Peter Navarro's Weekly Market Wrap, June 2, 2023 and Glimpse of A Frightening AI Future

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Hi. Peter Navarro here with this week’s economy and market wrap. Both a deal on the debt limit and a Friday’s job report help spark a market rally; and the broad market Standard & Poor’s 500 index closed above 4200 -- breaking the key resistance level. Meanwhile, the NASDAQ is up for five straight weeks on an absolutely white-hot artificial intelligence boom.

It’s easy to see why investors looked at the debt limit deal as bullish, at least in the short run. The Biden overspending represents trillions of dollars that will course through the veins of the US economy and stimulate growth. The problem, however, as I have explained, is that these expenditures are creating demand pull inflation – too much money chasing too few goods -- which may well prove impossible to tame; this will lead the Federal Reserve to continue to increase interest rates, making the net forecast decidedly bearish.

Here, it is useful to note that home mortgage rates continue to rise along with interest rates on credit card debt. No good can come of that.

As for Friday’s jobs report, payrolls surged by 339,000 jobs versus the expected 195,000 jobs; and the gains were widespread. Black men, however, have seen their fortunes fall over the past two months – black, brown, and blue-collar workers are at the tip of the spear of illegal immigration which will take their jobs and drive down their wages, and the government, the Biden regime, has already acknowledged that over a million illegals have entered labor market since Biden open the borders.

Investors remain fixated on the Federal Reserve’s interest rate policy. When the Fed raises interest rates, portfolio managers, attracted by higher yields, shift more funds into bonds from stocks, causing stock prices to fall. This is known as an asset allocation strategy and illustrates why higher interest rates are bearish for the stock market – never mind that they also trigger slower growth or recession – and lower corporate earnings.

In a separate report this week, we learned that job vacancies at US employers unexpectedly surged to over 10 million, beating all estimates in a Bloomberg survey of economists. In the wake of that news, traders bid up the probability for a rate hike in June to 70%.

Because of all these crosscurrents – and my long-term outlook for a virulent stagflation caused by the Biden regime’s overspending and war on America’s strategic energy dominance – my market outlook remains skeptical. Other than an occasional secular play like my dalliance in artificial intelligence, cash remains king in my household; and the broad market remains in a sideways, trading range pattern, albeit now in the upper end of the range for the S&P 500, which is on the verge of a possible decisive breakthrough.

The NASDAQ is a totally different animal, driven more by secular rather than cyclical trends. Here, artificial intelligence stocks are absolutely on fire. A key thing here is that the computers that are needed to grind out AI algorithms and data have an enormous appetite for high-end computer chips.  The King of this hill is Nvidia (NVDA), which we noted last week was on an absolute tear.

The stock I mentioned last week C3.AI -- stock symbol AI – also went on a tear soaring up to around $40 before coming partly back down to earth.

As to why artificial intelligence stocks are so hot, just a brief sample of this week’s news gives you a glimpse of its vast – and often quite frightening – potential.

For example, one story discussed how hedge funds – one of the biggest enemies of American workers – are now deploying the AI engine ChatGPT to “handle all the grunt work,” citing tasks like editing code and parsing research.   The next step, of course, will be for “Generative AI,” which can do things like parse the financial news or price options, to actually make trades for the funds – and it should be obvious here just how many jobs will be at risk.

Similar, an oped by retired admiral James Stavridis, the former supreme allied commander of NATO, likens AI’s implications for warfare and geopolitics to the kind of innovative technologies that swing battles, e.g., the slaughtering of French soldiers in plate armor at long range in medieval times by the innovative British longbow, use of submarines to counter surface ships and sonar to counter submarines, and of course nuclear weapons.

In still another hair-raising example, the admiral discusses using AI to synchronize drones to overwhelm air defense systems or using AI to provide almost instantaneously highly detailed strategic targeting.  Most frightening to Stavridis will be the ability of AI to conduct cyber attacks in ways that can disrupt an enemy’s combat operations, logistics, targeting, and intelligence systems while gaining “overall mastery of the cyber battlefield.”

Even if it were American policy because of the massive risks of AI with respect to everything from joblessness to our military defenses, it will be impossible to put the AI genie back in the Luddite bottle. America could put as many controls on AI as our hot air politicians might demand but that won’t stop adversaries like Communist China and Russia from using AI to crush the West both economically and militarily.

Oh, did I mention that Communist China wouldn’t be any where near as advanced in AI if it were not for American companies like Microsoft and Google collaborating with them. Our corporate executive corps in the United States is either greedy or stupid or naïve or all three – you decide.

At any rate that’s it for the week. I’m trying in these weekly columns to give you a better understanding of the environment we are operating in in the hopes that you will be better able to preserve your wealth and retirement funds.

Separately, over the weekend, I’m going to send you out a link to a video interview I did with Andrew Sorcini of Beverly Hills Precious Metals. It’s a good primer on how you can use gold and other precious metals like silver as a hedging mechanism in these inflationary times to preserve your wealth. I offer this video simply as an educational tool, not as investing advice.

Peter Navarro. Have a great weekend. Out.