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“Technology lets you do more and more with less and less until eventually you can do everything with nothing.”

- Buckminster Fuller

Friday Earth-Bound Charts

CPI came in higher than expected on Tuesday, and there have now been enough such data points that the macro narrative has changed from “inflation is speeding towards 2%” to “inflation will never be 2% again.”

Also on Tuesday: Equities made new all-time highs.

The stock market ignored the inflation news this week, and rightly so. 

Corporate profits are booming with Fed Funds at 5.3%, so who cares if it stays there for longer than expected?

But there are signs that the equities narrative may be starting to change too.

Nvidia is making unprecedented profits selling GPUs, but are the LLMs used for training by GPUs doing us much good?

Aside from Facebook’s ads becoming a little more targeted and Microsoft’s co-pilot making coders a bit more productive, it’s not obvious how much of an impact AI is currently having. 

LLM chatbots are amazing, but have they changed your life?

Going from Google to ChatGPT does not feel like the quantum leap we experienced when going from encyclopedias to Google. 

This is a disappointment for some and a relief to others. 

When OpenAI released ChatGPT to the public, it felt like a giant first step towards either robots doing everything for us or, less appealingly, us doing everything for robots. 

15 months later and LLMs are still just machines that guess what word should come after a series of other words.

However…

This week, OpenAI demonstrated a Figure 1 robot that looks a lot like a friendly version of the Terminator.

Doomers will find this terrifying, accelerationists will find it exhilarating and investors should find it reassuring — AI may yet deliver the profits and productivity that could launch us into a dotcom-like bull market.

The other big sci-fi news of the week was also reassuring: SpaceX successfully launched its Starship megarocket, a first step towards colonizing the Moon and then Mars — which will be handy if not all of the AI robots turn out to be as friendly as Figure 1.

The first Moon colonizers won’t depart until 2026, however, so we’ll have to follow terrestrial events for a couple of more years, at least.

Let’s check the charts to see how things are going here on Earth.

Trend change?

Both CPI (blue line) and PPI (red line) seem to have stopped going down. February headline PPI was 0.6%, double the consensus estimate. Opinion seems to be split as to whether this is a change in direction or just a change in narrative.

Wage growth is trending lower:

But 3.3% is still above the rate of inflation, so, contrary to popular perceptions, we’re better off in real terms. We always think inflation is worse than it is and that wage growth is not as good as it is.

The perception gap is higher than ever:

This chart from The Economist shows how US consumers say they’re doing (the light blue line) vs. how they are actually doing (the dark blue line). Fortunately, perception is not reality (unless you’re trading crypto).

Do as we do:

Despite our avowed pessimism, we continue to spend like optimists — the consumption component of February PPI rose the most in nearly two years.

Saving less:

The shrinking green bits above show that Americans are funding their spending in large part by saving less. You could put a negative spin on this: It’s the last-gasp effect of pandemic stimuli. Or a positive one: With unemployment low and asset prices high, Americans see less reason to worry and therefore less reason to save.

We no longer worry about interest rates:

The S&P 500 (in blue) has decoupled from forecasts of Fed Funds (in white, inverted). Stocks have continued to go up despite lower expectations that rates will go down.

We may be overdoing it:

The best measure of the mania for AI in the stock market may be this chart from Bloomberg — “momentum” stocks (mostly tech, mostly because of AI) have not outperformed this much since the dotcom bubble.

AI saturation?

According to a new survey from the Census Bureau, only 6.5% of American businesses plan to use AI.

If so, the stock market may have gotten ahead of itself.

But if stocks don’t take us to the Moon as soon as we’d like, at least SpaceX will do by 2026.

Have a great weekend, intrepid investors.

― Byron Gilliam

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This week, Alex Kruger aka Krugermacro joins the show for a discussion on where we are in the current crypto cycle. With Bitcoin ripping above all-time highs, ETF flows strong & meme coins up only are thing getting a little too frothy too quick, or does this rally have much further to run?

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