In today’s issue:
- The links between crypto, AI and the new US government
- Are we seeing the birth of a new era?
- Seismic changes need expert navigation
American economist Hyman Minsky famously theorised that instability not only follows stability in a cyclical fashion, but that stability breeds the conditions that ultimately cause the subsequent instability.
Most obviously with stock markets, bull runs suck more and more investors in, pushing markets to overvalued levels.
Then, just like a spinning top on a table that starts to wobble as it loses rotational momentum, we see periods of stock market volatility right before the crash.
The world certainly feels like it’s in one of those moments now.
We can see the wobbling, but don’t quite know what comes next. It could be a crash, but equally we could see further growth unlocked. The spread of future possibilities feels like it’s widened hugely in the last 24 months.
In terms of geopolitics, South Korea, France and Germany all in political crises in one form or another. The Middle East is engulfed in conflict. In the US, Trump has threatened to pull back from global defence pacts.
On top of this, we’re seeing the convergence of three long-term trends that doesn’t feel like a coincidence.
Firstly, Bitcoin, which recently surpassed $100,000, is now breaking records for fund flows after institutions launched ETFs at the start of the year, helping to build a narrative that it could act as a potential government reserve asset.
Crypto’s audience has grown and developed up the food chain. It’s Blackrock and the White House that dominate now, not the early adopters.
Trump is a crypto advocate and has chosen a pro-crypto figure in Paul Atkins to replace crypto-sceptic Gary Gensler as head of the Securities and Exchange Commission.
Crypto used to be highly correlated with the FAANGs in 2021, before they became the Magnificent 7 – the leading big tech stocks in America. Now, Nvidia is king, and a positive correlation with Bitcoin has emerged:
Source: Koyfin
Professional investor, valuation obsessive and current market sceptic John Hussman says that when investors are inclined to speculate, they tend to do so indiscriminately. Thus, rising correlations in speculative assets suggests strengthening sentiment, and increasing dispersion in that group suggests weakening sentiment and trouble ahead.
Thus, it seems Bitcoin regaining its role as a speculative asset alongside the favoured US tech stocks is significant. It becomes a sentiment indicator again.
With the smaller “altcoins” now showing life after a long winter, it seems the animal spirits are getting back into gear. Investors seem to like this convergence of Trump and tech.
Secondly, AI has swiftly become commonplace. Every company is finding new ways to use it, and the ability to ask Chat GPT or Perplexity to explain concepts or uncover useful information is starting to feel normal.
Nvidia’s CEO Jensen Huang, at the forefront of the AI boom, is now given the rockstar treatment everywhere he goes, with crowds chanting his name and scrambling for selfies and autographs.
The high-end chips used for AI have become a source of geopolitical tension as the US and China race to master production.
Thirdly, the ties between Washington and Silicon Valley are becoming ever closer. Across the entire tech landscape, CEOs are lining up both in and behind the Trump administration, headed, of course, by Elon Musk.
Certainly, it’s an odd collaboration. One staunchly democrat tech CEO, writing in the FT, explained it thus:
“Those in Silicon Valley who supported Trump in this election did so in the belief that his administration will strike a pronounced innovation-friendly stance. With the developments regarding the Department of Government Efficiency… If managed effectively, such ambitious restructuring could create great opportunities for innovation and new business.”
It seems that Silicon Valley sees an opportunity to unshackle itself from the constraints of a left-wing societal view. Musk has already changed Trump’s tune on EVs, while Trump’s transactional politics appeals to the Valley, which has plenty to offer.
They are not united so much by political views, but by self-interest and a techno-libertarian ideology.
Certainly, the Silicon Valley tech world is growing in influence and using it to shape the world, according to their view. The term “conflict of interest” doesn’t quite do it justice – it’s a co-option of national interest.
An expert navigator for rough seas
Taken together, it feels like a case can be made then we are moving into an entirely new era.
For investors, this every man for himself ideology may benefit growth for US technology companies and a few other sectors. It may be enough to boost growth at the GDP level, making many global investors happy. But we must recognise the risk that comes from a lack of protections and guardrails in matters such as AI.
The US is already at the libertarian end of capitalism, and is now poised to go further.
It’s not easy to draw simple conclusions. But if I were to offer one, it would be this: the spinning top is starting to wobble and judder in unpredictable ways.
Change is occurring rapidly, and investors cannot shut their eyes and wait for time to turn back. We must keep up, learn the new rules of the game, and seek the opportunities in these new areas.
For that, I recommend a new name to you in James Altucher. A leading voice in American investing and literature with 20 books to his name, James sees the opportunity in all this chaos: a wealth window that won’t last forever.
His investing service has successfully navigated the greatest shifts in markets over a long period, and he’s always looking ahead.
He’s put together five reports on phase two of the AI boom, ready to share with you.
To access them, and him, click here now.
Capital at risk.
That’s all from me.
Until next time,
James Allen
Contributing editor, Fortune & Freedom
