The UNTHINKABLE is about to happen to GOLD & SILVER (& Why AI is the Trigger)
Summary
Felix presents a comprehensive thesis on why the current AI-driven market, specifically centered on Nvidia, is structurally fragile. Felix points to four critical warning signs: first, Nvidia’s involvement in circular financing where it helps customers raise funds to buy its own chips; second, the doubling of the cost to insure Nvidia's debt against default; third, a pivot in the tech sector from $190 billion in annual share buybacks to $147 billion in net selling; and fourth, the U.S. Strategic Petroleum Reserve hitting its lowest level since 1983, leaving no economic shock absorbers.
Felix explains that current stock market valuations are higher than the peaks of 1929 and 2000, driven by a handful of AI names. Consequently, Felix suggests that when this bubble inevitably pops, the government will resort to money printing, debasing the dollar and driving capital into physical assets. Felix highlights the gold mining sector as the most profitable yet ignored area of the market, currently trading below the liquidation value of the gold held in the ground. Felix also emphasizes the importance of having an exit strategy, noting that being right about a bubble is useless if an investor does not know when to sell and take profits.
Mentioned Stocks
Reasoning: Felix highlights that the cost of insuring Nvidia's debt has doubled, suggesting bond traders are worried about default despite the stock price highs. Felix also criticizes the 'circular loop' where Nvidia helps its customers raise debt to buy its own products, drawing parallels to the corporate bankruptcies of Lucent and Nortel in the late 90s.
Reasoning: Felix states that gold miners are the cheapest they have been in 50 years, with many trading below the value of the gold they own. Felix is watching for a breakout above a key moving average, specifically looking for the price to move about a dollar higher before buying.
Reasoning: Felix bought a large position in this international quality factor ETF yesterday. Felix argues that value and quality stocks have underperformed growth for a decade and represent an asymmetric upside as investors eventually rotate out of overvalued US tech stocks.