Indicator… which is back at levels we haven’t seen since the 1960s and the height of the Dot-Com Bubble.
The Buffett Indicator is the ratio of the total United States stock market to U.S. GDP.
This is clearly madness.
But we can thank AI for a lot of this.
As I noted yesterday, Syz Group had a great observation over the weekend.
They wrote:
It's been 309 trading days since ChatGPT was released on 11/30/22, and the Nasdaq is up 46.07%. In the 309 trading days after Netscape (the first web browser) was released in December 1994, the Nasdaq was up 45.9%.
So, this can certainly go on for a longer time. Interestingly, the Nasdaq bubble started in that 1994 move… and rips out of undervalued territory.
Why is this time different comparatively?
There’s a big fundamental difference between the 1970s and during the Dot-Com Bubble.
You can see that the Buffett Indicator collapses in the 1970s.
Hello… inflation.
Valuations cratered.
And interest rates would spike in the early 1980s. There wasn’t an activist Federal Reserve at the time.
The Fed was trying to drown inflation… all while fighting the massive spending programs created by the Great Society and the unleashing of fiat currency after the end of the gold standard.
There wasn’t a robust focus on wild technology stocks - and closer attention to valuations than where we are today. It was heavily industrial at the time.
In the 1990s, we had the onset of the technological internet revolution. And with it, years of quiet “Inflation Targeting,” a shift toward stock-based incentives that drove short-term focus on increasing stock prices, and various other programs that helped inflate everything from the housing market to financialization.
That all came crashing down in 2008.
Then… we got a very activist Federal Reserve led by Ben Bernanke, Janet Yellen, and now Jerome Powell. The cheap money and low-interest rates of the last decade created a bloated, pseudo-centralized market.
In addition, the Fed is so paranoid about deflation that it continues to paper over deflation (driven largely by technology) with more debt and easing.
Two problems:
First, AI is the mother of all deflationary events. So, all of the deflationary gains (typically on things that don’t matter) will produce new inflation in the things that matter in society, like food, energy, housing, education, and electricity. All these things have exploded in cost since the late 1970s, outpacing broader Consumer Prices. Meanwhile, the cost of television technology is down 99% since then.
You can’t eat a television.
But your purchasing power declines at the grocery store as more money chases scarce goods (we could easily cut red tape and bureaucracy to create more food and lower prices, but that’d be bad for big corporations that enjoy regulatory capture.)
The other problem is worse.
The U.S. government is savagely trying to keep growth up - even if it’s largely on paper. Sadly, we’re currently borrowing $2.5 for every $1 growth we produce. This is financial madness, a domino that will crush the financial system in the next decade.
We increased our debt by $834 billion and produced just $334.5 billion.
This is not an American phenomenon. And it’s been the curse of the 21st century. Jeff Booth, the author of The Price of Tomorrow, told me a few years ago that the world had borrowed $150 trillion over 20 years to start the century… to generate less than $45 trillion in growth.
Do the math. It’s wild.
This ultimately leads to… is massive currency devaluation… which is happening across the board. This surge in monetary inflation drives everyone from regular investors to central banks to pour into gold and Bitcoin.
Famed publisher and investor Bill Bonner did a video a few years ago that I need to find. But he talked about the devaluation of money… and what would happen to people who didn’t see this trend accelerating.
He said they would cling to their paper money, much like Argentineans and others in the Weimar Republic did over the last 30 years.
What was interesting about the Weimar Republic was that the younger generation hedged their wealth in the stock market. In contrast, older generations clung to their money because they believed in their nation.
Well… here we are. We are facing our moment in time.
Already, some economists are predicting dominos to start falling in 2025, which will land on the lap of whoever is President.
What are the kids hedging with? Crypto.
What should you be hedging with?
I'm glad you asked.
Scott and I put this report together last month, and it was set for release on February 19. But it’s been stuck in editing hell after an unrelated event pulled some resources away for some time. So, instead of asking people to pay for this…
And instead of saying that you need to pay $20 to access it…
I’m giving it away here. Just download it. There’s no artwork. It’s a straight thesis of 17 pages on what we can and should do as investors.
My hope is that you’ll like it, and you’ll think about checking out more of our work.
I don’t want this report to go to waste, and I want you to understand what’s really happening in these markets.
Warning, there might be some gramatical errors in there, but just send me a note if you have questions.
Stay positive.
Garrett Baldwin
Secretary of Defense
The Fed is not the primary driver of liquidity.
The shadow banking system is…
Refers to your March 5 letter: Along the lines of what happens to things that the government touches, check out this new law in good old New Jersey: The New Jersey Secure Choice Savings Program Act This thing will be mandatory! And they still haven't returned the funds that Gov. Christie Whitman pilferred from the state pensions a lifetime ago. P.S. Have someone make up their mind about being able to "comment" on postcards.