Welcome to the free State of the Market report for the Art of the Bubble! Our subscriber plans make use of the same base algorithm that our crypto hedge fund, 1.2 Capital, does. It’s modified in timeframe and weighting so you don’t have to stare at your screen all day long. In 2022, for cryptos, the Dynamic Algorithm outperformed its benchmark by better than 70%. In 2022, for stocks, the Bubble Portfolio outperformed its benchmark by better than 40%. For those of you who are accredited investors, 1.2 Capital has re-opened new investor onboarding. If you are interested in learning more please reach out to us here.
How To Read The Report
Sentiment Scores use ChatGPT as part of the AI tech stack to rate stocks or sectors.
- Scores range from 1 (worst) to 7 (best).
- These are short-term scores (ideally updated daily)
- A 3.5 is a minimum score for a long strategy.
The Macro Situation
“Blast yer ornery hide! If ya does that just once more, I ain't a-goin' after it.” — Yosemite Sam
The US credit rating has been downgraded by Fitch Ratings from AAA (the highest) to AA+ (second highest). How much does it matter?
There’s a scene from Looney Tunes’ “Buccaneer Bunny” where Bugs Bunny is being chased by Yosemite Sam while on a sloop. To avoid capture, Bugs stands outside the gunpowder room and throws a match into it. Sam runs in twice before saying he won’t do it again.
Bugs throws a match in a third time. Sam tries to ignore what’s happening, but to no avail. He runs in at the last moment, only for the sloop to blow up. The two land on the beach after the explosion.
Everything is ok . . . more or less.
That pretty much sums up the credit rating system for economic powerhouses. Bugs’ match-throwing, like raising debt, seems dangerous. But nations like the US have (theoretically) an infinite amount of time to make good.
It was a mixed week for markets. A rally after the credit downgrade was short-lived, even though the payroll and jobs report seemed to paint a best of possible worlds scenario.
The labor market remains strong, yet cooling. Hiring numbers are up, but only because the governmental sector is strong. Wages are levelling out, yet providing enough purchasing power to slightly outrun inflation.
Precious metals are suffering due to the strong labor reports, but will benefit temporarily from the credit rating downgrade. Crude oil is recovering from its midweek slump on the news of oil supply cuts and a fall in US stockpiles.
Long- to mid-term treasuries are still a good investment in the long run as the hike cycle ends and the Fed begins to cut rates. Currently, however, bonds experienced a glut of selling, pushing yields up.
According to the Relative Strength Index (RSI), TLT has reached 26.3 (in contrast to the S&P’s 48.1). BNK Invest believes the RSI for TLT signals an end to the selling, and thus a potential entry point for buying.
- Todd Mei, PhD and Sebastian Purcell, PhD
AI Sentiment Report
The following sentiment scores use ChatGPT as part of the AI tech stack to sectors through leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.
The methodology employed is based on this peer-reviewed academic article, which produced 550%+ results in backtests over a 2-year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.
-The Research Team:
Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik
If you found this helpful, Subscribe to The Art of the Bubble’s free newsletter.
Join us on Discord for live chat and daily updates.
This newsletter was created by The Art of the Bubble/1.2 Labs and is provided for educational and entertainment purposes only. You should expect no financial returns one way or another based on the statements contained herein. Robin Technologies and Analytics LLC is the firm that distributes The Art of The Bubble products. The firm does not provide individually tailored investment advice and does not take a subscriber’s or anyone’s personal circumstances into consideration when discussing investments; nor is Robin Technologies and Analytics LLC registered as an investment adviser or broker-dealer in any jurisdiction.
