How to Survive AI Mania

Plus, the best long-term AI winners… [Morning Reckoning] February 14, 2023 [WEBSITE]( | [UNSUBSCRIBE]( How to Survive AI Mania - There’s no question AI is having a moment, but is it already a bubble? - Can a ChatBot spot a bubble? - Ride this wave with a long-term winner… Baltimore, Maryland February 14, 2023 [Greg Guenthner] GREG GUENTHNER Good morning, Artificial Intelligence has blossomed into a full blown mini-mania over the past few weeks. The frothy action has launched several languishing stocks back into the stratosphere. Traders are gobbling up shares of every AI-adjacent stock they can find. The financial media are cranking out fantastical stories of a bold future filled with sentient chatbots able to write term papers for lazy students – and even pass the bar exam. Growth speculators can't get enough of the hype. They’re waking from their 2022 hibernation, ready to bet the farm on tech’s next big thing. It’s all happening fast. Perhaps too fast… It’s not that I expect investors to act rationally – especially when it comes to a shiny new tech industry. But I am surprised at the sheer speed of this mania unfolding before our very eyes following last year’s rout that tore most tech-growth stocks to shreds. How many dreams were shattered as Cathie Wood’s ARK Innovation ETF (ARKK) lost 80% of its value? How many crypto believers were forced to move back in with mom and dad when their favorite alt-coin imploded? Yet here we are, watching these very same traders dust off their drained Robinhood accounts to buy AI stocks with both hands. There’s no question AI is having a moment. But is it already a bubble? That’s the question we’re trying to answer today. It's difficult to say whether AI stocks are in a bubble, as bubbles are typically characterized by a rapid increase in asset prices followed by a sudden and steep drop. While AI and technology stocks have seen significant growth in recent years, it's unclear whether this growth will continue at the same pace, or whether it will eventually lead to a burst in prices. Wait a minute. Go back and read the above paragraph one more time. Does it seem a bit wishy-washy? Maybe even… robotic? Well, that’s because it was written by a chatbot. I pulled this paragraph from a ChatGPT response, where I asked if AI stocks are currently in a bubble. [inflation…oil shocks…war…now THIS?]( [This Simple Chart]( In between inflation…war…sanctions…and rate hikes… It seems today’s market is simply bouncing from one big surprise to the next. But according to Jim Rickards… (former advisor to the White House, Congress, and the U.S. Intelligence Community)… ….[what’s right around the corner could be much bigger](. And he says if you aren’t prepared for what’s coming, then your portfolio could get blindsided (again). But if you know exactly what to do… [Then you could flip the next financial shocker into a world of fortune-building opportunity](. Bottom line? Take 1-minute to watch this brand-new [urgent briefing]( …before the next big surprise hits your portfolio. [Go here now](. [LEARN MORE]( Can a Chatbot Spot a Bubble? I won’t bore you with ChatGPT’s full answer, because it is robotic and boring. Let’s just say I’m not at all concerned about ChatGPT dominating the stock market anytime soon. In fact, we could probably gain more insight watching a few talking heads on cable news than reading the chatbot’s canned jargon regarding the “variety of complex and dynamic factors” influencing AI stocks. ChatGPT even slapped a disclaimer at the end of its response, urging me to “exercise caution and thoroughly research any investment before making a decision.” No wonder the program was able to pass the bar exam (yes,[this actually happened](. Every answer it gave me feels like it was reviewed by a careful lawyer trying to keep his client out of trouble. Ultimately, ChatGPT couldn’t give me a clear answer regarding the AI bubble. But what about AI stocks? Specifically, which AI stocks have the best chance to be long-term winners? While ChatGPT could tell me some of the biggest players involved in the AI space – Alphabet (Google), Amazon, Microsoft, IBM, and NVIDIA – it offered no guesses on long-term stock market performance. And like any attorney worth his salt, it stayed away from uttering any of the names of the smaller, frothier stocks that have gained so much attention lately, since “they also come with greater risks, as they may not have the same level of resources or stability as larger, established companies.” Thanks, ChatGPT. Buyer beware! Stock pickers can relax. No AI Warren Buffett is coming along to crush your returns. Not yet, anyway… [Download My New Survival Guide Today!]( I’ve created a BRAND-NEW “2023 Crisis Survival Guide” that I’m making available to all of my Strategic Intelligence readers today. This short 54-page document has everything you need to know to protect yourself and your family in times of crisis. Things like what foods to stock up on now, staying safe during periods of rioting and looting and more. Inside I break down all of the coming threats you face and how to prepare. [>> To see how to download your copy, click here now](. [LEARN MORE]( Riding the Wave Since ChatGPT hasn’t helped in our quest to profit from the AI bubble, I suppose it’s up to us to figure it out. Let’s start with the big boys. Microsoft has attracted a ton of attention after announcing Bing’s partnership with ChatGPT. Some pundits even believe it could be a Google killer. I’d pump the brakes on that claim. Yes, Alphabet stock is down about 13% since reporting earnings on Feb. 2. But this feels more like a knee-jerk reaction to the AI hype cycle. Heck, GOOG might be a decent bounce candidate should it find support near its year-to-date lows. Unless the broader market begins to turn sharply lower, I don’t think GOOG will crater to new 52-week lows from here. Plus, we shouldn’t be thinking about AI as a “winner take all” game. Public interest is spiking right now, but we have many years left in this cycle if AI is truly going to become the next tech hot spot. We can cast a wider net by grabbing shares of the Global X Robotics & Artificial Intelligence ETF (BOTZ). [chart] Not only will BOTZ potentially smooth out the waves in the frothy AI ocean – it’s also attempting to break out of a multi-month bottom. As for the more speculative plays that have doubled or more this year, such as C3.ai Inc. (AI), we have a couple of options to play the wild moves without losing our shirts. First, we can buy much smaller positions. Small positions in speculative trades (usually a third or a fourth of the dollar amount you might put down on a normal position) allow us to set a wider stop to avoid some of the inevitable whipsaws that come with these big moves. We’ll still have skin in the game to play an extended run, without worrying about a huge drawdown or nosebleed volatility paralyzing our portfolio. You can also get tactical – if you can stomach it. Many of these speculative AI names have started off the trading week down double-digits. We should expect these hard resets after watching these stocks double and triple in a matter of weeks. But if you’re a nimble trader, you can keep an eye on these names for any signs of a bounce and attempt to time your entry accordingly. Easier said than done, of course. But it is possible to swing trade faster-moving names – as long as you don’t get too greedy. I’ll revisit this topic as it develops, along with any interesting emerging trades. Let me know if you want any more topics covered by emailing me [here](mailto:feedback@dailyreckoning.com). When (or how) it all ends is anyone’s guess. I have yet to find an AI program that knows if this mania will last another two days or two decades. We’ll need to figure that out on our own in real time – no fancy computer programs required. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [[CHART] Could Inflation Hit 20%+ In 2023?]( [This Simple Chart]( Take a close look at this scary chart pictured here… What you see is the money supply in America… And as you can see, the number of dollars in circulation has exploded in the last few years. In fact, more than 80% of all dollars to ever exist have been printed since just 2020 alone! Which is why some say inflation could soon explode even higher than it is now, to 20% or more. And if you’re at or near retirement age you must take action now to protect yourself… otherwise you risk losing everything. [Simply click here now to see how to survive America’s deadly inflation crisis](. [LEARN MORE]( In Case You Missed It… Sean Ring, Contributing Editor Bailouts Versus Bail-Ins: What They Are and How to Avoid Them [Sean Ring] SEAN RING Dear Reader, I’m sure you’re wondering, “Why the hell is he writing about bailouts? Isn’t this an ancient topic?” I don’t blame you. Back in 2008 in the US, bailouts were the order of the day. And in 2011 in the European Union, depositors at Cypriot banks were bailed in. Allow me to set the stage… First, thank you for your generous feedback. I was nervous writing for the Morning Reckoning – if people would find my insight useful – and you’ve put my mind at ease. Second, the feedback has been of particularly high quality. Those who’ve written in have brought up all kinds of interesting subjects, from vaccines, to Russia, to central bank digital currencies (CBDCs). It’s been wonderful – and humbling – to read. So when I saw bailouts and bail-ins in the mailbag, it piqued my curiosity… [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( [This Simple Chart]( James Altucher first predicted Bitcoin all the way back in 2013… And ever since, he’s been one of the biggest advocates for it. But now, he’s warning Americans that buying Bitcoin could be a big mistake… [Click here now to see why](. [LEARN MORE]( Here what one of you had to say: I’d love to see you cover the topic of “bail-ins” and how the banks can now bail-in our deposits during any financial crisis, to bail-out, once again the “BANKSTERs!” What options do we have to safeguard our cash, other than to deposit in a bank? Sure, own a little gold, bitcoin, etc.…. I don’t want to be bailed-in! -Mike M. Well, Mike, you’re correct. The government can bail depositors in. And it may be legal, but I personally think it’s a crime. But – and it’s a big “but” – there are specific rules as to how a bail-in occurs. So in this Morning Reckoning, I’m going to talk about the difference between bail-ins and bailouts. Then I’ll explain under what conditions a bail-in can occur. Finally, I’ll give you a couple of ways to make sure that never happens to you. Let’s get to it. What are bailouts? First, let’s go over the easy part and get it out of the way. A bank bailout is when the government provides financial assistance to a poorly managed bank to prevent its collapse and protect the depositors' money. Which depositors? We’ll answer that question further down... Former U.S. Treasury Secretary Paul O’Neill once said of bankruptcy that it’s the “genius of capitalism.” By speaking that fundamental truth, O’Neill was relieved of his job. Banks are companies and ought to be allowed to go bankrupt. I was against the bailouts in 2008 and my position has never wavered. Once poor banks go under, the space is cleared for new banks – or new methods for saving – to spring up. Sure, would bankruptcy hurt some depositors? Yes. But not those who have less than the maximum deposit insurance level. I’ll talk more about that later. Now… how does the government execute a bailout? This can be done by injecting capital into the bank, guaranteeing the bank’s debts or nationalizing the bank. Or, in the case of Bank of America and Merrill Lynch, the Federal Reserve Chairman can [force an acquisition](. Bank bailouts are controversial for good reason. They usually involve taxpayers' money to rescue financial institutions that are too big to fail. But even worse is that the central bank may print money to cover the losses. [From September 2008 to mid-November 2008, the Fed’s balance sheet doubled](. To quell public anger about bailouts, governments came up with a new method to save overextended banks: the bail-in. [Governors warn of “Biden Blackouts”]( [This Simple Chart]( A former advisor to the CIA and Pentagon just made this dark prediction: Calamity Joe’s sabotage of the Nord Stream pipeline [His Evidence Here]( was suicide. In the next 75 days, Americans will face fuel shortages… …widespread BLACKOUTS… …empty grocery shelves… …up to $1000 energy bills… …drained retirement accounts, and… …a massive crime wave. [>>Welcome to Biden’s American Energy Armageddon<<]( [LEARN MORE]( What are bail-ins? A bank bail-in is when a troubled bank's creditors and depositors with large balances are forced to bear some of the losses instead of taxpayers. This is done by converting a portion of their debt into equity or by seizing their deposits to recapitalize the bank and restore its financial stability. A couple of things: creditors (bondholders) take this risk every day. It’s why fixed income traders are so miserable compared to equity traders. Equity traders ask, “How much money am I going to make today?” Fixed income traders ask, “How much am I going to lose today?” Regarding depositors with large balances, this is the key to the whole conundrum. It’s critical to remember the Federal Deposit Insurance Corporation (FDIC) in the United States insures your deposits up to $250,000 at each institution. And [that covers]( -Checking accounts -Negotiable Order of Withdrawal (NOW) accounts -Savings accounts -Money market deposit accounts (MMDA) -Time deposits such as certificates of deposit (CDs) -Cashier's checks, money orders, and other official items issued by a bank What’s more is that each ownership category is covered. That is, if you have two or more accounts in two or more different ownership categories, you’re insured up to $250,000 on each. Here are the different [ownership categories]( -Single Accounts -Certain Retirement Accounts -Joint Accounts -Revocable Trust Accounts -Irrevocable Trust Accounts -Employee Benefit Plan Accounts -Corporation/Partnership/Unincorporated Association Accounts -Government Accounts So this begs the question: if the FDIC insures all this, how can you possibly get bailed in? How can you get trapped in a bail-in? Let’s say you only have one single account at one bank. You’ve got $300,000 in that single account. Your bank is about to go under, but the government has ordered a bail-in. In a plain vanilla bail-in scenario, $250,000 of your deposit will be perfectly safe. The $50,000 you’ve got over the deposit insurance limit will be “bailed in.” That means the $50,000 will likely be exchanged for stock in the bank that’s worth nowhere near $50,000. You’ll probably feel like you’ve lost $50,000, even if you didn’t lose the whole amount. So how do you make sure this doesn’t happen? What can you do to avoid getting bailed in? There is no guaranteed way to avoid a bail-in, but depositors can take steps to reduce their risk: -Don’t keep one large deposit at a single bank: Keep smaller deposits in multiple banks. That reduces the risk of losing a large amount in case of a bail-in. Also, ask your accountant to help you make sure separate amounts are in different ownership categories if you must, for some reason, stay at one bank. -Spread your deposits across different banks: Keep amounts less than $250,000 at multiple banks within the U.S. That’s easy. -Bonus tip: Since I’ve lived in a few countries, I never closed those foreign bank accounts and I use them as cash protection vehicles. If you’re American, keep in mind that you must declare your foreign bank accounts to the IRS (FBAR) with your tax returns [if those accounts exceed $10,000 at any point in the year](. -Know the bank's financial situation: Forgive me for being so obvious… but you definitely want to avoid banks that are in financial distress. -Consider different investments: The easiest thing in the world to do is to buy [US Treasury bills and bonds](. They’re liquid cash substitutes the USG guarantees. And thanks to Chairman Pow, you even get a bit of yield nowadays. Remember, these ideas only reduce the risk of a bail-in, they don’t guarantee that outcome. Ultimately, governments decide and they’re unpredictable. Wrap Up Not only do you now know how to reduce your chances of getting bailed in, but you also know why governments invented them. Think about it. Only people with amounts over $250,000 would be affected by a bank going down. So yes, your instinct was correct. In 2008, the government only bailed out their rich friends. It didn’t “save the world economy.” And since the public figured this out pretty quickly, the Europeans invented the bail-in to require those rich folks to participate in the losses. America later adopted bail-ins as a legal measure which will probably only be used for banks that aren’t too big to fail. A big thank you to Mike M. for the stimulating question. I try and read all the emails you all send me… it helps me get down to what really matters to the people I’m writing for. If you have any feedback or topics you want covered, be sure to click [here](mailto:feedback@dailyreckoning.com) and drop me a line. Otherwise, I hope you take measures to protect yourself if you haven’t already. Once you do, stop worrying about it. There are far bigger fish to fry nowadays. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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