Bitcoin Rising – But is AI the Real Growth Engine? Jarvis® Update March 15, 2024

Bitcoin is on the rise, but other investments have us much more excited. We cover that and much more on this week's Jarvis Update. I'm Brian Dress, Director of Research here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.

Hey Brian, happy spring.

Happy spring to all of you. It's getting a little warmer here in Chicago. First of all, I'd like to ask you to like and share the video if you find these videos useful. It does help others find it and It helps our channel grow. And also subscribe and hit the bell for notifications. That way, you know, every time we're out with these videos, we love to engage with our listeners. So we'd like to ask you to comment with your thoughts on the market or with an answer to the question, what is your favorite spring break destination? Let's start with a quick preview. The bull market does continue to roll on despite interest rates creeping higher. We've got two topics for you as usual. The first one is Bitcoin moons, but it's not the only high flyer in the market. And then the second one is ways for you to take advantage of the bull market. A few announcements before we jump into the meat of the program. First of all, I would like to ask you to sign up for the Jarvis newsletter list. We'll put the link on the bottom of the screen and in the description so you know where to go. Um, next week we're going to have our newest edition of that newsletter, and we're going to take a deeper dive on the AI theme in investing. So take a look at that, get on the mailing list, and you'll get that in your mailbox next Saturday. Our goal working with clients is to help them make the best of their financial plan. Whether or not you currently work with an advisor, we aim to be a resource to help you future goals by helping you make the right financial choices. So call us at the number below. That's 630-547-3316 for the podcast listeners. If you're looking for a second opinion on your portfolio, or if you're just looking to get started and find a way to get organized. And for professional investors, we've got something for you as well. That's our new Investment Ideas Service, new and relaunched. We've got 5 model portfolios for you that stocks and bonds, dozens of actionable securities, And that's updated quarterly and that's backed by our research reports. And finally, another one for clients. Got our State of the Union address coming up. That's been moved to May 11th at Morton's in Naperville. So mark your calendar down for that. We'll be looking forward to seeing you all there on that Saturday. First of all, the S&P 500 was down just 0.13%. The Nasdaq was down 1.32%. And then the Russell 2000, that's the small-cap index, was down about 2.5%. Over the past week. However, with that being said, markets are holding in pretty well despite higher interest rates. So for the last few days, we've seen interest rates ticking a bit higher. 10-year Treasury was a little bit higher than 4% as the week started. We're up almost a quarter point to 4.3%. A little bit of hot inflation data coming out this week. That's different than the pattern that we've seen over the last few years. I'm going to throw a chart up here for you, year-to-date of the S&P 500 and the 10-year Treasury. As you can see, interest rates have been going up and stocks have been going up. So we're kind of breaking that trend that we were stuck in for a number of years. Nolan, what are your thoughts this week? Do you have an opinion on the fact that rates seem to be having less impact on investors? And does this period remind you of any time in recent market history?

Those are all, um, really good topics to tee up. Interest rate increase versus stocks debate— I think we kind of put that to bed. And I think the countervening forces here are two different dynamics that are pulling us up. One is interest rates are going up. The market doesn't seem to be overly concerned, primarily because rates are going up, because the economy is really, really strong. And we have to remember, it's probably not only going to stay strong, but it may increase. Congress passed a couple of bills that are just now working their way for the spending of those bills into the economy. We had the CHIPS Act that's just starting to get doled out, and then we have the Inflation Reduction Act. Both of those launched trillions in spending. It's just now starting to hit the streets. I expect the economy to stay strong. And because of that, I think people are tending to look past the interest rate increases. And quite frankly, we would not be disappointed if the Fed didn't cut rates at all this year. Several months ago, it was projected they were going to cut 6 times. Now it's down to 3. They moved it from the first half of the year. Now expectations are in the second half. It might be better off for all investors if the economy was so strong that they never needed to lower interest rates.

It's a great point that you mentioned the Inflation Reduction Act and the CHIPS Act. Nolan, two of the strongest sectors of the market are industrials. And semiconductors. So those are two sectors that are very related to those two bills. With that being said, let's move into topic one. So topic one, Bitcoin is mooning, but AI is the real deal growth engines. In the parlance of the crypto folks out there, mooning, when Bitcoin goes up quickly. It has been going up quickly this year. The media, we've seen a lot of questions about crypto. Bitcoin's up around 60% year to date. It's been driven by a number of factors, but really A lot of that is because ETFs have been approved for, for Bitcoin. So it's a lot easier for people to get exposure. But we wanted to point out there are a handful of stocks that we follow that are up significantly more than Bitcoin year to date. You've got Supermicro, that's SMCI, that's up almost threefold this year. We've got Nvidia, NVDA, a real powerhouse. And then we've got Celsius, CELH, that's in the energy drink space, but that's up just about as much as Bitcoin is this year. Nolan, a question for you is how do you compare opportunities in Bitcoin to what we're seeing in other growth instruments? What would you say to investors who are interested in growth that are crypto curious?

This crypto thing that's been kind of creeping in the background definitely has the public's attention. We're not getting near as many inbound inquiries on crypto as we did a couple of few years ago, but certainly the price is back. There's been a lot of excitement. You also have the fact that the SEC approved Bitcoin ETFs. I think that's driving not only fund flows but a lot of renewed excitement. And then finally, you know, I think you just have the mistrust of, of governments and printing money and fiat currencies. I think that fear and concern is never ever going away. Question is, uh, what should investors do about it? For investors that own Bitcoin or just want to own it, we do have a custodian we use, Interactive Brokers, and we do have clients that have asked us to purchase Bitcoin on their behalf and we're able to do that. So for them that just can't be talked out of Bitcoin and want exposure, we're certainly able to get it. I think the thing that most people don't realize is the other ways to play Bitcoin other than buying Bitcoin. There's actually some publicly traded stocks. There's a couple that we follow that get revenue directly from Bitcoin. Other than that, you know, trying to forecast what happens with Bitcoin, it's more of a sentiment indicator. So if you have an idea of how the world is going to feel, think, believe, you have a good idea of where it's going to head. We don't. The things that are more predictable for us is revenue trends, business conditions, upcoming catalysts, fundamental looks at what businesses should prosper given economic circumstances. And those are a lot more predictable and determine with some degree of confidence if something is over or undervalued.

What it all boils down to from our point of view, Nolan, is, you know, people are looking for ways to make money in the markets. Greed is a huge factor in how people make investment decisions, and what people are really looking for is growth, ways to grow their portfolio. So it's completely understandable that people would take a look at Bitcoin. There's a lot more going on, and we've talked a lot about some of these trends on— right here we've talked about AI, artificial intelligence, cybersecurity, digital transformation, a lot of different secular trends that are taking hold, Nolan, that may be just kind of in the early innings. Can you talk about some of those secular trends, what's got us excited and what's driving this emerging bull market?

I mean, the adjective you use is excited. It's an adjective or a verb. Anyway, the term that you use, excited, I think is a good one because when investors get excited, prices go up. Clearly they're excited about Bitcoin, AI. There's a lot of excitement around, which is why prices are going up. Digital ad sales, a lot of excitement, prices are going up, and generally that's the theme that you see. And then earlier you asked about what periods does this remind me of? And I know here in the office we've been talking a lot about the comparison of the original tech boom in the mid-'90s and went all the way through 2000, which made investors fortunes. And this ride up has the beginnings of the makings that could be that tech rally 2.0. Only the new and improved version. And so there's a lot to pay attention to. The three themes that you mentioned, I think, still play: AI, cybersecurity, and digital transformation. I know AI has the public's attention right now because it's so new. The trends have been so powerful. But I think there's many trends here that can lead to a bull market. And one of the ones we haven't spoken about, even like chips— chips are used, silicon chips. To run AI, you need a lot of things. You need chips, you need computing power, and you need data. Right now, the market's focused on the first one, which is computer chips. The technology chips sector used to be priced as if it was a cyclical sector. That means it went through periods of booms and busts. That's not the case. It looks to us like semiconductors are so widely used now, and we seen that during the supply chain issues of a couple years ago, that there's been a repricing. Instead of pricing them as a cyclical investment, you're pricing them more secular growers, and so you're getting a higher, a higher multiple there. All of these trends that we speak about, including the, the semiconductor and the valuation change, the economic forces that underpin these can be with us for a protracted period.

Definitely agree with that, Nolan. Just to put a bow on this topic, we know people are feeling greedy out there looking for growth. We just want to make sure that people realize there's more than just Bitcoin. There's a whole lot more going on. We've talked about this for the last few months. Definitely take a look at some of these opportunities and we're happy to speak if you're, if you're looking for some guidance in that, in that area. But let's move to topic 2. So topic 2 is taking advantage of the current bull market. So, Nolan, we've talked about individual investments, companies, that sort of thing. But really, at the end of the day, what you've got to do as an investor, you've got to pull the right levers, not only getting the right investments, but you got to make some proper personal finance decisions to take full advantage of things. We talked about a lot of these themes that we like in investing. So certainly as that, with that as a backdrop, are getting invested in the winners for the next 3 to 5 years and the bull market that we're sort of expecting is getting your money working for you properly. Right now it's tax time. Also, many investors have just received bonuses. A lot of investors have also changed jobs. They've got 401(k)s at old jobs. What are some of the strategies that you're emphasizing to clients as you try to make sure that they're taking full advantage of the bull market that we're in right now?

You know, this is a really important topic. What's lost on a lot of people, if it is a bull market, we're for the most part at the beginning of it. And I don't know if people realize how well you can do in a bull market. You know, we often talk about bear markets and how painful they are and how sharp the contraction elections are. We just had one in 2022. But for bull markets, they tend to be longer, and there's a lot more money can be made on the upside than the downside. So the one strategy I would suggest that people think about— we know that there's a lot of money at these retirement plans at work, 401(k)s, 403(b)s, thrift savings plans. A lot of people aren't working at these companies anymore, but for some reason they're very, very complacent to leave money there. If you own mutual funds or money in one of these retirement plans, or even you're with an advisor that uses all mutual funds, you just see the portfolio going up slowly over time. And so you smile and leave the money there and you're very happy. What you don't realize is some of the super winners that you miss out on in a bull market. And I know we're going to show a chart here where we take a look at some of the super winners that you talked about, like, you know, an NVIDIA or Supermicro. And if you take a look at those returns, take a look at 'em year to date, even just a few months into the new year, and take a look at the returns. If you have shares of some of these in your portfolio, not in a mutual fund, but you have 'em in a stock portfolio, if you have a couple of super winners, they can really drive your portfolio returns from average to wonderful. And that can mean a lot for your standard of living, particularly if you're playing catch-up. That would be the one thing I would encourage investors to do. If this is a bull market and we're at the beginning, and we have these powerful secular trends, do you really want to sit on the sideline and miss out on some powerful gains? And more importantly, some impressive stories you can tell at birthday parties and anniversaries.

Definitely true, Nolan. So can you speak to the urgency of making the proper portfolio moves, like moving your, your old 401(k) to an IRA or getting that bonus money into the market? The sort of impact that just a few months of difference could make to a portfolio, whether I make the move today or if I make the move 6 6 months from now?

Yeah, time is always of the essence. I mean, certainly we don't know what tomorrow could bring, but over time stocks tend to go up. And there's very good data that suggests when you're off to a really good start at the beginning of the year like that we are now, especially when economic trends are in your favor like they are here in the U.S. and actually globally now, that the odds are overwhelmingly in your favor the remainder of the year and actually the next preceding couple of years. So I do think time is of the essence. People are excited but not euphoric. So I think the window's still open to do very well. We've seen it close quickly in the bond market where, you know, it wasn't that long ago we were talking about yields of over 8%, and now 6% is the new 8%. So the window closes really quickly, and it tends to close quicker on stocks because of the liquidity. So I would say if you have money in cash, And if you have money with another advisor, you're not necessarily thrilled. If you have money at an old retirement account at work and you just been thumb sucking and waiting for planting season, I'd encourage you to take 30 seconds and send us a note.

Thanks for that, Nolan. We're going to leave it right there. We'd be happy to speak with you. There's plenty going on in the markets right now. It's definitely time to take stock of what you're doing. Take a look at your portfolio and make sure that you're actually taking advantage of a potentially really strong market. With that, Nolan, we'll bid adieu to the listeners. We'll thank you for being with us and we'll see you again next time.

And we look forward to seeing you all in person on May 11th at Morton's in Naperville. We'll be talking about more of these super winners and ways to accelerate our increase in net worth.