Video summary

A.I. Mania Creating Twin Bubbles In Stock Prices AND Earnings | New Harbor Financial

Main summary

Key takeaways

Finance

Finance-focused subtitle summary

Macro/market backdrop & risks

  • The market is described as extremely overvalued for an extended period, with common valuation indicators (e.g., cyclically adjusted P/E, the Buffett indicator) “not mattering” so far.
  • Geopolitics: the Iran conflict is noted as starting/worsening at least ~3 months prior to the recording date (June 3), raising uncertainty and concern that “something else” may appear.
  • Risk framing:
    • The team believes parts of AI/tech are in a valuation + earnings “bubble” phase.
    • They argue distortions could eventually unwind, but it does not automatically mean an immediate market top.
  • Late-stage bubble dynamics: momentum can reverse quickly when expectations shift—e.g., when analysts cut forecasts and multiples re-rate downward.

Key portfolio/hedging methodology mentioned (systematic approach)

  • They use a “dashboard of indicators” rather than predictions or black-box timing.
  • Indicator panel includes:
    • Bullish % breadth measures for S&P 500, NASDAQ, NYSE
    • Point-and-figure charting (breadth)
    • Relative strength of sectors vs the rest of the market
    • Moving averages and other “old school” technical tools
  • Implementation rules / risk management:
    • Indicators have been whipsawing (flipping bullish/negative), but equity exposure is not fully swung.
    • Equity exposure capped around ~48% (framed as less aggressive than many peers).
    • If bullish tilt returns, they remove index put hedges; if it flips negative again, they add similar hedges.
  • Specific hedge action:
    • Took off an index put: July S&P 500 7,000 put
    • Sold it at a loss, treated as the “cost of insurance,” while preserving remaining value.
  • Options as “forgiveness”:
    • They emphasize using options hedges to manage uncertainty instead of trying to be perfectly right.

Market performance & “narrow leadership” warning signs

  • Market breadth is described as poor/narrow:
    • Main leaders: Energy and Technology/AI
    • S&P 500 up ~11% from a roughly June 1 reference point, but broad participation is limited.
  • Sector laggards:
    • Financials: XLF “hovering around ~50 stubbornly”
    • Healthcare/pharma: XLV described as lagging
  • Semiconductors / AI momentum:
    • SMH moved from about ~250–300 to >600 quickly.
    • Concern: sharp vertical/rush moves historically lead to real pullbacks, not necessarily a resolution via sideways action.

“Blowoff top” / timing milestones discussed

  • The broader concern: the bull cycle may end in a blowoff top (plausible endpoint, not necessarily immediate).
  • Specific “milestone” expectation (Mike Preston):
    • S&P 500 +500 points within a couple weeks as a signal.
    • They reference an S&P breakout above 7,000, reaching around 7,500 in ~3 weeks.
    • At discussion time, the market is cited around ~7,600.
    • They argue the blowoff may already be underway given the speed/extent of the move.
  • John Lodra adds historical context:
    • A chart from NASDAQ Dorsey Wright: approaching 9 straight up weeks
    • 8 consecutive up weeks is described as rare historically.
    • They caution: extremes alone are not reliable timing tools—follow-through after extreme streaks has often been positive on average, so turning points may be abrupt but not guaranteed imminent.

AI/earnings valuation discussion (bubble vs fundamentals)

  • Semis/AI rally is framed as largely:
    • “A large part” narrative + momentum chasing, not purely justified by earnings.
  • Example of sentiment sensitivity:
    • NVIDIA CEO Jensen Huang comments about a “next trillion dollar company,” cited as associated with the stock moving roughly ~30% in a day.
  • Valuation/earnings bubble nuance:
    • Both multiples and forward earnings are described as optimistic/inflated.
    • Example: Microsoft pulling back on AI/coding spending (agents/AI coding spend described as “too much,” per commentary).

Real-economy spending analog & recession uncertainty

  • Economy-side claim:
    • US data center construction spending jumped +28% YoY in April to a record annualized ~$50B.
    • Public transportation spending was ~$49.9B, so data center spending outpaced it “for the first time in history.”
  • Implication:
    • It’s “hard to see” a near-term recession while this AI/spending “tsunami” persists.
  • But they also argue:
    • Even if spending continues, asset prices could overprice it and then correct.
    • Negative scenario considered: if ~$1T (this year, as stated) only comes in at ~60% of expectations, markets would likely repric downward.

Sector rotation vs “true reset”

  • The question posed: would a downturn be
    • Capital rotation (money leaving AI/tech into value/other sectors), or
    • A bigger correction/reset where a large portion of value “goes poof.”
  • John’s response (risk-agnostic):
    • The broader market isn’t cheap overall, so “relative-cheap-to-index” charts can mislead.
    • They’ll rely on relative strength / breadth indicators to judge whether it’s rotation vs heavier damage.

IPO window as sentiment indicator + caution

  • IPO activity is viewed as a “wind/weather” indicator, but explicitly not a timing tool.
  • Mentioned IPOs/issues:
    • SpaceX (target price around ~$135/share mentioned; another referenced view cites ~half that per Morningstar)
    • Anthropic
    • ChatGPT (implied ecosystem/AI)
    • Google (massive raise; Berkshire Hathaway taking a chunk mentioned)
  • SpaceX valuation discussion:
    • SpaceX is cited as potentially achieving about a ~$2T market cap on first day.
  • IPO outcome statistics:
    • Median IPO down ~10% after one year
    • Median IPO down ~40% three years
    • Average cited around ~5% down after ~3 years (with wording noting averages can be influenced by winners).
  • Presenter’s takeaway:
    • They do not plan to buy SpaceX at IPO; they’d “buy and wait” for a better valuation.

Precious metals / crypto brief notes

  • Precious metals: “no change”, floating along correction lows; requires patience.
  • Bitcoin: referenced as breaking key support levels; specifics deferred to the next week.

Extracted instruments / tickers / sectors

  • Indices
    • S&P 500
  • ETFs
    • SMH (semiconductor ETF)
    • XLF (financials ETF)
    • XLV (healthcare/pharma ETF)
  • Options
    • July S&P 500 7,000 put
  • Companies / equities
    • NVIDIA
    • Microsoft
    • Google (Alphabet implied)
    • Berkshire Hathaway
    • SpaceX (IPO discussed; not a public ticker in the subtitles)
  • Sectors
    • Energy
    • Technology / Semiconductors / AI
    • Financials
    • Healthcare / Pharmaceuticals

Key numbers and timelines

  • Recording date: June 3; “5 months out of 12” gone.
  • Geopolitics: Iran conflict at least ~3 months.
  • S&P 500
    • Up ~11% from about June 1
    • Breakout above 7,000
    • Target framework: ~7,500 within ~3 weeks
    • Discussion-time level cited around ~7,600
  • Options / hedging:
    • Hedge removed: July 7,000 put (sold at a loss)
  • Semiconductors:
    • SMH: ~250–300 to >600 in a short time
  • Historical streak stats:
    • 8 consecutive up weeks: only 20 times since 1950
    • Longest streak mentioned: 13 weeks
  • Macro/economy:
    • Data center construction spending: +28% YoY (April), annualized ~$50B
    • Transportation public spending: ~$49.9B
  • Scenario math (spending):
    • Expected AI-related spend: ~$1T this year (US figure as stated)
    • If only ~60% materializes: expect repricing down
  • IPO statistics:
    • Median IPO -10% after 1 year
    • Median IPO -40% after 3 years

Disclosures / disclaimers

  • “This is not personal financial advice…” (including the SpaceX discussion).
  • IPO usage is cautioned as “bad timing indicators”.
  • Modeling/tooling notes:
    • Their planning/modeling tools are not perfect; assumptions matter.
    • Monte Carlo approaches can be overly optimistic if built with unrealistic return assumptions.

Presenters / sources mentioned

  • Adam Tagert (Thoughtful Money founder/host)
  • John Lodra (New Harbor Financial)
  • Mike Preston (New Harbor Financial)
  • Darius Stale (referenced regarding outcomes; source for “more likely outcome”)
  • NASDAQ Dorsey Wright (source of chart on market streaks)
  • Morningstar (referenced regarding SpaceX pricing estimate)
  • Mentions of Goldman Sachs and John Hussman (for forward return expectations referenced)
  • Jensen Huang (NVIDIA CEO; used as an example)
  • Kevin Worsh (referenced regarding rate-hike expectations)

Original video