September Stock Market Warning: Don’t Buy the Dip Too Early

Memory stocks have been on fire lately, and they're dragging the whole AI trade higher with them. But here's the worry, the 30-year Treasury just hit its highest yield since 2007, and that got people spooked that the bond vigilantes are about to crash the party. That Ed Yardeni, the guy who actually coined the term bond vigilantes, doesn't think high yields can derail the AI boom. But what's your take? >> I agree with Ed, but higher bond yields are the excuse to take profits. So, as we record this, the memory stocks are down today, but in the past 5 days, they're up 10 to over 30%. So, any kind of pullback is normal, okay? I think the real problem is this is August, and the bond vigilante concerns are a global concern. Yields are going higher in Britain, France, even Germany, and Japan. So, the US is kind of being thrown in this whole global interest rate rise. Now, the yield curve is not inverted, okay? That's the good news. We do not want to see an inverted yield curve like we had in 2020. But if you bought that iShares Treasury ETF TLT in the beginning of the year, you're you're down over 7% now, and you're probably not too happy. So, that's kind of the other thing is yields tilt higher, uh bond investors lose money, and they get really grumpy, okay? But this to me looks like it's all seasonal shenanigans, and this will be sorted out at Jackson Hole, and Kevin Warsh will give a speech on AI productivity being not being inflationary, at least that's what I hope he does, and hopefully everybody will calm down. Of course, everybody's going to be in a wonderful mood in Jackson Hole. >> We've been talking a lot about situational awareness, and MarketWatch just reported that this hedge fund had 56% of its portfolio in Micron and SanDisk. Is that kind of concentration normal? >> No, it's not, and obviously, League O'Neal, the guy that ran situational awareness until he was rescued by Citadel in July. That was his bet at the end of June. And I don't disagree with his stock picking, uh but it just shows that even if you have a good stock picking system, as soon as you put a lot of leverage on it, it's going to blow up. And that's what happened to him. But yeah, the guy had a lot of guts. And obviously, the order backlog is real, the firm prices for memory are real. So, I have no criticism of his thesis and his overweight, but what happened, he was working with market makers, and they were allowing him to leverage at least 4:1, and that blew up. And that's why even though he was up 439% in the first 6 months, he was down 67% in July and had to be rescued by Citadel. >> Speaking of which, how did Jane Street end up losing 15 billion in July? >> Well, Jane Street's a great firm, by the way, and they're capturing more and more market share from Citadel. So, Citadel and Jane Street are the biggest algorithmic market makers out there. And clearly, they got caught up in the situational awareness liquidation. And it's very unusual for them to lose money. Now, that 15 billion they lost in July, I wouldn't be surprised if they made it back in August. As we had this big AI boom, so it just shows that we had extreme condition in July. We had capitulation selling. And now we're in the backwash of that, and everything is returning to normal. So, I'm sure Jane Street has made a lot of money already in August, and and hopefully, will erase all the July's loss. >> And here's something interesting. The S&P 500's advance/decline line hasn't skipped a beat even though that July correction in AI stocks. What does that tell us? >> Yeah, that's a very important chart you're showing from Bespoke. Basically, it shows you that money never left the market. It uh it just went somewhere else. So, if we go back to that mean reversion chart we were showing for July, where the the top 10% of the of the Russell 1000 corrected 13.2% in the first two weeks of July. But, the bottom 10% rose 4.6 and we showed every decile. And so, it just means money never left the market, it just got reshuffled and went some other place. So, that's healthy. It means the market's broadening out and I think the main place it's gone is energy because energy has spectacular earnings growth. Some of it's gone to materials, some of it's gone to pharma, but Yeah, that's a sign that the market's breadth and power is improving and that's very reassuring. Usually when markets peak out, the advance-decline line falls. There In other words, there's more losers than winners and that's not the situation we're in right now. We have more winners than losers. So, that's a very good sign of market health at this moment. >> We also have Bespoke putting out an updated chart comparing today's AI boom to the go-go 90s boom. So, what inning are we in? >> I think we're in the second or third inning and I think we're going 14 to 20 innings. If you look at that chart, it does show some correction during the summertime. So, that In our case, it was July, okay? And it gets bumpy in the summer months, mostly because people are on vacation and not paying attention to the market. And this is a global phenomenon. But, yeah, it's very reassuring that if history repeats, we're going to more than double our money from where we are at this moment. And again, the AI trade is real. The order backlog is unbelievable. The other thing is, we can't stop it. Financial Times reported that there's a data center boom underway in Malaysia of all places. And And it's really helping fuel their GDP growth because Malaysia's doing much better than other Asian economies. So, you know, if somebody doesn't want a data center in their backyard because they don't want their power bill to go up or they don't have enough water for the data center, it's just going to go somewhere else, okay? So, we can't stop this boom is underway and obviously, if we want AI to work better, we need more computing power and that's what's happening right now. >> Now, I'd love to get into your subscriber questions. As always, thank you so much and if you have any questions, leave them in the comments below. But let's talk about the buzzword this year. It's IPO. The popular buzz of the past was namely stock split is never heard. Why is that? >> Well, that's an interesting question. The reason IPO is the big buzzword is guess what? This is how Wall Street makes its money. So, it's very hard for the financial media not to get excited when Goldman Sachs and Morgan Stanley and all the other underwriters are excited cuz they're going to make so much money taking stocks public and I feel very good that we guided them not to buy SpaceX because the insiders have started to sell and even though SpaceX was an incredibly successful IPO, I think it's the biggest ever. It turned out to be a bad investment as more shares were issued and the insiders started to sell. We have the Anthropic IPO coming up. That's going to be very big cuz that's right now is the best AI software, but you know, then eventually we'll have Open AI, which is now being monetized thanks to Microsoft getting more computing powers. But it's just all the excitement from the underwriters. So, you know, your New York, the restaurants should be busier because the the investment bankers have just made so much money from these IPOs. As far as stock splits are concerned, most investors like stocks to split. You know, we have a lot of stocks that trade at a few hundred dollars a share even over a thousand dollars a share and that seems to annoy people. So, easy when stocks have such high prices, they'll announce a split, sometimes up to 10 to 1. But that will probably happen later, okay? It's just the themes change on Wall Street. The media has to talk about something. >> Another subscriber wanted to talk about September. August they've been holding and taking some profits on a few things, but should they really wait for a September dip to buy stocks? >> Yeah, the best time to get is the last week of September. We're going to rally going into Labor Day weekend because people are happy going into holiday weekends. Also, that will be just after we have Jackson Hole the week ahead of time and everybody's going to be happy cuz Jackson Hole's going to be good news. All the central bankers will be in a good mood. But, why first half of September can be precarious is estimated taxes are due September 15th. And if people don't have enough money to pay their estimated taxes, they often sell stocks. So, there seems to be some seasonal selling pressure in the late and mid-September. And then the third week of September, it's all right, but the last week is the time to buy. That's what we call quarter end window dressing. That's where professional managers go in and fine-tune their portfolios, make them extra pretty before they do their quarter end reviews. And we tend to benefit a lot from that quarter end window dressing. So, that's why I like the last week of September is the best time to to buy and add money. >> Now, what's going on with AVGO? And with so many backlogs in Micron and Nvidia, what happens if an order is canceled? >> Oh, yeah. If any orders get canceled, it's bad news, but the question is is what's your overall order backlog? And to my knowledge, everything's still rising. So, AVGO is Broadcom. Their sales are forecasted to be up 84.5%. Their earnings are forecasted to be up 91.6%. The analysts are holding steady on earnings estimates. The only issue with Broadcom, it doesn't have big surprises. But no, it's a solid solid stock. So, I wouldn't worry about Broadcom one bit. And it's still highly rated in Stock Grader. It's a C rating in Stock Grader this time, but it's it's a fundamental B, which is outstanding. So, Now, this is interesting. It's earnings momentum is an F because the their earnings are decelerating, but they're still growing at a fast clip and earnings are growing faster than sales. So, I would give Broadcom a break just because of its fundamental grade. And I realize that a C rating isn't my strongest, but in my opinion this stock is a solid hold. >> Now, what about the stock IDN? >> Okay, IDN announced and their earnings were in line with analyst estimates. Sales were actually a little better. Uh this is called Intellecheck and it has slipped to a D, which is technically a sell, but its fundamental grade remains very, very good. So, I'm keeping a very close eye on this stock. It is a thinly traded stock and if I decide to sell the stock, I'll sell on a bounce. I do not want to sell a stock into August when it's thin market conditions, but it did not react well because its earnings were in line with analyst estimates. Now, there was another service out there that said it missed by a penny. So, if you search the headlines, it's confusing, but sales beat, earnings were in line, and that's why the the stock sold off. >> Now, one of our subscribers would love to hear your take on precious metals. You seem to dabble in metals, but not a hyper advocate for them. When will they get a life? >> Well, I want to be clear. I haven't recommended gold or GLD, the gold ETF. I've only recommended gold miners and I got into them for two reasons. One is they had very good forecast of sales and earnings, which is still happening. The other is there's relentless central bank buying pressure on gold. Now, it ebbed a bit, uh but in June it looks like China picked up its pace of buying gold and I have trimmed a lot of my gold stocks, although I own some major ones. I think I I saw about seven gold mine stocks at this moment. But I at one time I had 20. So, I need to explain to you why central banks want to own gold. And the main reason is as treasury yields go higher, as they have been this year, you lose money in your treasury operations if you're not careful because as rates go higher, bond bonds drop in value. So, as an example, the French central bank had operating losses from its treasury operations. But then they took their gains from their gold reserves to offset the losses. So, in a rising rate environment, gold is an oasis not only for investors but for central banks in general. So, that's what got me into it but I'm into the gold miners not the actual metals. I would add that we're in a strong dollar now and longer term a stronger dollar will put downward pressure on commodity prices. I think gold's an exception. I think copper's also exceptional because there's a lot of copper going into all of the technology that we use. But, longer term, if the dollar remains strong, it will put downward pressure on all prices. I'm in it for the central bank buying pressure and it's not as strong as it once was but it's might pick up again as yields go higher because all these central banks are going to lose money if rates keep rising. >> Let's talk about Palantir. A lot of our subscribers are feeling nervous because of Michael Burry. >> Well, that's easy to explain. The media glorify short sellers. And Michael Burry is the latest short seller they want to glorify. And I respectfully disagree with him. I would not short a stock with very strong sales and earnings. And although Palantir is a C in my stock grader, it gets an overall fundamental grade of A and fundamental A's are beyond the top 1%. They're very scarce. I have very few fundamental A stocks. And so, I'm holding Palantir because of its incredible fundamentals. Same reason I'm holding Super Micro Computer. It's also fundamental A. So, I should review what a fundamental A is. It's a stock that's in the top 20% of sales growth, margin expansion, earnings stability, earnings momentum, cash flow, return on equity, analyst earnings revisions, and earnings surprises. And if you want some raw numbers on Palantir, here they are. Right now for the next quarter, sales are forecast to be up 84.3, earnings are forecast to be up 97.4. The analysts have revised their estimates higher from 37 cents a month ago to 41 cents now. And they have great surprises. They have had three perfect quarters in a row. Last quarter, of their surprise was 18.5. Palantir got everybody excited because their commercial orders went up. I think 147% and obviously they have a lot of government contracts. What short sellers like to do is when stocks go parabolic, they like to try to prick their bubble and have a short-term trade. Now that's what that firm Citron was doing. They attacked Supermicro, they attacked Sizzl and they never sold the stocks because of the fundamentals and Citron's now out of business. I have no evidence Michael Burry's going to go out of business. He seems to prefer options versus outright shorts, but yeah, the media glorifies negative people. It's just like the same reason that CNBC had Jeffrey Gundlach on. He's a bond investor and he invited him, but to Joe Kernan's credit, uh Joe pointed out he hasn't been right since 2010. So and why do you want a bond guy to comment on the stock market? You know, the bond investors are miserable because rates are backing up and they're losing money. It's just part of the yin yang we have in the in the media and once they pump somebody up, they try to tear you down and the only one I haven't really seen them them attack is Jensen Huang at Nvidia. Now they they like to criticize him for circular deals and arranging financing for some of his customers, but Jensen's pretty bulletproof right now and that's why Nvidia's my largest holding, but uh Palantir's a major holding and again, don't mean to belabor this, but I'm not really picking on Michael Burry. I'm picking on the media for glorifying him. >> And let's answer one more question. Can you circle back to your opinion on shipping, especially the tanker stocks? Seems to be the bull market no one is talking about. >> Yeah, that's because everybody has to replenish their depleted inventories. Our strategic petroleum reserve, other countries reserves have been depleted and even though if they have enough oil at this moment, they still have to start replenishing those reserves. I think most of it'll be done in the fall cuz worldwide demand will drop in the fall. Obviously, whether it's the Red Sea or the Strait of Hormuz, the routes are longer now, so that keeps the day rates higher at the ships. The ships do move in a herky-jerky manner, though. Please be aware of that. And also be aware they're all foreign chartered. And that's for liability reasons. So, technically these uh shipping stocks are ADRs, but I do own six oil tankers at this moment and one LNG carrier. >> Well, thank you all so much for your questions. I just want to hit on two quick things. First off, thank you all so much for your support on our last two videos, especially Louis' new AI platform. >> Just to clarify Stock Raider, we have a free link down there and you can click on it. You have to sign up for it, but it is free. So, take advantage of it. 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