Wall Street’s Playing Games

In season two of HBO’s Deadwood – set in 1870s Deadwood, SD – the mining magnate George Hearst comes to town.

Hearst takes an interest in the gold-rich territory surrounding the town. The only problem is that many of the claims have already been secured by local prospectors. So, he does something simple.

Hearst spreads rumors that the United States government is coming to Deadwood to invalidate all the gold claims. The townsfolk trip over themselves to sell their claims for pennies on the dollar.

And Hearst is right there to snap them all up. I couldn’t help but think of the show the other day…

Last week, Morgan Stanley rang the alarm, declaring that Nvidia was in the final stages of an AI bubble.  The dramatic statement sent shares tumbling 10%.

Yesterday, Morgan Stanley turned the tables. Announcing that the sell-off had crafted a moment to buy into Nvidia’s shares. 

And like clockwork, Nvidia shares shot up 7% in one day.

This is not a coincidence…

It’s a well-rehearsed performance.

It’s a strategy that has become all too familiar among the titans of Wall Street. They use words loaded with fear and panic, such as "bubble" and "crash." And what they never reveal is that they have a financial interest in stirring up uncertainty.

In March 2020, Bill Ackman, founder of Pershing Square Capital Management, went on CNBC and said “hell is coming.” What Ackman never revealed was that his firm had placed substantial positions against the market just before.

His hedge fund made $2.6 billion off a market crash it helped foment… and then used those profits to buy shares in companies like Marriott near their lows.

Hedge funds and investment bankers choose their words carefully to seize headlines and drive the narrative they want you to believe.

So how does the average investor navigate this maze of manufactured headlines and stories?

Recognizing an Undeniable Trend

Understanding the market means going beyond the headlines.

That’s what my team and I do at Brownstone Research.

We dive into the details… listen in on dozens of earnings calls every quarter… scour balance sheets…analyze supply chains… and read white papers on the underlying tech.

To bankers and hedge funds, AI is just the latest market fad. They’ll spin the narrative from one month to the next to make people think AI is the greatest threat to mankind. Or its ultimate savior.

And they’ll use those lows and highs in the market to build a position and then sell it off for a profit.

That’s not my game. I’m in this for the long haul.

I want to find a trend so powerful that people will be able to retire off their profits. Or buy their dream vacation home. Or put their kids through college. And the best way I know to do that is to find an undeniable trend and stick with it, headlines be damned.

I’ve spilled a lot of ink in these pages on why I believe AI is an undeniable trend. Today, I’ll leave you with just one more piece of evidence out of Washington.

When Politicians Act

Top tech companies in China ordered $5 billion worth of Nvidia GPUs last week. 

Sanctions are already in place to prevent China from buying Nvidia’s high-end AI chips. For national security reasons, the nation has to settle for versions that are “dumbed down.”

China’s worried that it won’t even be able to get these inferior chips for much longer.

That’s because President Biden has threatened to tighten the screws, banning even the modified Nvidia chips from entering China.

President Biden is a career politician. He isn’t known for quick, decisive action. Top military and political advisors must’ve recognized the threat AI poses in the wrong hands and urged him to act.

The White House already banned the strongest AI chip from entering mainland China. And it’s not just the chips. It’s the equipment and people capable of making copycat chips.

This move was executed in October of last year.

That was nearly two months before ChatGPT even made its public debut.

It might just be the swiftest Joe Biden has moved on an issue since taking the oath of office.

Let me ask you this.

Would China be scrambling to buy Nvidia chips that aren’t even the most powerful on the market if AI was just some market fad?

Would Joe Biden ban the sale of semiconductors if it was simply the latest tech-inspired bubble?

I don’t think so.

The AI we’re seeing today is incredibly powerful. It has the potential to reshape our lives in ways we can hardly imagine.

Wall Street doesn’t care about that. It just wants to bat around the narrative to its advantage. Meanwhile, millions of regular folks lose money trying to chase the headlines.

But that doesn’t mean we have to play Wall Street’s games.

By taking the long view, we can add stocks in an undeniable trend during moments of weakness.

With diligence, knowledge, and a touch of skepticism, we can forge our own path.

Let’s not be mere spectators.

Let’s be winners.

Regards,

Colin Tedards
Editor, The Bleeding Edge