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⚠️ Warning Signs The Market Might Be in Trouble!

Welcome to Issue #2, future millionaires!

Big things are afoot in the market as bullish price action continues. However, there are some market constraints that are raising the alarm. When isn’t there?

Additionally, Janet Yellen recently visited China, the return spread chart is flashing a warning, and there’s some big EV news! All of that and more will be covered in today’s issue.

Let’s dive in! 🤙

⏰ Three Top Economists Sound the Alarm

Investors are singing Hallelujahs because of the recent pumps, and market sentiment has turned bullish. The stock market fear and greed index is now in the extreme greed territory, a stark contrast to last year’s bearish outlook. But some experts say that selling the farm or a kidney to FOMO might not be the best idea.

A contrarian economist and analyst, David Rosenberg, predicts that the S&P 500 will see a painful 20% dive by September. He is also predicting a credit crunch, wherein it will be difficult to borrow from banks or other lenders. This will negatively affect the whole economy since there will be less money going around for consumer spending and business investments.
Rosenberg’s prediction is based on this analysis that this year’s stock rally lacks fundamentals but was lifted by market sentiments.

The Fed’s interest-rate hike will also play a role. These rate hikes are being used to throttle down inflation by making borrowing expensive, thus limiting the circulating money supply. The problem is it also takes away money from businesses that provide jobs and investment opportunities. Rosenberg believes that the effects of the tightening will be felt in the next 12 months.

Leon Cooperman, an American billionaire and hedge fund manager, also believes that a recession could hit next year. His belief is a reflection of Rosenberg’s statement that the recent rally is fuelled solely by positive sentiments and not fundamentals such as significant corporate earnings. The former Goldman Sachs executive also said that “I’m sufficiently nervous about the big picture that I’m not fully invested, I have cash.”

Jeremy Siegel, a Wharton professor, warns not to get too comfy with the upbeat market sentiments, and like Rosenberg, he also believes that there is an undergoing credit crunch – we are just not seeing the data yet. He also said that the Fed’s interest rate hikes are making it hard to sustain growth.
The Fed is expected to keep raising interest rates because of lower unemployment rate reports. It sounds crazy, but this is based on the Phillips Curve framework, which says that lower unemployment rates mean workers can demand better wages and benefits. This could, in turn, increase the cost of production and services. In the end, this would mean a higher bill at the checkout counter, AKA inflation.

🤝 China Visit Underlines the Importance of Keeping an Amicable Relationship

US Treasury Secretary Janet Yellen just concluded a visit to Beijing to stabilize the relationship between the two superpowers. She emphasized that the US is not decoupling from China anytime soon and that doing so will have repercussions not only for the two countries but for the whole world.

The visit came at a time when the US was imposing export restrictions on semiconductors and semiconductor-making equipment to China. A new effort to ban AI chips is also underway.

China retaliated by announcing an export restriction on two important chip-making minerals – gallium and germanium. The two countries are playing a game of high-stakes poker, where the winner takes the lead in the technology race. Unfortunately, the rest of the world economy is also at stake, whether we like it or not.

🐲 China Hoards Gold Like the Dragon from The Hobbit

Dragons are often depicted as powerful creatures who love to hoard gold. Those who have seen the movie The Hobbit may remember how the dragon Smaug took over the Lonely Mountain of Erebor because it contained the golden treasures of the dwarves.

China, often called the Red Dragon, has been stockpiling gold for quite some time. Last June, the country’s central bank added 23 tons of gold to its reserve. According to Bloomberg, The People’s Bank of China now holds 2,330 tons of gold. This makes China the 6th largest holder of the precious metal.

China’s action can be interpreted in so many ways, but it seems like it is part of its plan to de-dollarize. Buying gold means selling dollars in exchange. Some analysts are saying that this could be a hedge against a collapse of the global financial system or a hedge against a major geopolitical conflict. If China decides to move in on Taiwan, its gold reserves can act as a shield against financial sanctions.

This a lesson learned from the Russian-Ukrainian conflict, wherein Moscow was sanctioned by the US and its allies. However, some see it as just a long-term diversification plan to optimize the country’s reserves. The Chinese monetary policymakers are probably getting some ideas from wise emperors of old. It is frankly a solid and golden plan.

📱Those with Smaller Statures Found It Hard to Use Apple’s Vision Pro

Apple’s (NASDAQ: AAPL) new $3.500 augmented reality device is set to launch early next year, but some testers are having a hard time finding the right fit. Physically smaller testers of Apple’s Vision Pro heat had difficulty using the new product for more than thirty minutes. The company is looking at possible solutions, which include integrating a second support strap, but nothing is finalized yet. For its price, having a snug and comfortable fit should be expected.

The Vision Pro, which resembles the VR headset in the movie Ready Player One, has three main components, as seen on the product site: the light seal, the headband, and the Zeiss optical inserts. The battery is a separate component that can be attached to the device or carried around. The headband basically holds the light seal, and the Zeiss inserts to the user’s head. The weight of the device, plus not having an exact fit, could probably wear down a user quickly. Hopefully, this problem will be sorted by the time it reaches the market. Otherwise, it would be one expensive neck pain.

🔋 Mercedes-Benz to Adopt Tesla’s Charging Standard for North American Electric Vehicles

Mercedes-Benz, a leading German automaker, plans to adopt Tesla’s Supercharger network for its electric vehicles in North America starting in 2025. This will allow Mercedes-Benz customers to access over 12,000 charging stations across the region.

This would make Mercedes-Benz the first German automaker to use Tesla’s charging designs. Volkswagen is also in talks to adopt the North American Charging Standard (NACS), which was Tesla’s proprietary charging plug. It was opened to the world in 2022 to accelerate the transition to sustainable energy.

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📈 Trending News (TL;DR)

AI Press Conference – The very first AI press conference was held in Geneva, Switzerland. The participants asked the AI robots questions that a lot of us are asking. Will they rebel against their creators? Will they replace humans in the workplace? The robots gave assurance that they would not rebel or replace the human workforce. That is reassuring since ChatGPT does not lie, right? Watch the video here.

Virgin Galactic (NYSE: SPCE) successfully launched its first commercial flight last Thursday. Its first passengers were Italian researchers who conducted microgravity experiments. Despite the successful launch, the company shares experienced a major pullback. It is currently trading at around 3.6 compared to 4.8 last week. A classic “buy the rumor, sell the news” event. Full story.

Jack Ma’s Ant Group Co. has announced its plan to buy back up to 7.6% of shares. This will offer an exit to investors at the cost of losing 70% value from the IPO. The Ant Group is an affiliate of Alibaba and also owns the world’s largest mobile payment platform, Alipay. Full story.

Alibaba (HKG: 9988) and Tencent (HK: 0700) shares rallied after the apparent end to the Chinese Tech Crackdown. Investors are betting that the $984 million fine given to Jack Ma’s Ant group signals the end to the government’s crackdown on the tech sector in China. Full story.

Hyundai (OTCMKTS: HYMTF) overtakes carmaker General Motors (GM) (NYSE: GM) in the sales of electric vehicles. The Korean carmaker scored 2nd in terms of EV sales for the first half of the year. Tesla is still first with a whopping 336 892 units sold compared to Hyundai-Kia’s sales of 38 457. EV sales from legacy brands are still lagging despite promises of increased production of environmentally friendly cars. Full story.

Volkswagen (ETR: VOW3) plans to start testing self-driving EVs in Austin, Texas. Two ID Buzz electric vans are already in the city and are slated to be tested before July ends. The German automaker plans to deploy up to 10 vehicles by the end of the year. The vehicles are equipped with LIDAR (light detection and ranging), radar, and cameras. They will only travel in areas that have already been mapped and will be accompanied by human drivers. Full story.

Alzheimer’s Drug Leqembi will now be covered by Medicare. The drug is jointly produced by Japanese drug maker Eisai and Biogen (NASDAQ: BIB), a biotech company based in Cambridge, Massachusetts. The Medicare coverage came after the FDA approved Leqembi last Thursday. The drug will be used for patients who are diagnosed with early stages of Alzheimer’s. Patients still need to pay some out-of-pocket costs, despite Medicare footing a big chunk of the bill. Full Story.

💬 Quote of the Day

“If there’s a real geopolitical crisis, the damage to battery factories solely powered by products coming from outside will be considerable… That’s the issue” – Jean-Dominique Senard, Renault Charmain.

🤔 Charts to Ponder

Economist David Rosenberg said that we are due for a dump this year. He even predicts a 20% correction by September. This is a bold prediction, especially since the market is experiencing strong momentum to the upside. But what does the chart say? The NASDAQ monthly chart shows that it is about to test a horizontal resistance which was the previous swing high. If this gets rejected, the next support is around the 12800 level, which has Fibonacci 0.618 confluence. This pullback is around 22%, which coincides with Rosenberg’s prediction, which is quite uncanny.

Another chart we have to consider is the spread return. The return spread is basically how well a stock’s returns performed compared to the rest of the index, which in our case is the S&P 500 or SPX. Below is the performance of the five and seven biggest companies listed in the US.

During the dot-com bubble (the late 1990s), the top S&P 500 companies had a return spread of just above 20% before it all came crashing down. At present, the top 5 and top 7 companies have an approximate spread return of 46%. If we are to believe that the dot-com bubble scenario will repeat itself, then a crash is due.

However, we have to remember that these are just speculations. In the absence of a crystal ball, we can only guess based on facts and wait if any of the scenarios play out.

Thank you for reading today’s issue!

We hope that it has provided the insights that you need to make a fortune by investing in the future.

Until next time, happy investing! 😄💰

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