You Don't Own Enough of This Anti-Bubble Asset

Mixed AI results... Much inventing and wandering ahead... Want AI in your vacuum cleaner?... Investors should be patient... The applause at the end of the bubble... Buy the anti-bubble...

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It's not just the Magnificent Seven and other tech giants investing in AI...

Financial giants are doing it, too.

Bank of America (BAC) is one example. It employs 35,000 programmers inside the company and employs another 15,000 at outside contractors.

The megabank now has more than 1,000 AI and machine-learning patents. It spends more than $12 billion annually on technology, with roughly $4 billion spent on "new technology initiatives" last year.

Bank of America CEO Brian Moynihan says AI "can attack different types of work" and is saving the company 10% to 15%. An army of programmers in full attack mode is ironic, given that programming is considered one of the most vulnerable occupations in AI's crosshairs.

Like everybody else developing AI, Bank of America is having mixed results. And the mix seems to include everything from absurdly miserable failures to resounding successes.

On the absurdly miserable side, here's what Moynihan said about his own experience using his company's AI platform at the bank's recent Securities Financial Services Conference:

I was trying to get a mortgage-amortization schedule. I pounded in it three times, got stuff you couldn't read. Finally, I just got a picture of a house.

He immediately tried to justify the result.

That's not right or wrong. It's just still learning how to do this stuff. And I'm learning how to do the stuff with it.

Moynihan is just deflecting, as I (Dan Ferris) would expect any CEO to do. The result was definitely wrong, not right. "Stuff you couldn't read" and a picture of a house are not a mortgage-amortization schedule.

At the resounding-success end of the spectrum, Bank of America has been an AI leader...

The company claims that more than 45 million customers have used its AI-powered "Erica" chatbot, which it calls the "first widely available AI-driven virtual financial assistant." Erica has facilitated more than 2.4 billion interactions.

Such a wide range of results seems typical of an early use of a potentially revolutionary technological development. I'm willing to bet other companies are having a similar experience. AI is new territory, and there's not a complete map of it.

Paraphrasing Amazon founder Jeff Bezos' famous phrase from many of his legendary shareholder letters, we should expect a lot of inventing and wandering through this new territory until we learn its boundaries, hills, valleys, deserts, and mountains...

You can't predict what you'll find in the new territory the way the Christopher Columbus stumbled onto the Americas when he was looking for a new route to India. With AI, we're still in the stage where we expect to find India. We haven't found the Americas yet.

I expect that years from now, we'll look back on the early days of AI like we look back on the early days of the Internet today. All the excitement and hype of those early days of the Internet has been less justified.

The Internet has certainly transformed my life. I started working from home in August 2001. I communicate with colleagues and a wide variety of contacts and information sources every day, almost exclusively by e-mail, text, social media, or other online or electronic means.

But during the dot-com bubble, rabid investors weren't bullish because they predicted lots of writers working out of home offices. They foresaw other transformations, which either happened more slowly than they predicted (based on stocks' valuations, at least) or which never came to pass at all.

The Internet is similar to AI. Both developments are better understood as platforms, not products. The products are coming and will continue to come over a longer period of time. The point about the current moment is that the platform is here, so now the product development can begin.

Many folks are still skeptical about AI-powered products...

Last June, a study published in the Journal of Hospitality Marketing & Management found that when a product description said it used AI, it lowered consumers' intention to buy it. The study looked at consumers' intentions to buy products that included vacuum cleaners, TVs, consumer services, and health services.

That's typical of anything new, along with fears of possible social changes and widespread disruption of employment.

If the comparison of AI with the Internet is valid, then we should expect widespread use of AI in all parts of our lives... and, by the time that happens, for everyone to agree that using it too much is bad for you.

It's de rigueur these days for just about anyone who spends a lot of time on their phone or other screen-bearing device to believe (probably correctly) that spending too much time on such devices is bad for you. Overdoing social media in particular has been cited dozens of times as being especially bad for youngsters.

The idea is that there's more to life than whatever we're doing on our computers... even as we spend more and more of our lives interacting with them.

I realize that, with all the investor enthusiasm for AI right now, most folks might feel like I'm getting ahead of myself here. For now, most investors are likely still asking...

'How can I make money from AI?'...

Opinions will differ among Stansberry Research's editors and many others. My answer is, "Don't worry about it yet."

Here again, the early days of the Internet are likely instructive for investors' expectations.

If you'd bought Amazon (AMZN) when it went public on May 15, 1997, you'd have been up about 6,000% at its peak on December 10, 1999. The moment was fleeting, as you'd have been down about 30% a month later, and down 94% at the stock's ultimate bottom on September 28, 2001.

And yes, if you'd bought at the top in December 1999 and held until today, you'd be up more than 4,000%. If you bought at the initial public offering and never sold, you'd be up more than 227,000%, turning every $1,000 invested into nearly $2.3 million.

Relatively few folks ever hold through that kind of volatility. Most have trouble holding stocks over a long weekend. The point is still well taken that the dot-com bubble was no match for an incredible business run by a great genius.

Amazon was the exception, though. Many of the best businesses of the era took years to break even. Some still haven't. Microsoft (MSFT) didn't breach its dot-com highs until 2016. Chipmaker Intel (INTC) still hasn't done it, nor has the ultimate dot-com darling, the Internet-hardware maker Cisco Systems (CSCO).

All I've said so far, from the widely varying performance of AI to the bubble performance of Internet stocks, tells me you probably have more time than you think to exploit AI in your stock portfolio.

Not only that, but I suspect many of the great businesses you're holding will already be working on how to integrate AI-powered tools into their systems. Some may have already made headway in this area. You might not have to do anything at all to exploit AI.

Don't be overwhelmed by the 'fear of missing out' that's driving tech companies to overspend...

Sit back as they invent and wander through virgin AI territory. You have all the time in the world to let them burn in the desert and freeze in the mountain passes of terra incognita while you stay safe in your portfolio of great businesses.

By the time the territory is mapped, it's likely the bubble will have burst. Then the great businesses that have created new profit centers and enhanced existing capabilities with AI-powered tools will be cheaper. And some that are burning cash today – as Amazon did in the early days of the Internet – might even be profitable or be able to demonstrate a clear path to profitability.

Coincidentally, Amazon started generating free cash flow – over and above all expenses, taxes, and capital spending – in 2002, the year the dot-com bubble bottomed.

Wait, watch, and be very picky about exploiting AI. It's another instance of a famous Warren Buffett quote... "Sound investing can make you very wealthy if you're not in too big a hurry."

As emotionally necessary as it may seem while the stock market keeps making new highs, there is no need to participate in the bubble surrounding a new technology. That was true of the railroad manias of the 19th century... the radio mania in the 1920s... the electronics mania of the 1960s... and, of course, the Internet bubble. It'll be true of the AI bubble, too.

Most folks aren't thinking about the other important question... yet...

Right now, everyone wants to take advantage of the developments in AI. Eventually, they'll want to know when the current stock market bubble – largely fueled by AI – will end.

But most people aren't asking that yet. And that in itself is another sign of a huge bubble. Most folks are oblivious at the top.

As I've said before, I don't know when it will end. But this bubble bursting may resemble the end of the world as Danish philosopher Soren Kierkegaard imagined it in his classic book, Either/Or...

It happened that a fire broke out backstage in a theater. The clown came out to inform the public. They thought it was a jest and applauded. He repeated his warning, they shouted even louder. So I think the world will come to an end amid general applause from all the wits, who believe that it is a joke.

Though folks might not think it's a joke, they will certainly greet the top of the current bubble with thunderous applause – because that's what they've always done. At the top, nobody says it's the top. Everybody is too busy doing victory laps for having made many times their money speculating in stocks.

It will be the moment of maximum optimism that the late, great investor John Templeton warned us about decades ago. Last week, I included a chart of the Goldman Sachs Bull-Bear Indicator, showing the current mania on par with all those of the past two and a half decades.

This week, I'll note that investors are back to shorting volatility... According to the data-services company Barchart, bets against the CBOE Volatility Index ("VIX") have reached the highest level since last July – right before the S&P 500 Index peaked on July 16 and fell 8.5% through August 5. (The fact that it was another buyable dip doesn't mean much to me.)

I haven't sold out my 401(k) or any other such rash maneuver and have consistently recommended that you do likewise, so if you've followed that advice, we've both benefited from the dip-buying opportunity along with everybody else.

The point of my bearish warnings isn't that you should sell everything...

It's to recognize where the risks are... which usually helps you see where the opportunities are.

In my March 22, 2024 Digest, I mentioned Diego Parrilla's great little book called The Anti-Bubbles: Opportunities Heading Into Lehman Squared and Gold's Perfect Storm.

Diego describes bubbles as the process by which asset valuations become artificially inflated and anti-bubbles as the process by which assets become artificially deflated.

Simply put, assets are super expensive in a bubble and super cheap in an anti-bubble. And Parrilla says anti-bubbles are a tool investors can use to defend themselves against bubbles.

Gold features prominently in the book and has risen about 150% since January 2017. Stocks have outperformed it since then, with the S&P 500 Total Return Index up a little more than 200%.

But the 21st century has been bright for the precious metal. It's up nearly 1,000%, while the S&P 500 Total Return Index (which includes dividends) is up closer to 600%. If you'd bought the gold anti-bubble during the dot-com bubble, you could have made an excellent positive return as the Nasdaq collapsed by nearly 80%.

I suspect that many investors owned too many dot-com stocks in 1999 and 2000 and not enough gold. Today, they likely own too many speculative AI and other tech stocks and not enough gold. They're very likely overweight the bubble and underweight the anti-bubble.

Someday, maybe gold will become the bubble and stocks the anti-bubble... but that's a long way off in price and probably in time, too. (I'll say more about anti-bubbles in the February 28 issue of The Ferris Report.)

Maybe it feels strange to hear me – a value investor – touting an asset that has already had a monster 25-year run, including an excellent market-beating performance last year.

But even after those gains, the fundamentals for gold remain strong. Inflation and interest rates have remained higher for longer than most folks expected, and U.S. government debt stands at more than $36.5 trillion and rises every second.

Again, don't sell all your stocks. Hold great businesses for the long term. And it's far more likely you need to add more gold than stocks to your portfolio right now.

New 52-week highs (as of 2/20/25): Abbott Laboratories (ABT), Alamos Gold (AGI), Alpha Architect 1-3 Month Box Fund (BOXX), Equinox Gold (EQX), Gilead Sciences (GILD), SPDR Gold Shares (GLD), Kellanova (K), Grand Canyon Education (LOPE), Annaly Capital Management (NLY), Sprott Physical Gold Trust (PHYS), Ferrari (RACE), Starbucks (SBUX), Torex Gold Resources (TORXF), VeriSign (VRSN), and Wheaton Precious Metals (WPM).

In today's mailbag, reaction to yesterday's Digest about the layoffs of federal workers by Elon Musk's Department of Government Efficiency ("DOGE")... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Thursday's Digest may seem to lament the loss of government jobs. But I invite my fellow readers to consider: The best government spending is only wasteful. Most government spending is worse because it is destructive. Government sucks capital, talent, and labor out of the economy and uses it to tie the hands of producers. Cutting the federal workforce frees those workers to start businesses and do other productive work. With tariff protection some industries will support new domestic competitors, and the established producers may hire many of the workers recently liberated by DOGE. God bless the people of the USA." – Subscriber Paul J.

"Yes, short term there is no true savings [with DOGE], per se. But there are long-term savings because it cuts down on money that is being borrowed adding to further debt and interest. Any reductions will help towards this goal. Yes, it isn't going to be without some pain, but it needs to happen before this train runs off the cliff into the grand canyon." – Subscriber Ward G.

"Corey, Don't worry too much about mass firings of federal workers. As a former department head for [Defense Department], here's how it works: a few months prior to the end of an administration, you get a call telling you to hire a bunch of people you don't need. Then, after the new administration comes in, they terminate those people and trumpet how they've reduced the workforce." – Stansberry Alliance member B.K.

Good investing,

Dan Ferris
Medford, Oregon
February 21, 2025