Journalist Matt Taibbi once described Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
It made a fortune during the Great Financial Crash. It made a ton of money after COVID. And now, it’s poised to profit from humanity’s next great challenge: The Rise of AI.
Sure, there’s plenty of talk on Capitol Hill about AI potentially enslaving humanity… And one can envision the Workers of the
World trying to smash the robots in the Fall of Skynet 2047.
Midjourney
But Goldman Sachs says we need to ignore the socio-economic impact that might barrel down the line.
Because the rise of the robots could be extremely profitable…
Make Money on the AI Revolution
As I mentioned Monday, AI stocks are responsible for the 8.1% return of the S&P 500 this year.
Goldman just released a new report on AI’s impact on the economy. It projects that AI will produce up to a 1.5% productivity gain each year in the next decade.
That could boost GDP by roughly $7 trillion (and don’t think that Congress isn’t already thinking about borrowing against that figure).
So what does it mean for the stock market?
Well, you might lose your middle class job, but it will be extremely profitable for big names in the S&P 500. You know, the usual suspects that are benefiting right now from the AI craze that has taken over this market.
As we’ve already seen, NVIDIA (NVDA) and Meta Platforms (META) are already up 100% on the year. And the gains in AI stocks keep pulling the Index higher despite concerns about recession.
In addition to the recent surge riding on the back of pure market momentum, there’s also a wild expectation that valuations are justified – even if there is a significant economic pullback. This is about looking a few years down the line… right?
They’re using terms like “productivity tailwinds” and other stories that can lend an incredible narrative to pull investors into the race.
Best of all, there are plenty of pundits now arguing that this time is different because we’re seeing such an incredibly rapid boost of productivity possible in Quantitative Computing, Alternative Energy, and more.
Surely… this time is different… Right?
I’ve seen this play before, and it ALWAYS ends the same.
This already feels like the Dot-Com frenzy of my early investment days – when people anticipated a radically disruptive internet and e-commerce system that would fuel incredible profitability.
It didn’t come. You know what outperformed MSFT after that bubble popped? Real assets like energy, food, and housing (the last one was another bubble fueled by a cheap-money frenzy).
Back then, I learned my lesson – that the markets are built on the idea of “buying for a dollar, and selling for two dollars.”
There’s always a narrative, and there’s always someone left holding the bag. I’m not saying that you shouldn’t invest or trade AI, but I recommend VERY tight stops in these conditions.
Remember, back during the Dot-Com bubble, Microsoft rallied to a then record of $60 per share from about $10 just a few years prior. After the Dot-Com crash, shares took 15 years for the stock to return to those levels.
Meanwhile, the lesson that no one learns about productivity gains is that they are largely deflationary in the economy.
When deflation starts to creep into the U.S., the central bank likes to pour new capital into the economy to prevent prices from spiraling lower. This ALWAYS ends up driving the prices of things that we need (and things the government subsidizes) much higher.
Take a look at the chart below. From 1977 to 2020, the Consumer Price Index increased by 329%.
Housing, Medical Costs, and College, beat CPI handily.
As I noted, the government subsidizes all three of these industries.
There’s money in housing, food, energy, and more. And you should take whatever AI gains you have and store them into the production of these industries, collect rich dividends, and reinvest those gains to build your long-term wealth.
I have built a portfolio of strong value stocks (in industries we need) and inflation-beating income. Best of all, nearly all of these stocks are trading for less than the sum of their parts, meaning that when the Fed turns back on the printer – these real asset-bearing companies have incredible upside.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is GREEN
We are green on momentum on both the S&P 500 and the Russell 2000 for the first time in a month – largely on speculation that Washington is about to reach a debt ceiling deal. I really urge caution about a deal… because this could become the ULTIMATE sell news event after 100% moves on NVDA and META and other AI stocks – on top of significant expectations of a recession.
