Featured Articles – Page 2 – The Investment Journal

Let’s cut to the chase…

This week on Investment Journal we’ve been contemplating the questionable state of the US consumer. And if their state really is questionable, that calls into question the future state of retail players throughout the economy.

It’s no secret to anyone paying attention that retailers have been facing their share of struggles since the pandemic.

Over the course of 2024, and with the S&P 500 up just over 25% year-to-date, some have worked their way higher. For instance…

Home Depot is up nearly 21% while Kroeger is up 28%. The Gap, who struggled through some volatility, is up 16%. And Best Buy is up just over 15%.

Others, however, have struggled…

CVS and Walgreens are off 28% and a disappointing 67% respectively. Macy’s is down 17% and Kohls is off 39%. Target recently took it on the chin giving up all its annual gains, now trading some 13% lower.

But then there are those who have outperformed like BJs Wholesale Club up 44% and Costco up a very solid 48%.

But none of these can touch Walmart — up a stellar 70% on the year.

Walmart vs. S&P 500 (YTD)

So is WMT the NVDA of retail?

To Dominate in Retail…

Walmart’s surge comes on the heels of a series of positive earnings reports. Most notably was last week’s earnings:

• Earnings per share: 58 cents adjusted vs. 53 cents expected

• Revenue: $169.59 billion vs. $167.72 billion expected

But not only that, they upped their guidance for the year looking for sales to grow between 4.8% and 5.1% versus their previous forecast of between 3.75% and 4.75%.

We noted this week that a sizable portion of that growth (75% of the gain) was from households earning over $100K per year. Not what you’d consider to be a typical Walmart shopper.

Clearly Walmart has been a force in the discount retail sector for years. But why have they been so dominant, attracting a higher income cohort while others (like Target) can’t keep up?

We think it’s because they’re a superior company. And here’s what we mean…

Like most of the competition, early on in 2022 WMT was struggling to rebound from the disaster that was the pandemic shutdowns. Their stock dropped nearly 25%. But by the end of the year they started to rebound while the competition lagged.

One of the main reasons?

Management!

They were better able to manage inventory issues that had arisen out of the pandemic. They were able to cut their Inventory overhang by more than $500 million in just one quarter by strategically discounting prices.

This faster path back to normal was in large part thanks to better management.

And that same savvy management has them over performing this year.

The Nvidia of retail?

We’ll see…

It accounts for 70% of the country’s GDP.

Consumer spending.

Makes sense. Healthy consumers are obviously necessary for a healthy economy.

But good health isn’t always apparent on the surface. Trouble can be quietly developing under the surface.

Like the heart disease candidate whose arteries are filling with plaque. They may look perfectly fine… until they’re lying on the ground clutching their chest.

Today’s economy is something like that.

Last October, the BEA announced that real GDP rose at an annualized rate of 2.8%.

That is an impressive number.

To take it at face value (much like the Fed has been insisting we do) you’d have to say that the economy, and consumers in particular, are doing just fine. So have another piece of cheesecake.

The reality underlying the situation, however, isn’t so good.

A Shift in Buying Preference

In a broadly healthy economy, a rising GDP should lift all boats. (Or most anyway.) You expect to see retailers posting great numbers across the board. Blood is pumping through those arteries.

But that’s not what has been happening. And it hasn’t been happening for some time…

All the way back in November 2022, the Wall Street Journal reported:

“Walmart gains more shoppers” sounds like good news. But article reported strains in the consumer sector:

The country’s largest retailer by revenue said Tuesday that households continue to face pressure from rising food prices, and lower-income shoppers are eating into savings.

Inflation was still roaring at the time and CPI for that month came in at 7.1%. And you’d expect that kind of news from lower-income shoppers. But what you might not expect…

During the most recent quarter, households earning $100,000 or more helped push Walmart grocery sales higher, executives said.

Sales data had indicated that higher-income consumers had begun to trade down searching for bargains. When inflation begins to reach the middle to upper income brackets, stress is beginning to build.

Still, with prices soaring over 7% annually, it’d be reasonable to argue that most households would be looking to save a buck or two.

But now with inflation “well on track back to 2%,” if you believe the Fed, things should be shifting back to normal. But they’re not.

In fact, they’re going in the opposite direction…

The Trade Down Continues

This November Walmart released its earnings. Not only did they beat revenue and earnings estimates, they raised their forward guidance.

In particular, management noted…

While average transaction growth slowed, customers are buying more at each visit, driving ticket sizes. A lot of that growth was driven by upper-income households making $100,000 a year or more as increasingly more affluent households trade down. That cohort made up roughly 75% of share gains for the quarter.

Two years later, the $100K and up cohort is still shopping at Walmart. And they’re doing it more and more.

This suggests clear strains in the economy. In a recent webinar, Goldman Sachs noted:

Our focus on the webinar centers around discussing high-end and low-end consumers trading down. This phenomenon occurs as macroeconomic headwinds mount, including elevated inflation and high interest rates due to backfiring ‘Bidenomics.’ More importantly, trading down occurs when incomes don’t keep up with inflation or when purchasing power decreases.

So the trade down phenomenon itself is suggesting trouble. But there’s more…

The bargain hunting isn’t carrying across the board.

Target, who released their earnings the same day as Walmart, missed everywhere with their stock dropping 21% on the news.

This suggests that the trade down to discount stores isn’t even widespread. (Even Dollar General collapsed on its latest earnings report.)

The bottom line: The trade down and concentration of retail customers suggests they’re taking a seriously defensive position as economic conditions become more and more uncertain.

Could be tough times ahead.

It’s official, the president-elect is going scorched earth.

A little over a week past the election, he’s put forth a string of cabinet picks that have, to say the least, raised a few eyebrows.

Senator Marco Rubio for Secretary of State. Marco’s a conservative “politician” who should have no trouble getting confirmed.

Pete Hegseth for Secretary of Defense. A Fox reporter?!?! Turns out Hegseth is a decorated 20-year veteran who served in multiple forward areas. He’s also written extensively on the military. Guess you can’t judge a book by its cover.

Matt Gaetz for Attorney General. The head of the DOJ. Gaetz has been a hard core Trump loyalist from day one and has made his share of enemies on Capitol Hill. Watch the fireworks over this one!

And then there’s the department of Health and Human Services — HHS.

Make America Healthy Again

The incoming 47th president just nominated none other than Robert F. Kennedy Jr.

“He’s going to help make America healthy again. … He wants to do some things, and we’re going to let him get to it,” Trump said during his victory speech.”

RFK is a noted vaccine critic. We won’t debate the value of vaccines. By 1994, the polio vaccine eradicated the disease in the Americas. On the other hand, you have to admit there are many, many other required vaccines that don’t have nearly the same success.

Vaccine stocks trembled at the nomination.

But that’s not all. RFK wants to go after the food industry as well. When the sugar lobby sponsored studies that effectively made fat the main culprit where heart disease goes, the American way of life started to change.

We got sicker.

And fatter.

And required more — wait for it — pharmaceutical interventions to keep us healthy.

We think RFK might be onto something. How much progress he’ll make remains to be seen. But this shake up in the health industry may be offering some opportunities for investors. One notable one… Adidas (OTC: ADDY.Y).

Everyone knows Adidas. They’re the popular runner up to Nike. (Who’ve been having their own troubles over the past couple years.) And now with a focus on health coming back into the picture with this administration, they could well benefit.

The company falls into the “consumer discretionary” category which typically performs better during good economic times. Their most recent earnings report (Q2 2024) beat estimates with earnings rising 11%. Additionally the company raised its guidance for all of 2024 expecting operating profits to reach €1 billion up from €700 million.

Given the recent pullback, they have moved to a better valuation level.

Adidas v. Nike (1 Year)

And in addition to shoe sales, Adidas’ lifestyle and performance businesses are also seeing signs of growth.

Given these developments, Adidas could be worth a look to get your portfolio in shape.

On August 30, Warren Buffett — the one and only Oracle of Omaha — turned 94!

Ninety-four!!

His former business partner, Charlie Munger, left this earth nearly a year ago at the age of 99!

Is it something about being connected to Berkshire Hathaway that adds candles to leadership’s birthday cakes?

Who knows. But in his 70-some years at the helm, his (and Munger’s) rules for investing have amassed an investment juggernaut that investors have looked to emulate over the decades.

But now things appear to be changing…

Buffett’s Fire Sale?

Buffett, who still actively manages Berkshires’ portfolio, has been a net seller of stocks for the past eight quarters, significantly rearranging his portfolio. Here’s the rough breakdown of recent sales according to US News:

He sold over 380 million shares of Apple (AAPL) reducing his position by over 49%. He dumped 104 million shares of Bank of America (BAC) shaving 10% off that position. He pitched 2.6 million shares of Capital One (COF) taking that position down 21%. And finally he sold 4.3 million shares of Chevron (CVX).

He unloaded his entire holdings of Snowflake (SNOW) — a cloud based data storage and management facility — and the media, streaming and entertainment company Paramount Global (PARA).

But while he’s been a net seller, there have been additions to his portfolio. He increased his holdings of Occidental Petroleum (OXY) 7.2 million shares and Chubb Ltd. (CB) by 1.1 million shares.

Plus he added two new holdings in Ulta Beauty (ULTA) and aerospace, defense and electronics manufacturer Heico Corp. (HEI).

The company also stopped buying back its BRK.B shares this year as well.

Add it all up and Buffett has raised Berkshire’s cash position to $320 billion versus just $272 billion in stocks.

What the Heck is He Thinking?

That is, of course, the $64,000 question.

Buffett has been nothing but legendary in his investing smarts for longer than many investors today have been alive. Since 1965 when he took over Berkshire, he grew the value of the company by 19.8% annually through 2023.

Frankly, we can’t think of anybody who comes close to that.

So is the man who buys “great companies at fair values” (something he learned from Munger) and holds them forever signaling some sort of change in the air?

He’s not saying. Or at least what he is saying isn’t satisfying a lot of people.

As Buffett told the Berkshire faithful: “If I’m looking at a 21% rate this year and then we’re [paying] a lot higher percentage later on, I don’t think you’ll actually mind the fact later on that we sold a little Apple this year.”

Selling for tax purposes is a legitimate legitimate reason. But coming from the guy who, for years, has lamented that he pays less in taxes than his employees do…

In 2011, Buffett wrote an op-ed in the New York Times called “Stop Coddling the Super-Rich.” In the article, Buffett said that his taxes amounted to “only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office.“

And even going further according to CNN in 2013…

Buffett has been advocating for a minimum tax on top wage earners — those like himself who benefit from the fact that capital gains are taxed at a lower rate than regular earnings. His proposal, popularly known as the Buffett rule, has the support of the Obama administration but is strongly opposed by Republicans in Congress.

…well, that’s a bit rich.

But there are other reasons to consider Buffett’s actions. From Reuters:

“Berkshire is a microcosm of the broader economy,” said Cathy Seifert, an analyst at CFRA Research in New York. “Its hoarding cash suggests a ‘risk-off’ mindset, and investors may worry what it means for the economy and markets.”

Is the Oracle calling a top? It’s certainly not impossible. Buffett is the king of buying value — great companies fairly priced. If valuations are exceeding what he deems reasonable, he may be building a cash store to take advantage of a major correction.

That said, it’s important to realize that Buffett is NOT, and has NEVER been, a market timer. The rally could easily continue for another six months or even a year.

Then again, he may have other intentions in mind — like building cash to acquire another target company in a massive deal.

Speculating is all well and good, but the truth is we won’t know until something happens.

In the meantime, we’re keeping an eye on the Oracle.

Trust us… They’ll be screaming that it’s all because of Trump’s tariffs.

But it won’t.

We’re referring to a potential resurgence of inflation.

For months leading up to the election, when they weren’t blasting him as the second coming of Hitler, Stalin and Mussolini…

…the Democrat side blasted his tariff talk as an outright financial assault on Americans.

“It would be a sales tax on the American people,” she [Harris] said in an interview with MSNBC on Wednesday. “You don’t just throw around the idea of just tariffs across the board, and that’s part of the problem with Donald Trump… He’s just not very serious about how he thinks about some of these issues.”

They’ll want you to believe that any uptick in prices will be all on him. But should inflation begin to reheat, you need to know that it’s been building for some time.

Inflation is Under Control

The Consumer Price Index came out last week and the numbers were reported in line across the board.

The headline number was up 2.6% year-over-year in line with estimates but 0.2% higher than the previous month’s report. The infamous “core” measure (minus food and energy costs) hit expectations and was flat from the previous yearly reading.

The media rushed to emphasize this was all good news…

The only problem is that the core number is stuck at 3.3%.

If you buy the Fed’s talk about them seeing inflation back under control so they can start moving rates back to neutral, you’d be hard pressed not to notice that the core reading hasn’t been below 3% since March 2021.

Ordinarily the talking heads try to explain away any high print in CPI by saying “well look at the core measure” and blaming it on food and energy prices. It’s true, those prices are volatile. And when they’re pressuring the headline index higher, it’s a legitimate observation.

But when the opposite happens, like now, it’s just as legitimate.

In fact, for the past several months, it has been food and energy prices that have been pressuring the index lower. And when you take them out you get a clearer picture of the overall price situation as it stands.

Prices are stubbornly stuck well above the 3% level. Which, in inflation terms, is nowhere near the 2% level the Fed views as its mandate.

That’s called persistent inflation.

And it’s a problem.

Or Is It?

Two days after the Journal headline trumpeted that everything on the inflation front was still A-OK, Jay Powell came out at a speech in Dallas and dumped cold water on it.

“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in remarks for a speech to business leaders in Dallas. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”

Remember that three years ago, as prices were accelerating like a Space X super heavy rocket, the Fed (and that sage of the Treasury, Janet Yellen) all insisted that it was “transitory.” Not long after scraping that egg off their face, the FOMC kicked rate hikes into high gear.

After doing nothing for two whole years and watching inflation skyrocket to 9.1%, they want you to believe that their massive rate hike of three-quarters of one percent was the thing that struck fear into the heart of rising prices and brought inflation to heel.

Source: The Federal Reserve Bank of St. Louis

It wasn’t. (Businesses reopened and the broken supply chain worked itself out.)

But when you consider that all the indexes in the CPI are subject to “seasonal adjustments,” that the data doesn’t account for costs like interest rates, homeowners insurance, shrinkflation and other assorted rising costs, that financial conditions (according to the Chicago Fed’s National Financial Conditions Index) were never meaningfully tightened and that money supply (M2) is back on the rise looking to test its all-time high of $21.7 trillion you get the idea that we’re not out of the inflation woods by a long shot.

The inflation beast is something that’s been developing for the past three years. If it takes a turn back to the upside — which is a possibility — it shouldn’t be on Trump.

It’s finally over…

After enduring months of some of the most incredible political theater ever exhibited, including two assassination attempts on a candidate, the citizens of the US finally stepped up and made their voices heard. And boy did they ever.

In what can only be described as the comeback of all time (unless you’re a member of the Grover Cleveland Fan Club), Donald Trump won the presidency in undeniable fashion.

And not only did he win, Republicans also took back control of the Senate — and are gaining ground in the House.

This was a remarkable red wave. The kind that gives the winning candidate a mandate to enact their policies. And since Trump now has that mandate, it’s probably worth taking a look at what the next four years (two years with a friendly congress) might bring for the economy and markets…

Stocks

There was no mistaking the stock market’s opinion of Trump’s victory. The day after the election, the Dow Industrials rallied over 1,400 points. The S&P 500 soared over 130. The Nasdaq composite was up over 500. And the Russell 2000 (the index of small to mid-cap companies) saw the highest percentage gain of all the averages exploding over 120 points.

The initial explanation is simple: Trump will be a pro-business president.

You can expect Trump to bring a lighter regulatory touch to his next term. He’s also indicated his preference for lower interest rates (a point of contention with us). This bias should benefit tech where AI (and crypto) are concerned as well as the energy sector.

Inflation

This is a tough one. Because in all honesty, no one administration can be blamed for the inflationary forces in the economy.

Inflation isn’t a bug within our financialized economy, it’s a feature. One of the “mandates” of the Federal Reserve is to maintain price stability. They define that as maintaining (creating!) 2% inflation every year. That may not sound like much but it shows up as a 22% increase in prices over the course of 10 years. Nothing compared to what the economy experienced over the last four, but the point is prices rarely ever go down.

Of course the fiscal side of the ledger carries a lot of blame as well. Deficit spending, theoretically a cure for a struggling economy (not one that’s booming like they tell us ours is), has an inflationary impact on the economy. Thanks to Congress, the US deficit has been running rampant for the last two decades. And given the fact that they suspended the debt ceiling over a year ago, it’s hard to see how anyone can make much of an impact here.

The Federal Deficit

It’s finally over…

In what can only be described as the comeback of all time (unless you’re a member of the Grover Cleveland Fan Club), Donald Trump won the presidency in undeniable fashion.

And not only did he win, Republicans also took back control of the Senate — and are gaining ground in the House.

Stocks

The initial explanation is simple: Trump will be a pro-business president.

Inflation

This is a tough one. Because in all honesty, no one administration can be blamed for the inflationary forces in the economy.

The Federal Deficit

In 2018 and 2019, Trump levied tariffs on products valued at roughly $380 billion.

But as you can see in the chart above, inflation remained fairly stable (even declining into 2019).

That said, the economy was doing better back then than it is today. The ISM Purchasing Manager Indexes for both manufacturing and services were well above the 50 threshold signaling business growth. Today, services are still intact while manufacturing has slipped to more contractionary levels.

A weaker economy might not react as well.

There are other Trump policies the economy will be facing — especially in the area of geopolitics.

We’ll consider them in future posts.

Is Apple waving the white flag?

The recent news about its mixed reality headset — the Vision Pro — might have some investors wondering.

A little more than a year after Apple launched the product (to mixed fanfare) tech news site The Information reported:

In recent weeks, Apple has told Luxshare, which is responsible for the Vision Pro’s final assembly, that it might need to wind down its manufacturing in November, according to an employee at the Chinese manufacturer. Luxshare is making around 1,000 Vision Pro units a day, down from a peak of around 2,000 units a day, the employee said.

There is, of course, a reason for this. Nobody wants to spend $3,500 for a device that doesn’t run what you want it to. According to the WSJ:

There has been a significant slowdown in new apps coming to the Vision Pro every month. Only 10 apps were introduced to the Vision App Store in September, down from the hundreds released in the first two months of the device’s launch, according to analytics firm Appfigures.

As of August, Apple said it had 2,500 apps developed for the headset. If that sounds like a lot, consider the Apple Watch had some 10,000 apps less than six months after its launch. And the iPhone had 50,000 apps developed for it in the year following its release.

And as far as the competition goes, Meta is quietly dominating in the headset market…

The social-media company is a formidable competitor to Apple, with a market share of all headsets reaching 74% in the second quarter this year, according to Counterpoint Research.

So is this a misstep for the mighty Apple?

Don’t Sell Your Shares Just Yet…

Apple has a knack for finding its place in the market. Consider its last big release… The Apple Watch.

Digital watches aren’t exactly a new thing. In fact, they’ve been around since the 1970s. For those of you old enough to remember, we give you the Hamilton Pulsar P1 Limited Edition…

(BTW, that baby cost $2,100 in 1972 — that’s nearly $16,000 today!)

This breakthrough was followed by calculator watches, game watches, camara watches, even TV watches.

By the time Apple rolled out their watch in 2015, high tech timepieces had largely become passé. Instead, everyone was doing everything on their personal devices (i.e. their phones) including checking the time. Who on earth would need an Apple Watch?

Despite that looming reality, Apple was undeterred. They put out the slickest product they could — an all new interface with all kinds of apps for all kinds of (silly) purposes (like showing you where all the planets in the solar system were at any given moment).

But a few years later, the health and fitness market started taking off. And the Apple Watch became the perfect wearable for it.

Today, despite the growing competition in the wearables market, Apple has become the dominant player. During the first three quarters of 2023, the company sold 26.7 million units which gave them a 30% share of the global smartwatch market. (Industry leader by a mile.)

So at the risk of sounding like Apple fanboys, while the news from Apple is disappointing at the moment, the Vision Pro game is far from over…

Is the end of AI at hand?

For the past several years, tech heavyweights have been pouring billions into AI development. According to CNBC:

…they’re all racing to integrate generative AI into their vast portfolios of products and features to ensure they don’t fall behind in a market that’s predicted to top $1 trillion in revenue within a decade.

It’s been full steam ahead, and a lot of investors have profited handsomely.

But has the race to dominate that $1 trillion market gotten ahead of itself?

Some analysts are saying yes — and they’re making some reasonable arguments to back them up…

The Case for a Cool Down

Let’s start with Goldman Sachs’ Senior Macro Strategist Allison Nathan. She recently released a client note suggesting the benefits gained from AI weren’t justifying its current costs.

The promise of generative AI technology to transform companies, industries, and societies continues to be touted, leading tech giants, other companies, and utilities to spend an estimated ~$1tn on capex in coming years, including significant investments in data centers, chips, other AI infrastructure, and the power grid. But this spending has little to show for it so far beyond reports of efficiency gains among developers.

Billion dollar solutions… that aren’t saving billions of dollars.

Analyst Brandon Smith…

There is no evidence of a single benefit to AI on a broader social scale. At most, it looks like it will be good at taking jobs away from web developers and McDonald’s drive-thru employees.

And the costs to train AI haven’t slowed.

Researchers at Epoch AI discovered the “cost of the computational power required to train the models is doubling every nine months.”

So has AI overpromised on its future?

In a word… No.

And should investors be concerned about these projections?

That’s a little more complicated. That answer comes in two parts.

Don’t Fade the “Bubble”

Back in the late 1990s, any tech company with even a remote connection to some aspect of the internet was being bought hand over fist. Regardless of whether or not they had produced dollar-one in revenue… or even had a viable business model!

It was the “new paradigm” of investing.

Everyone knows how that ended.

Today, the companies involved in the AI race are all trillion (or near-trillion) dollar companies. Nothing like the “wish and a hope” companies from the 90s.

That makes the AI rally more substantial.

So if you’re invested in AI-related firms and your shares are still headed higher…

Don’t fade the bubble.

It may be a bubble, but bubbles still make people a lot of money.

What’s important is to be aware that it is a bubble. What crushed everyone during the tech bust was the absolute certainty that “this time it’s different.”

It never is.

So that’s number one. The second point, and this is even more important, is to…

Understand the “Long Game”

AI has been a “thing” since the 1950s. But only recently has the technology to actually produce large scale AI applications become available.

That means the industry is just starting to evolve.

Some AI applications will undoubtedly tank. Others, however, that can prove their value will be adopted by the market. And those companies will see exponential growth.

This means that going forward you don’t want to think of AI in general terms. You want to consider it in terms of specific areas of application. Areas where serious ROI could actually be realized.

One area that comes to mind is the healthcare industry.

The healthcare system is plagued by massive inefficiencies: From skyrocketing administrative costs (thanks to a largely broken billing and payment system) to poor patient outcomes that are the result of fragmented treatment and care coordination.

Studies in the National Library of Medicine suggest that if the problems of uncoordinated care, redundant tests, and adverse drug events could be resolved it could save the industry as much as $240 billion.

Other estimates have been bigger:

According to research highlighted by Forbes, a quarter of US healthcare spending — almost $1 trillion — is wasted on inefficient or unnecessary patient care. Operational inefficiencies represent a tremendous opportunity for healthcare organizations to increase their retained earnings while bringing in the same revenue.

A number of huge players understand this and have started investing billions to stake claims in the industry.

One example is none other than Google Health. This division of Alphabet is actively developing AI solutions for medical imaging analysis and diagnostics, predictive modeling and health research.

Another player in the current healthcare market is global conglomerate GE Healthcare. They are now working with AI to develop not only diagnostics systems but also patient monitoring systems and hospital operations management tools.

Cerner Corporation (a subsidiary of Oracle) is developing models for clinical decision/pedictive support. They are also focusing on electronic health record (EHR) solutions, revenue cycle management and other operational efficiencies.

But these are all billion dollar companies (trillions in the case of Google) and returns based on their advances in healthcare AI would be tough to realize. To really get a bang for your investment buck, savvy investors should research solid, smaller-cap companies for whom a breakthrough in the market could be transformative.

Tim Collins, Senior Analyst at Streetlight Confidential, recently wrote about a company that fits that description — Healwell AI.

Healwell AI is a small Canadian company that has developed strategic partnerships with seven medical tech companies all working on AI solutions including:

• Solutions that will allow physicians to rapidly screen and identify patients with rare diseases to facilitate more personalized treatment.

• The development of state-of-the-art EMR or EHR (records management) solutions…

• AI technologies that enable earlier diagnosis and treatment and improved quality of life for the patient

• Applications to target patients that are eligible for specifically approved medications or interventions that can vastly improve patient outcomes…

They’ve also partnered with a leading contract research organization (CRO) specializing in Phase 1 and Phase 2a clinical trials. (Focusing on the field of pharmaceutical development.)

They also have access to one of the most important factors in AI training… data.

The company has partnered with Canada’s largest healthcare provider network, WELL Health, and has exclusive rights to its pool of patient data. WELL Health Technologies Corp. is the largest healthcare technology company in Canada.

All this gives them huge potential throughout the entire healthcare industry.

You can see Tim’s latest research on Healwell AI here.

The bottom line where AI goes is this…

The initial FOMO may be coming to an end. But it won’t be the end of AI.

There is simply too much potential in this technology for it to just fade away.

Instead of just counting on Nvidia to keep selling more and more chips, smart investors will have to start looking for areas where AI will actually pay off!

According to the Guinness book of world records, it’s the most fearless creature in the world.

A ferocious little critter (only about two feet long when you count their tails) that’s impervious to cobra venom, bee stings and just about every other threat that might be lurking in the African plains. (They’ll even throw down with a lion!)

They eat pretty much anything from lizards to rodents to snakes to birds and bee larvae.

We’re talking about the Mellivora Capensis… aka the Honey Badger.

And as the saying goes, “the honey badger don’t give a $#!%…”

Lately, one market has taken on a honey badger attitude.

In mid-September, the Fed decided it was time for rates to start coming down and they began a new easing cycle lowering their Fed Funds target rate by a full 50 basis points. (An aggressive move by any account!)

But like the honey badger, the bond market didn’t give a $#!%.

As the Fed started its easing cycle, yields on the 10-year note, the US’ borrowing benchmark, bottomed. And in the ensuing weeks they have actually risen from roughly 3.6% to nearly 4.25%!

US Treasury 10-Year Yield

What’s Going On?

The US has just closed out its 2024 fiscal year and the results, as expected, were abysmal.

According to Janet Yellen and the Treasury, the budget deficit hit its highest level in history. (That’s not counting the two outlier years during the pandemic stimmy giveaways.)

The total deficit for FY 2024 topped $1.8 trillion.

And while that’s bad enough on its own, in what might be the greatest irony in financial history, the largest contributor to that deficit was… interest on the debt.

If you scroll down the Treasury’s monthly statement it shows they paid out over $84 billion in interest payments in the last month of the fiscal year. That increased last year’s total interest expense by a staggering 29% to $1.13 trillion.

That was more than the government spent on Medicare and the defense budget.

Needless to say, the exploding interest cost is a serious problem.

When it comes to government debt, nothing gets retired. The Treasury simply rolls its debt over, refinancing the securities that come due. Which simply adds to the total amount of debt — increasing the interest expense they have to pay.

Now interest on the debt will soon become the biggest contributor to the debt itself.

Think about it. This year alone has added over $1 trillion to the annual base borrowing needs of the country. Before we pay for anything else. In that same 2024 fiscal year, the country took in $4.92 trillion in income. The interest cost ate up 23% of that.

This, of course, increases the amount of debt that has to be issued every year. And higher yields make that cost go up exponentially. (You don’t need to be a financial genius to know borrowing at 1% is better than 5%.)

This situation is one of the main (albeit unspoken) reasons the Fed is scrambling to lower rates — to ease the ever-expanding interest burden the spendthrifts in the government keep racking up.

The only problem with the Fed’s plan is that the funds rate is an overnight borrowing rate between banks that no longer have to maintain any reserve requirements.

So it’s basically just just for show.

It would appear the bond market (the folks who actually buy our debt and finance our deficits) knows this — and it doesn’t give a $#!%…

Election issues may be factoring into this rise in yields, but we don’t think it’s to any significant degree.

More likely the market may be reacting to what it knows is going to be an ever increasing supply of bonds they’re going to need to buy. (More supply = lower bond prices = higher bond yields.)

And this could easily force yields, as one Fed chairman once noted, to stay higher for longer. We’ll see as the week’s progress. But should the market take out previous yield highs of 5%, 6.5% could be within reach.

For now understand that when it comes to the Fed… the bond market don’t give a $#!%!