Transcription
So last month, the Fed popped the AI bubble, and last night, they doubled down, and the media is hiding it. But so far, 1.8 trillion has just been wiped off of the AI market. So if you hold stocks, have a 401k, a retirement portfolio, or any market exposure, really, it's vital you understand what's happening because their next move will be worse. But it's not too late yet if you have prepared. So today, I'm going to show you how to prepare for the Fed's next move and, more importantly, how you can take advantage of it. Let's figure this out together.
So, the AI bubble is popping right now, but nobody's talking about it. There's very little coverage in the mainstream media. I wonder why. But you just have to look at the numbers to see what's happening. Tesla is down 40%. SpaceX peaked four days after it listed in June and lost 50% since. Microsoft is down 30%. But it isn't only America, by the way. The Cosby, KOSPI, which is the Korean stock market. It's a stock market index for Korea, home of AI giants like Samsung and the chips that run the entire AI boom, has lost 43% in about five weeks, and it's still falling. Now, you might be thinking, who cares about the Cosby? But you know what companies make up the Cosby? Like I said, Samsung is one of them. Samsung itself is down about 49%. SK Hynix, a major semiconductor and AI memory supplier, down 58%. South Korea is one of the most important countries in the AI bubble, and its key AI companies are down over 50% on average. So the AI trade is dying right now, and everyone's under this mass delusion that it isn't.
And Kevin Warsh is stood in the middle of it. His first meeting as chairman was on the 17th of June. SpaceX topped the day after. Samsung on the 18th, SK Hynix and the whole Korean market on the 22nd. All of them rolled over inside a week of him telling the world that rate cuts weren't coming. And yesterday was a complete bloodbath for the market. He doubled down, and he made it worse. But how does a bloke in a room in Washington do that to a chipmaker in Korea, right?
So let me explain what the Federal Reserve actually is. Evil. Sorry, the dumb joke. The Federal Reserve is America's central bank. It's not a government department. It's not a normal bank. And it's officially completely independent from the government. Independent. Yeah. Okay. Anyway, its job, or at least the job that matters to you, the one that affects us, is setting interest rates. And for 15 years, there's been an unwritten deal attached to this job. If markets fall hard enough, the Fed cuts rates. Money gets cheap again, everything goes back up. Every mess since 2008 ended that same way. It's why buying the dip turned to be a kind of a religion in the stock market. Six months ago, that deal was still on. The market was priced for cuts this year, and everybody was comfortable. Then Warsh turned up, first meeting in the chair, and he says no cuts, even though he was supposed to cut, maybe even a rate hike. And last night, he sat there and did it again. He doubled down. And that is the event that caused all of this. Nothing too dramatic. He just removed the assumption that everyone's portfolio was sat on because the rate does two things. The first one, when markets fall, the Fed cuts rates, and everyone gets bailed out. But he just told us that that's not coming anymore. That's not happening. We've been relying on that for 15 years. Doesn't happen anymore.
The second is worse. See, while he keeps those rates high, you can lend your money to the American government for a few months and get about 4% back for doing absolutely nothing. That 4% is kind of the floor. And every other investment on the planet has to beat that floor, or there's no point owning it. Why would you own it? Why take the risk of some company like SpaceX that is down 50% when you can just lend your money to the US and they pay you 4%? And ultimately, this brings the price of stocks down. If I get similar returns by parking my money in government bonds, I sell my stocks for bonds, and stock prices fall. Simple. That's how the market operates at a high level. That's how a bloke in Washington moves the number in your retirement account without ever touching it. Bonds are the boring alternative to the market. But for 15 years, they paid very, very little. So money flowed into stocks, real estate, etc. Now bonds pay 4%, and Kevin Warsh is the only guy who can cut down that 4%. And he's just said, "No, I'm not doing." Which, by the way, don't get me wrong, I don't necessarily disagree with what he's doing. I think that uh cutting interest rates right now is probably a bad move for the economy and for people. But anyway, you might be thinking, fine, but he'll fold eventually. They always fold. The Fed always folds. But it's not that easy for good old Kevin, or should I say bad old Kevin. Inflation is pretty high right now. I mean, historically speaking, pretty high. So, if he cuts rates, that makes the inflation problem worse because cutting rates means more people end up borrowing money because it's cheaper to borrow, which means more people have money to spend, which drives prices up and makes inflation worse. Then you end up with a repeat of America in the 1970s, and no one wants that. That that was a bad decade for America. All right? So, instead, he holds rates. Problem solved. All good. No. Because of that 40 trillion of debt that America has. I talk about this all the time, but real quick, America has a lot of debt. They pay 1 trillion per year in interest on that debt. If you raise interest rates, that 1 trillion becomes 2 trillion, 3 trillion, 4 trillion per year in interest. And America gets bankrupt eventually. They can't afford to pay that. No one can. Well, I mean, America is the biggest fish in the pond, and they can't afford to pay it. So, obviously, no one can. Anyway, this also happens if you hold rates steady. Why? Because a lot of debt that was taken at a very low interest rate, let's say 1% by America, when it comes time to refinance, it's refinanced at that new rate, let's say 4%. You see, the problem is that both roads end in the same place. He can't raise rates because he bankrupts America. He can't lower rates because he bankrupts you through inflation. And he probably preferred to bankrupt you, let's be honest.
Now, all of that sounds like a reason to panic. And it really isn't, though. It's the opposite. And I'm going to show you why. Because nothing actually disappears in a crash. The money just changes hands. When the S&P falls 40%, the companies are still there. Coca-Cola still sells Coke. The power stations still run producing power. Nothing in the real world actually gets destroyed. A lot of people decided at once that they rather hold cash instead of stock. So shares get cheap. That's all that really happens because somebody was on the other side of every one of those panic sales. And it's almost never normal people in the market because they usually get screwed. But that's the game. You don't have to pick the bottom. You just have to still have money when everyone else runs out of money. That's that's the game. That's how stock markets work.
So, does buying into a collapsing market actually work, or is that just something that people say on YouTube? And that is a fair question. Let's do the numbers on the last two. So, March 2020, you know, COVID, the world felt like it was ending. The S&P 500 crashed 34%, and people said it was an insane time to buy. You shouldn't buy. But, five months later, it was back at its old high. And if you bought the bottom, you'd be up 231% today, but you wouldn't have bought the exact bottom. Of course, you wouldn't have, but you'd be up 150, 200% if you bought on the way down. After that was the 2022 crash. Peaked in January. Then it ground down slowly, 25% over 10 months, which is worse than a fast crash, really, because, you know, a fast crash, you just get over it. Worth it. A slow grind down, it really gets to you if you're a new investor. But if you bought on the way down, you'd be up like 80 to 100% today. And it's the same for 2008, the year 2000, any other market crash throughout history. Eventually, over a long enough timeline, the market always starts going back up, but sometimes it takes a little bit longer than other times.
By the way, if you want a longer version of how I'm set up for all of this, I've written a free guide on how to retire by 2036. There's a link below. Stick your email in, and it's yours. You also get my free weekly newsletter, and it costs you nothing. It's completely free. Anyway, let's get back to it.
So, those crashes I've just talked about, they've all got one thing in common. You're never 100% sure it's a crash until it's already happened or it's happening. And there's one happening right now, but it's not a big one yet. See, there's three levels to crashes, and I'm going to explain each level one by one.
Level one is the sector-specific crash. One part of the market falls apart while everything else kind of carries on like normal. That's what's happening in AI right now. Tesla is down 40%, Samsung 49, SKH 58, Microsoft 30%, the SOX, which is the semiconductor index, really important for the AI bubble, is down 28%. And you've also got Nvidia, SpaceX, Google, Meta, and Amazon. They're all suffering bit by bit. But then you've got Apple, who's being way less aggressive on AI. Honestly, they pretty much looked at the AI race and said, "No, we're going to sit this one out." And Apple's pushing all-time highs right now. I wonder why. Then you got Coca-Cola near to all-time highs. And all they do is sell sugary water. And JP Morgan, the biggest bank in America, they hit an all-time high just a few days ago. Funny that. So you got AI down 50%, and you got a bunch of other companies hitting all-time highs or close to them. So, it's hard to argue that we're not seeing a crash in AI right now. But that's just level one because the crash hasn't spread yet. It could spread, but it hasn't yet. And Kevin Warsh could make it spread with what he's done yesterday.
So, let's talk about level two because level two is when it does spread to become a market-wide crash, and the whole index goes, the whole S&P 500 dumps like in 2020 or 2022. And it doesn't matter how good your companies are, everything falls together because when people panic, they sell whatever they can sell. Last night, Kevin Warsh may have moved us to level two by doubling down on no rate cuts and hinting at a rate hike. There's now a 65% chance, I believe, that rate hikes happen in September. In a level two style crash, Apple, Coke, JP Morgan, they all go down with the rest of them. That's your kind of tell that the markets move to level two.
Level three is the big one, a systemic crash. That's when banks start going under and lending just stops. 2008, 1929. Those take years to come back from, not months. And the level you're in decides how you react, right? So level one is where we're at right now. You're just buying names in that sector. You're buying AI names if you're interested in even buying them. I'm not telling you to buy them. Level two, you buy broader. You buy more. Level three, you better hope you have some cash set aside to spend because that's when the true bargains come. Right now, like I said, we're at level one. It could develop into level two. It could end up being level three eventually, or it could just fizzle out here. We don't know for sure. There's no way to tell 100% for sure. But right now, level one.
So, let's talk about how you handle that level. And it all starts with beef. Beef. B E E F. Beef is my strategy for dealing with crashes or, you know, dealing with markets in general. Beef stands for buy equities extremely frequently. Yes, I name my investing strategy after steak because I love steak, and no, I'm not going to change it. So, just deal with it. Beef starts with a DCA pot or a laddering pot. DCAing is kind of the wrong name, but it's just the easiest way to explain this. DCA just means dollar cost averaging, which is a fancy way of saying you buy a bit at a time instead of all in one go. The DCA pot is cash that you've set aside for buying. And it's only got one job: buying things when they get cheap enough for you to want to buy them. You don't buy every week or every month like common DCA strategies. You say, "Hey, this is cheap enough now. I have a target price where I think it's cheap enough." And that's when I start buying. Your pot can be whatever size you want. It could be 5% of your portfolio, 10%, 40%, even 100% if you're all in cash. Mine right now is 40% of my portfolio. And it's that high because I did very well on gold and silver and AI last year. So, I took some profit and I built up my cash reserves. So, it's pretty handy that we're in the middle of a level one crash because I've got some cash to spend right now, which I've been talking about for a few months. I hope some of you listened at least. So, I hope you have some cash in your DCA pot. Do you? Let me know below. I actually want to know, do you have cash in your DCA pot?
Anyway, how does beef actually work? Well, first of all, you need a price for every company that you'd want to own. Not not a prediction of where it's going. It's not about price predictions or targets. It's just a number where you think it looks cheap. And you're like, "Oh, that's cheap enough that I'm interested in buying." But the most important part of this is companies you want to own. And companies you want to own should be companies that you believe will be more expensive 10 years from now. That's the thinking. If you think the company is going to be more expensive 10 years from now, then you might want to own it.
So, let me use SpaceX as an example. Seeing that I've, you know, made fun of SpaceX in this video and previous videos. Uh, I know this is going to rub people the wrong way, but I think SpaceX is way overvalued right now. I don't like how dodgy the launch was, but I think 10 years from now, it's probably still going to be around and it'll probably be worth a fair bit, especially if it merges with Tesla, which I think is a possibility, but you know, whatever. But look, this is just my opinion. You might not agree. Fine. SpaceX might not be a company that you want to buy when it's cheap. You do you, but I'll use SpaceX as an example here because I might buy it when it's cheap. So, it listed in June at about $160. Four days later, it went to $226 because of the hype. Now, it's around about $110. I think SpaceX was a bad buy at $160. A really, really, really bad buy at $226. And right now, at $110, I still think it's a bad buy, but at $50, I could be tempted. So, my number on SpaceX is somewhere around $50. I want to own the company for $50 per share. That does not mean I sit there waiting for exactly $50 and then dump everything in at once. What it means is I want my average buy to end up at around $50. So maybe I take a small bite at $80. If it drops to $60, I take another little bite. If it goes down to $40, I go in really heavy because now that's super cheap to me. And if it goes lower, I just keep buying because I've set aside money to buy this specific stock. Add all of that up, and my average ends up at about $50. Nobody catches the bottom. What you can do is end up with a decent average if you plan it out properly. And that's why my pot has to be there in advance. If I spent everything at $80, when SpaceX went to $80, I went all in. I'd have nothing left at $40, which is really where I'd rather buy overall.
Now, you just need to do that for everything that is on your buy list. Samsung, whatever else you fancy. Write the name down. Write the number you want it at. And then plan where you're going to get in to average out at that price. And don't let my number be your number. I'm on a 10-year clock. I can sit on a losing position for three years without losing sleep over it. You might not be able to. Your number should suit your life, not mine.
But let's talk about my numbers. So Kevin Warsh, he started this AI bubble popping. It's hard to dispute that. Some companies were already on shaky ground before. They were already falling. But since he took chair, the fall has completely accelerated. This could turn into a level two crash or a level three crash. We just don't know right now. So, the only thing we can do as investors is to have a plan for each level. For level one, I have a handful of stocks I'm interested in. SpaceX, as I mentioned, Samsung is another, but I need to see more blood for Samsung. It's at 200k right now. I want it to go way lower. 100k is tempting for me. If it never reaches there, no problem. I just won't buy it. Google is expensive right now, but at 270, I might be amenable to buying a little bit of Google. For level two, if we get a market-wide crash, I got a few energy companies I want to build bigger positions on like LEU, a uranium play. I bought some of that already, but I would love to buy more at around about 100. Same for Vistra. I own a bit, but I want my average buy to be cheaper, so I'll buy if it dumps. For level three, well, I mean, there's a lot that I'd buy at level three. More gold. If I can average in my gold position, my next gold buy at 3.5K. My overall average for gold is much, much lower than that. But my next round of buys, if I can average that at 3.5K, that would be fantastic.
So, I hope that all makes sense. Anyway, I'm going to be holding a Q&A next week. People have been asking me for one. I don't really know why. It's not like I'm a celebrity or some kind of genius, but people have been asking me for a Q&A, so I'm going to hold one, and we can talk more about what I'm buying, at what level. This is completely free, by the way. Sign up for it. There's a link below. Just sign up to my newsletter, and then I'll send you an email when I do the Q&A. I'll see you in the next video.