Ailman: AI Rally Will Run Out of Gas

So let's start with those elves because you've been a fan of the elves for a good long time. You worked on getting us to reintroduce them here, figure out how to do it right now, if you listen to the Bloomberg elves, they say basically you can put your pencil down and go home for the rest of the year. We're just going to be flat for the rest of the year. Does that make sense? You know, David, I think it does. This is a good example of summer doldrums. Sell in May and go away. I really think people should pay attention to these elves. I mean, it is a bit different than back with Louis Rukeiser, but they were very predictive and powerful. And the fact that they're saying that this is where the market may be at the end of the year. Look at the French election. Look how non-us and particularly Europe has sold off in anticipation of that election. I think we're going to see a lot of volatility in the fall and concern about how this election goes. Last night was I had nightmares that was not a good feeling after that. So I just think the market is is really capped out in here and probably it may hit another high right away, but it's going to be trading sideways for a while. So go below the top line number to what's going on below because it's a pretty concentrated market. It's really just NVIDIA and a couple other related stocks driving it. Is that going to continue? Is there going to be any broadening this market at all? Everybody would like to see it, but the Russell 2000 is not confirming and I don't think you will. It isn't, it isn't AI market that is the whole focus that is the growth potential. And at the start we're just going to see as we're already seeing now with some of the early products, some value but not a lot of revenue. And so I don't think the rest of the market, the economy is OK despite what you heard last night, the economy is OK, but it's not gangbusters. So I think that that the broad market stocks are going to have decent returns, but the earnings are not going to add a bunch of boost in the in the summertime and we will probably as we keep waiting for the Fed to take action. The market is moving OK with the Fed at at 4 1/2 on that 30 year bond and obviously they only control the short end at 5:00. I look at a full fiscal year, so June 30. Today we close the books into my career here and I have to tell you that the market was up 25% year over year at June 30, nine US up over almost 15, tremendous returns. I just don't see the gas to take it farther. Of course it costs you put a lot of money to work for a long time. I mean and you really have a long term time horizon given what you're doing with pensions there. Is the market indicating something longer term about AI and what it could mean for fundamental growth? Yeah, absolutely. I mean, you look at at NVIDIA, that stock alone is up to 100% one year return right now. That expectation of opportunistic growth and the expectation of efficiency in the markets and in the economy, Wall Street is always overshooting and over optimistic. And you already saw some tech sell back two weeks ago in NVIDIA because almost every mutual fund I look at, even some of the value funds hold NVIDIA in their holdings. You couldn't afford not to, but that's going to run out of gas because it's the old question of fear of missing out. I think it's finally reaching the point. It's got tremendous growth rate, 25% in sales, but the recognition is it can't go to the moon and where are the other stocks? So I think the market, the narrow leadership is always a concern, but we're not going to see that broad build out for a while. I think June 30 is a classic time for four O 1K investors to grab that statement and then diversify. They're going to find their overweight stocks and they're probably overweight tech stocks. This is a good time to rebalance and to move some money a little bit into bonds and a little bit into other types of mutual funds. Chris, you already referred to one other factor this year, which is the presidential election. We had the debate on Thursday night. As an institutional investor, how do you take that into account at all? I mean, I'm not saying whether you're a Republican or Democrat, but just how do you take that into account the possible effect on the economy and the markets? You know, David, it's it's way too early. November is a long way away. I mean, you can tell by the temperature, it's going to be 110 in Sacramento this week. We got to wait till it's down in the 50s in November. So think about that. The market is going to start anticipating this in September, but they're not going to know which whoever is going to win and what policies they will put into place. We heard some pretty startling ideas like tariffs that do change the market perspective, But history has shown as a long term investor it doesn't make sense to try and tilt the portfolio. Hedge funds go ahead, but for long term investors, I wouldn't make a move until you get into January. Start to know what actions are going to be taken by that new administration, what's going to happen to the House and the Congress. And then you can start to figure out if the deficit is really going to weigh in on the bond market. And I think on the stock market, whoever is president is going to be facing an interest payment on the deficit. That is as much as we spend on defense annually. You're going to start hearing a lot more next year about interest rates and the the payments on that. As a long term investor, I'm worried about that deficit. We can afford to refinance it, but we're a debtor nation and that's going to come to home to roost. Long term investments are doing OK. You know, private equity obviously still frozen. Parts of real estate are doing OK, but I think the the gas in the equity market is going to slow down. Yeah, it's fascinating. When is the bond market going to do something about the deficit? You know, I always wonder that I've told my board for the last couple of years to pay attention to auctions. It's, it's a boring area. But when that tale gets reported, and I am always very focused on how well those auctions go. Recently, they've been fine because the US is still the best dirty shirt in the world and people want to own us. But boy, the Congress has not dealt with the deficit. They haven't dealt with the budget. You know, we're going to probably face another downgrade. So watch it.