The Evolution of Carpet
Talking artificial intelligence... The evolution of carpet... Plans to not be replaced... The likely next secretary of the treasury speaks... Earnings season is on... Banks report strong results... TikTok is almost banned in the U.S...
We're on the road in Philadelphia...
With apologies to the speakers who aren't getting my full attention... I (Corey McLaughlin) am writing this while listening to one of several presentations I heard today focused on artificial intelligence...
I'm holed up in a hotel conference room with about 100 colleagues for a daylong Stansberry Research conference headlined "AI or Die."
The event was partly about investment ideas around AI and what we could deliver to you, our subscribers, and partly about how the technology can change and/or help our business, and you, our subscribers.
It's a conversation a lot of companies are having today. Frankly, I'm slightly overwhelmed from it all, though we're also encouraged and thankful to even be having forward-thinking discussions like this.
Stay tuned here next week for some more from me on the day, as well as from our editors and analysts about AI in their regular work as it pertains. But I do quickly want to share one highlight from this morning.
Our Director of Research Matt Weinschenk helped kick things off with a useful analogy to keep in mind when thinking about AI.
The evolution of carpet...
On a PowerPoint slide, Matt showed pictures of two homes like you'd find in an online real estate listing. One living room had carpet. The other had hardwood floors. "Which one was nicer?" he asked.
Most say hardwood, of course. It's considered more luxury.
"It's easier to clean," someone also said.
But it wasn't always this way in the flooring pecking order...
Centuries ago, wealthy medieval folk wanted to fill their homes with as much carpet as possible as a sign of status and wealth, Matt explained. Over time, though, carpeting became more affordable to produce. By the time of the post-World War II housing boom, the invention of synthetic fiber meant everyone could suddenly afford a plush floor.
Now, I'm not a hater... I have some carpet in my house. But hardwood is now considered more of a luxury item than the soft stuff.
That's what's happening with AI today across many industries – including ours, as Matt pointed out. AI can produce synthetic content at a lower cost than hiring someone to write it. So in the publishing world, the cost of production is falling.
How do we at Stansberry Research differentiate ourselves?
How am I not replaced by a robot?...
Here's why I'm encouraged... Without giving too much away, just know that we're committed to doubling down on the quality and expertise of our research.
Increasingly lower-quality, cheaper-to-produce stuff is becoming more readily available. But over time, the best stuff will win out and become more valuable. Carpet will become hardwood.
That's not to say no AI tools can produce great in-demand work. We're looking for ways to do that.
But don't worry, I didn't hear plans for having AI bots write our research tomorrow. In fact, we're talking about doing the opposite – using emerging AI tools to create better human-handed work and give us more time to do it.
As for the short term in the market today...
A day after a relief rally of sorts following a "better than expected" December inflation report, the major U.S. indexes were little changed except for the Nasdaq Composite Index, which was down about 0.9%.
We kept one eye on the confirmation hearings for President-elect Donald Trump's pick for secretary of the treasury, former hedge-fund manager Scott Bessent, to possibly hear clues on what to expect on the economic front from the incoming administration.
A few big notes, courtesy of Stansberry Research analyst Nick Koziol...
Bessent acknowledged Uncle Sam has the kind of budget deficit the country hasn't seen without being in a recession or war. He also, as expected, called for an extension of the Trump tax cuts, arguing that letting them expire would be a "sudden stop" for the economy.
He also suggested heavier economic sanctions against Russia could be coming, "especially on the [Russian] oil majors," and "to levels that would bring the Russian Federation to the table," in talks to end the war in Ukraine.
Meanwhile, earnings season officially kicked off in earnest yesterday...
As usual, the financial sector was first to release results from the final quarter of 2024. That included JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and U.S. Bancorp (USB) – America's five largest banks by assets.
We're not going to dive into each company individually, but here are some of the biggest themes, starting with interest income...
Since the Federal Reserve raised its bank-lending rate to more than 4%, banks have been able to charge more for loans. But rates for savings accounts haven't followed the Fed's hikes, remaining at an average of just 0.4%, according to the FDIC.
That means a widening spread between where banks lend and where they borrow (deposits), leading to more income. Both JPMorgan and Bank of America topped estimates for net interest income in the quarter.
In his quarterly letter to investors, JPMorgan CEO Jamie Dimon highlighted a strong consumer, low unemployment, and business optimism as positive signs for the economy. But he did continue to warn of persistently high inflation and geopolitical tensions.
Mergers are picking up...
Another theme bank executives hit on in their quarterly reports was the regulatory landscape. With Trump about to begin his term, some market strategists have hoped that he will cut regulation – leading to more mergers and acquisitions (M&A) activity.
And when companies buy each other, they turn to the big banks to make the process work.
This is already starting...
Morgan Stanley (MS) and Goldman Sachs (GS) both saw a roughly 25% jump in investment-banking revenue thanks to higher advisory revenues from M&A deals.
Increased M&A activity is part of the bull case for banks right now. For instance, in the January issue of True Wealth Systems, our colleague Brett Eversole explained why he believes we're about to enter a banking boom, and he said M&A is a big reason. As Brett wrote to subscribers...
That's because banks benefit from M&A in multiple ways at once. For one, banks often advise on M&A deals, collecting fees of 1% to 5% on each transaction. Banks also collect "success fees" of 2% to 10% once transactions go through. That adds up, given the $3.4 trillion in deal value we saw last year alone.
And this optimism showed up in stocks, with the banking sector spiking higher after the election.
That quick pop higher has already been nearly wiped away... Bank stocks have followed the rest of the market lower in recent weeks amid high(er) inflation concerns and greater expectations for a slowdown in Fed rate cuts this year.
But the tailwinds from lower regulation and increased M&A haven't gone away. The National Law Review expects 2025 to be a "banner year" for M&A activity. And based on bank earnings, the frenzy may have already begun.
Switching gears to end things today...
TikTok looks like it's about to be banned in the U.S...
To critics, the ubiquitous, addictive social media platform is the "eyes and ears" of the Chinese government, and its software and algorithms manipulate its many millions of American users who are essentially sharing data with our biggest economic rival.
In April 2024, Congress passed a bipartisan bill that gave TikTok until January 19, 2025 to separate its U.S. operations from its China-based parent company, ByteDance. Yes, that's this coming Sunday.
At that point, TikTok would disappear from the Apple App Store and Google Play Store... meaning no one could download the app or receive updates if they already installed it. U.S. data centers would also be blocked from hosting TikTok's content.
The social media company and its supporters argue that a ban would be a breach of Americans' free speech rights, and ByteDance shouldn't have to be forced to divest TikTok's American assets.
A decision against TikTok could also lead ByteDance to find a buyer for its U.S. assets, of which its technology like its content-serving algorithms and 170 million American users are its most valuable.
The Supreme Court heard arguments from lawyers representing ByteDance on the issue last Friday. I listened for a bit, and it sounded like enough justices were skeptical of their First Amendment protections claim.
Absent a ruling in TikTok's favor in the next few days or some kind of delay, the ban is due to go into effect on Sunday.
But then, the next day, Trump will be sworn in as president. And while he was an early supporter of the TikTok ban, he seems to have changed his mind on the issue... A few weeks ago, he commented that he has a "warm spot" for the platform – because it perhaps helped him win November's election.
Fact or fiction...
Rumors have already emerged on mainstream and social media, as it were, that Trump could sign an executive order to somehow pause or even reverse the ban. Not only that, but high-ranking Chinese government officials are also reportedly discussing potentially trying to sell the U.S. assets of ByteDance to... Elon Musk.
In response to those reports from Bloomberg and other media, TikTok called the story "pure fiction."
It also might be as simple as the world's richest man, Tesla CEO, and member of Trump's inner circle writing a check from his bank account. TikTok's U.S. business is valued by some analysts at around $50 billion.
But even the idea, and this Supreme Court case in general, raises a lot of questions about the intersection of tech and social media, First Amendment rights, and geopolitics. Plus, could banning one of the largest social media platforms in the world benefit TikTok's rivals?
Already, another Chinese social media app, RedNote, has leaped to the top of Apple's most-downloaded list as people seek a replacement. Companies like Meta Platforms (META), which runs Facebook and Instagram, or Alphabet (GOOGL), which owns YouTube, also offer short-form video options.
In any case, like AI, this saga is a story of our modern world that's worth following, whether you watch TikTok videos or not.
New 52-week highs (as of 1/15/25): Antero Resources (AR), American Express (AXP), Alpha Architect 1-3 Month Box Fund (BOXX), CF Industries (CF), Coterra Energy (CTRA), CyberArk Software (CYBR), EQT (EQT), GEO Group (GEO), iShares S&P GSCI Commodity-Indexed Trust (GSG), Intuitive Surgical (ISRG), JPMorgan Chase (JPM), Kinder Morgan (KMI), Cheniere Energy (LNG), Planet Fitness (PLNT), and United States Commodity Index Fund (USCI).
In today's mailbag, a nice note from a Stansberry Alliance member... and thoughts on nuclear power, which we wrote about yesterday with respect to data centers... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Hi Corey, I can't tell you how much I appreciate the daily Digest. It's my end of the day update on the macro picture.
"I think you're right ringing the alarm bell on inflation. Measuring the economy in fiat currency is like building a house with a tape measure that shrinks every night. Porter recently reported that over the last 50 years the S&P 500 is up 63X while gold (real money) is up 75X.
"Again keep up the good work!" – Stansberry Alliance member Stanley M.
"I remember decades ago during my undergraduate studies learning about nuclear energy in physics classes.
"I raised my hand and asked about the spent radioactive rods that were/are buried (literally) deep underground. I was told scientists would find the solution to render these by-products inert.
"This has never been prioritized or funded, and the problem still exists. If only environmentalists would focus on this issue. Thank you Stansberry. A long and very happy subscriber..." – Subscriber Thomas M.
All the best,
Corey McLaughlin and Nick Koziol
Philadelphia, Pennsylvania and Baltimore, Maryland
January 16, 2025