A former Fed president believes the Fed must cut rates now … growing global economic weakness … how our experts are playing “Phase 2” of the AI boom
There’s a certain part of our economy that’s not succeeding. The high interest rates really take a toll on lower-income people.
This comes from legendary investor Louis Navellier from yesterday’s Flash Alert podcast in Growth Investor.
In the podcast, Louis highlights yesterday’s opinion piece in Bloomberg by Bill Dudley, president of the Federal Reserve Bank of New York from 2009 to 2018. Dudley explains why he has changed his mind, now believing that the Federal Reserve must cut rates immediately.
Back to Louis:
Dudley elaborated that wealthy households are still consuming thanks to strong asset prices and low mortgage rates that they might have locked in a few years ago.
But he says the rest of the folks out there are having a hard time. And they’re feeling the impact of higher rates on credit cards and auto loans…
We’ve made this same point repeatedly in the Digest in recent months
For example, let’s return to our June 28 Digest:
The challenge for the Fed is that while these [“have nots”] households are hurting, “haves” households are doing great because of high interest rates.
For those with a healthy nest egg, a savings account throwing off 5% interest means some great disposable income that’s finding its way into the economy, keeping inflation more elevated than otherwise.
This creates a Catch-22 for the Fed…
Does it choose to help lower-income Americans by cutting rates, knowing that those lower rates might goose inflation?
Or does it hold rates higher for longer to snuff out inflation, knowing those higher rates might kneecap lower-income Americans?
This is the “K-shaped” economy we’ve highlighted in past Digests reflecting the growing divide between “haves” and “have nots.”
What is the Fed willing to sacrifice?
Dudley now believes the Fed should risk sacrificing its gains on inflation as it puts more emphasis on preventing a labor-market induced recession:
I’ve long been in the “higher for longer” camp, insisting that the US Federal Reserve must hold short-term interest rates at the current level or higher to get inflation under control…
I changed my mind. The Fed needs to cut rates now. Waiting until September unnecessarily increases the risk of a recession…
Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.
When we shift our attention to the global economy, does growing weakness suggest the world is already on a path toward recession?
In his podcast, Louis points toward signs of growing global weakness. Three illustrations include:
- China cutting its seven-day reverse repo interest rate as Beijing admits it won’t be able to sustain the same economic growth as in prior years…
- Snowballing manufacturing weakness in Germany, Europe’s largest economy…
- And high electricity prices all over Europe, including Spain, where prices are now about 4-times higher than in the recent past…
Back to Louis for what this all means for global central banks and rate policy:
So, there’s weakness over there, so they have to cut [interest rates]. The European Central Bank has already signaled that they’re going to cut again.
Canada is going to cut again because retail sales are down five out of the last six months, and they just raised taxes on businesses, so businesses aren’t investing…
So, everyone is starting to watch what’s happening around the world. And these central banks are like dominos.
So, we are going to get a dovish FOMC statement next week. If I was running the Fed, I would cut too, but we’ll see what happens.
As global recession risk rises, and the voices grow louder for rate cuts at home, how is this affecting where Louis is investing?
Regular Digest readers know that fundamental strength drives all of Louis’s investment decisions. Today, he’s spotting fundamental strength in the next stage of the AI Revolution. This corner of the economy is poised to experience tremendous growth even if we’re in for a global slowdown.
To set the stage for what’s happening, let’s rewind one year…
Last July, Louis joined Eric Fry and Luke Lango for a joint event featuring the culmination of their investment research into AI. Called the AI Impact Event, the presentation highlighted select stocks that stood to benefit as AI changed our world. It also flagged a handful of companies that our experts worried would suffer because of AI.
As to the sufferers, Louis, Eric, and Luke provided a special report identifying 10 stocks that could go to zero due to AI. Well, here we are, one year later, and had an investor simply shorted these stocks, they’d have made a killing.
Out of the 10 stocks in that special report, seven are now lower. And as you can see below, two are, in fact, already close to a 100% wipeout.
- Zoom Video Communications Inc. (ZM), down 17%.
- Fiverr International Ltd. (FVRR), down 24%.
- Veritone Inc. (VERI), down 25%.
- Lee Enterprises Inc. (LEE), down 30%.
- LivePerson Inc. (LPSN), down 74%.
- Conn’s Inc. (CONN), down 93%.
- 2U Inc. (TWOU), down 99%.
And the remaining three stocks flagged from this report? They’re up only 1%, 4%, and 4%, respectively.
Meanwhile, amongst the “AI winners” that our experts highlighted were Intuit (INTU), Super Micro Computer (SMCI), and Nvidia (NVDA). They’re now up, respectively, 26%, 109%, and 137%.
And this brings us to today…
From a 30,000-foot perspective, we remain in the infancy of this AI Revolution…
But that doesn’t mean last year’s investment approach remains the best plan going forward. For where we go now, let’s return to Louis:
So, what comes next?
Certainly, [select dominant AI-related firms] will continue to succeed. We have no doubt that Nvidia’s head start will last for years to come…
However, the compounding pace of machine learning processing speed means that a new group of software firms will also succeed.
Louis, Eric, and Luke believe we’re entering a new phase where AI software stock take over leadership in the AI Revolution.
To explain what’s happening, they’ve put together a briefing that you can access tomorrow. There’s no live event, so you don’t need to block out time on your calendar. Instead, Louis, Eric, and Luke will make their research available in a report.
I can leak to you that in arriving at their takeaway, our experts have zeroed in on rising tech costs. Due to spatial limitations concerning AI-based transistors and semiconductor chips, costs are likely to begin to rise exponentially from here. This means companies will have to spend a greater portion of their budgets on tech than before.
This will be a huge tailwind for certain AI-related software stocks, while a challenge to others. The briefing that comes out tomorrow will shed more light on how to be on the right side of this “Phase 2” of the AI Revolution. Our three experts will provide the blueprint you need to follow if you want to make the most money possible from this next phase in AI stocks.
You can sign up to receive that information by clicking here.
We’ll wrap up today with Louis’s bottom line:
Although AI continues to dominate the financial news and stock market, millions of investors are in the dark about a new AI breakthrough. New research shows thousands of stocks could soon be impacted by this new breakthrough.
There’s a major development unfolding in the world of AI – one that’s about to send shockwaves through the stock market. And we want to make sure you to know about it.
Click here so you can get all the details as soon as they’re released on Friday.
Have a good evening,
Jeff Remsburg
