Walking in Powell's Shoes
AI Retracement / Powell on the Mic
The clear showstopper will be Powell’s speech in Jackson Hole on Friday, so I will put some thoughts together behind the paywall as to what I am expecting. The week has been a pretty volatile endeavour so far. I shared my “real-time” action in my Substack Chat, which paying subscribers have access to. While away, I bought Gilts ahead of the higher-than-expected CPI print and added Bund longs on Wednesday. This follows a very timely exit of crypto longs last week. So far, so good, and I hope this provides added value to the pack.
Needless to say, most of the action has been felt in equities, especially tech stocks, which showed absolute and relative weakness this week so far. What’s going on? I think we are slowly starting to see legitimate questions being asked about the value AI companies will be able to extract, given the huge capex incurred to date. Are you paying for your AI bot of choice? No? Me neither. So what needs to happen is that we need a huge increase in users globally willing to pay a large multiple of current costs just to break even. Possible? Of course, but investors are rightly questioning the lofty expectations and valuations. Where there is smoke, there is fire.
Let’s now go straight to the main stage, to Wyoming and more precisely Jackson Hole, where monetary leaders will meet and mingle. Powell’s possibly last outing in the mountain resort will be closely watched. Will he give the nod to rate cuts coming or continue on his more hawkish leanings against the pressure from the White House?
Let’s think this through.