Thanks to Nassim Nicholas Taleb's first - and most famous - book, The Black Swan, most people who are invested in the future, or stocks, or like money from a practical standpoint understand that...
A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.
Taleb doesn't put much faith in the accuracy of the top market predictors, as noted in the first chapter of The Black Swan:
Our inability to predict in environments subjected to the Black Swan, coupled with a general lack of the awareness of this state of affairs, means that certain professionals, while believing they are experts, are in fact not. Based on their empirical record, they do not know more about their subject matter than the general population, but they are much better at narrating - or, worse, at smoking you with complicated mathematical models. They are also more likely to wear a tie.
[Here's a free download of The Black Swan PDF courtesy of idleguy.com] You're welcome!
Coming from China, last week's release of benchmarks for their AI LLM (Large Language Model) DeepSeek, in terms of cost and ability, is the ultimate irony and pie in the face for the proposed $500 billion Stargate project launched last week (sorry, President Trump, this one is just wrong) by Sam Altman and his OpenAI, SoftBank, Larry Ellison's Oracle (whose extemporaneous pronouncements about instant, personalized vaccines and full spectrum surveillance were the height in cringeworthiness) and investment firm MGX (UAE) and yet another black eye for the U.S. investment community in general.
China's DeepSeek hits all the important benchmarks of the highly-touted, expensive, and energy-intensive U.S. models at a fraction of the cost, and, it's open source, threatening a $16 trillion hole into the stock market. Companies from Google to Microsoft to Meta Platforms have committed billions of dollars in CapEx to developing AI and subscription models to ultimately reap huge revenues from consumers, i.e., muppets devoid of original thought.
Now, all that money might as well go to buying drinks for the Chinese developers at their Nobel Prize afterparty. The weight of this development on U.S. stocks cannot be understated.
Take a good long look at the Shiller PE chart, paying particular attention to the symmetry of the dot-com boom and bust from 1990 to the peak in 1999 back to the bottom in 2009. Then look to the right, where we are now, and the peak in 2021, at the end of the "scamdemic" with another completely fake (thanks to thieves in the White House and on Wall Street) gains since October 2022 to the present and just erase them, because they're completely fake, based on nothing other than the "promise of AI", which has now been completely obliterated, promises shattered along with the less-than-virtuous lives of thousands of speculators.
Yet another tech bubble has grown and festered like a boil, popped like a zit by some crafty Chinese tinkerers.
It took about 12 years to get from the lows in 2009 to the highs in 2021, taking out the last roughly 3 1/2 as a figment of twisted imaginations - along the lines of wiping out Russia via Ukraine - American investors should brace for another eight or nine years of less-than-favorable returns on U.S. stocks. Thankfully, Americans have President Trump to help ease the pain, the worst of it possibly over by mid-2026 and recovery begun just in time for midterm elections where the dim-bulb Democrats will take another swipe at the reigns of power. Hopefully, the electorate will remember the four years of suffering under Biff Biden, and not buy into their rhetoric.
Strange as it may seem, while the NASDAQ was suffering its 8th-largest point loss ever (didn't even make the top 25 in percentage losses, however), the Dow was motoring to the upside, as money flowed into dividend-earning blue chips. The day offered an inverted look back at the late 1990's "old economy, new economy" paradigm. For Monday, at least, the old economy was a winner; the new economy looking more like re-runs of Pets.com sock puppet commercials.
With Tuesday's session less than an hour ahead, futures haven't fully recovered from Monday's rout with NASDAQ futures up just 64 points and S&P futures ahead by 12. Dow futures are 37 points in the red.
Prospects for a bounce-back weren't aided much by earnings reports for Lockheed Martin (LMT), Synchrony Financial (SYF), JetBlue (JBLU), Boeing (BA), General Motors (GM), Royal Caribbean (RCL), Sysco (SYY), Kimberly-Clark ((KMB) released prior to the open.
Synchrony Financial (SYF) was down about four percent in pre-market trading, while Dow component Boeing (BA) missed EPS expectations by a mile, generating a loss of 5.90 per share for the fourth quarter as part of its largest annual loss since 2020. General Motors beat with an EPS for the quarter of 1.92. Shares are down nearly four percent pre-market.
Gold, silver and WTI crude oil were moving higher, after taking losses on Monday. WTI is currently pricing at $74 per barrel, but is in the midst of a sell-off which began last Monday.
The damage from DeepSeek isn't likely to be permanent, though it will reverberate through some of the biggest corporate board rooms, C-suites, and managed funds. When a black swan arrives it usually deposits detrius all over advance revenue plans.
There's going to be some re-thinking about AI, some of which will be done with the assistance of AI. The world's accumulated knowledge simply can't account for unknown unknowns. Somewhere, Donald Rumsfeld is short Nvidia and smiling.
At the Close, Monday, January, 27, 2025:
Dow: 44,713.58, +289.33 (+0.65%)
NASDAQ: 19,341.83, -612.47 (-3.07%)
S&P 500: 6,012.28, -88.96 (-1.46%)
19,980.00, -17.50 (-0.09%)
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