Blog | CB Investment Management

AI, Passive Investing, And Wall Street Earnings Estimates Are Signaling Red Flags

The AI bubble has now reached an all-time record valuation level just as AI product return results are failing to meet expectations.

Passive Investing has reached a record scale where it is now changing market price action towards a flow-based model. This is a new dominant market behavior overwhelming normal economic value factors.

Wall Street Earnings Estimates have repeatedly been “wrong at the worst time To Be Wrong. Will history repeat in Q3 2024?


The AI bubble has now reached an all-time record valuation level just as near-term return results are failing to meet expectations.

Are we in a new AI-powered Tech renaissance that will continue powering the markets higher for years to come? Or are we risking a major market breakdown, putting all our hopes in a handful of companies that can’t keep growing at the meteoric rates that Wall Street is expecting?

Fred Hickey is editor of the highly respected newsletter The High Tech Strategist, which Fred has been publishing since 1987. Fred is extremely worried about the lack of demonstrable return-on-investment from the hundreds of $billions currently being spent on generative A.I. In his estimation, the tremendous valuations currently being awarded to A.I.-related stocks is on par with the infamous Dutch tulip and South Sea manias. He predicts the current situation will end as painfully as those asset bubbles did.

Passive Investing has reached a record scale where it is now changing market price action towards a flow-based model. Passive investment is turning the market into distorted autopilot action with higher levels of long-term volatility, and other impacts on individual stocks. Market behavior is always changing in important ways.

In this episode, Mike Green discusses some of the implications of systematic and passive investment strategies and how they’ve led to the current market conditions. Michael has been noted for his work as a market theoretician and financial media participant. He is a graduate of the University of Pennsylvania and a CFA holder.

0:00 Intro and welcome Mike Green 0:56 Macro picture 2:27 Markets 4:30 The Boomers always win 8:38 Assessment of the health of the economy 12:00 Reduction in hours, increase in part-time work 12:55 Impact of passive investing 20:40 Largest stocks most affected by passive flows 23:00 Everyone has become automated 25:17 How does this end? An accelerated reversal of the gains? 28:49 Perception of retirement wealth 31:00 Ponzi funds 35:30 Social security 37:00 Markets divorced from fundamentals 41:09 The Fed 46:30 Parting thoughts

US investors have a record percentage of their assets in equities and are at bullish extremes in sentiment.

Wall Street Earnings Estimates have repeatedly been “Wrong at the Worst Time To Be Wrong”. Will history repeat in Q3 2024?

Bob Elliott explains why the earnings expectations are so challenging.

Structural inflation and elevated earnings expectations are the new norm. A look into market signals, and economic indicators in the U.S., U.K., Europe, Japan and China with ‪@BobEUnlimited 0:00 Intro 00:03 Higher for longer 4:23 Income led Expansion 6:42 Earnings Expected to Boom 8:32 Inflation Expected to Remain Elevated 10:08 Fed Cut Expectations 12:32 No Term Premium or Equity Premium 16:15 Wages and Personal Consumption 18:27 Economy Slowly Moderating 20:40 Structural Inflation Remains in Place 25:41 Bond Supply to Likely to Continue 30:42 Europe and UK 33:45 Japan 35:48 China 41:40 Q&A

Summary

The market is set up with a series of bullish extremes. This includes uptrends in large capitalization stocks still in place and it is clear policy makers continue to act in a supportive manner.

Nevertheless, the economy is clearly weakening, positions and sentiment are already at bullish extremes and there are many factors that could turn in a cyclical downturn.

Always prepare rather than predict and stay up to date with all the fast changing and developing market developments. Use a systemic methodology that can compound returns no matter what, across a wider range of asset classes than just stocks and bonds and include options trading for asymmetrical outcomes.

Best Practice is a matter of your Best Interest.


Education and a Commitment to Informed Consent is an Obligation.

Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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