The Productivity Boom is Here: Get Ready to Take Market Valuations Higher

In this episode of The Money Runner, David Nelson explores the latest trends shaping the stock market, including Warren Buffett's surprising moves, rising valuations, and the AI-driven productivity boom. David delves into how one website is revolutionizing workflows for content creators and what it reveals about the broader AI trade. Is AI just getting started, and what does this mean for future market growth? Tune in as we discuss the forces driving the market, key risks, and why investors need to pay attention to this unfolding transformation.

Disclosure: "At the time of this article I currently hold shares in some of the companies mentioned as part of investment portfolios in funds I manage for Belpointe. Additionally, I may discuss other securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

Transcript

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Are you invested in the stock market? I don't care whether you're managing a full blown portfolio or just having fun. With a few trades. This affects you. I've got good news. And I've got bad news. The good news is that earnings for stocks are on the rise and profits. Are looking promising. The bad news. Is that valuations are. Rising even faster. Warren Buffett has been selling stocks hand over fist. In fact, in the last six months, he has dumped a large. Chunk of just Apple and Bank of America shares. Is Warren right or is there something stocks are seeing that some of the brightest minds on the planet are missing out on? Let's find out. Welcome to the Money Runner. I'm David Nelson. Before we dove too. Deep on today's theme, I. Want to share a couple of charts to try to give you the setup as to just where the. Market is right now. This first chart. Is the S&P 500 going back two years. And this bull run actually started in October 2022. And we really just missed the birthday. The two year anniversary, I think was on October 13. Obviously a very strong bull run for the last two years. And of course, the question on everybody's mind is how much gas is left in the tank? How much concern is there out there? And to be fair. A lot of investors, including myself, from time to time. You know, we've had one foot out the door, concerned that the next shoe is going to drop. And you. Can see this playing out. In the options market in this next chart, the VIX, which is a measure of S&P 500, implied volatility. Or if you look. At what I've highlighted. There in in in red, I realize that the VIX at 20 it's not very elevated. But what I've highlighted in red is that. You know, we've been living above the 200 day moving average really for the longest time since 2020. So it does show there is some concern. With investors and they're doing something about it. They're going out into the options market to hedge their overall market exposure. There are other other markets. Out there that are kind of, you know, putting up some red flags as well. I find this next one. Kind of unusual. It's really a chart of the dollar. Versus gold and that dollar is on top there and white. And that's the U.S. dollar, of course. And on the bottom is spot gold. What's interesting. Here is, is that, you know, gold is hit an all time high and. Up until recently. The dollar had been kind of rolling over in part as a reaction to the Federal Reserve cutting rates. That kind of made sense. But recently you've. Seen the spike since. The beginning of the month in the dollar. What's unusual here is that gold is pressing higher as well, because. Well, let me explain. Gold. Gold goes up for a lot of reasons. It's obviously an inflation hedge. It's used to hedge against geopolitical turmoil. There's certainly enough of that. Maybe that's part of the reason here. But there's. Also a strong. Inverse correlation between gold and the US dollar. The dollar goes down. Gold goes up. It's the alternative. The alternative currency. So the dollar. Going up and gold going up at the same time. It's notable. You know. So I've. Highlighted. Highlighted that as something of a red flag. This next one, this is the real red flag. And this is the chart. That we're going to have to explain and come up with an answer as to why this is happening. What you're looking at right there is the S&P 500, obviously, you know, on I-95 north and that green. Line. Is is estimates on a 12 month forward basis. It's a blended estimate looking six months back was six months forward. And on the bottom there is the blended 12 month p e ratio. What's odd here and what needs. Explaining is that estimates. Are rising. But valuations are rising for faster because the estimates you can see going up. But you can see that PE ratio. We're still climbing. I think we're at around 22 on a forward basis. So we kind of come. Up with an answer for that. Why is that. Happening? Why are investors willing to keep paying. More and more for stocks? Because what we're looking at is a fair amount of multiple expansion. What's it going to take to turn that around? Or maybe it keeps on going. So I started to examine. This and. The first thing I did. I started to look at other markets around the world. What's happening there now? A couple of weeks ago, we were talking about that the massive stimulus in China that of course, sent a big surge in their shares or it's. Kind of petered. Out as of late. It looks like President Xi isn’t following through with some of the some of the the big stimulus packages that many have been anticipating. But it's. Really playing out in the rest of the world. Markets. And maybe what. We're seeing here. In the United States is something of a relative trade, maybe where the best house on the block. Look at the Russell one. Thousand against. The MSCI ex-U.S. so it's basically the world. And you take the world you take the U.S. out of that out of that trade and. It makes sense. That the U.S. has been going up faster than the rest of the world. You can see that in that chart. But when you zoom. In to this next chart, this is. Notable because. The U.S. is going up. Now, the rest of the world is going down. And maybe what we're seeing here in the United States with this is we're getting an influx of capital here into the United States because this is really the best place to be. And investors want a part piece of the action. So all of this begs the question. And I'm. Going to take you back to that chart I showed. You earlier, where we're looking at. Earnings rising, the market rising, but. Valuations are rising. Why is that? All right. All right. I'm going to show you a website. And this is I don't think this is a public company. It's a website that I just started using. But it may kind of give us an indication. As to what's really driving the market on. This is a website from a company called Opus. Clip and they assist Podcasters like. Myself and others with video editing. Why? Why is that important now? I think we all know that artificial intelligence and the a.i. trade has been one of the driving themes behind the market. And I don't want to overuse that word because it often is certainly the beneficiaries have been the Nvidias of the world, the data centers, buildouts, the Dells. More recently, Hewlett-Packard Enterprises is one. What are some others? Vertiv is a direct liquid cooling company that that puts cooling right up against the Nvidia chips. So the build out of the data center has been a big part of that. The build out in in the utility sector or the switch. Over to nuclear power, all of these things and all of these companies have been beneficiaries. Of the a.i. trade. We get that and a lot of that is reflected in the market. But here's a small little company doing something that I find interesting. And it's not an advertisement for this company, but it made my. Life a lot more productive. As a podcaster, I. I have to upload my video. I, my me or. My staff has, has. To, you know, do some editing. And we do that every week and we. End up with a, you know, sometimes a five but 15 even. 20 minute video. Right? Then later on when I want to get it on tik tok. Or reels. Or put it out. On on on. On x or Instagram, we cut it. Up, you know, the, the most people like short form video and they like to see it in that vertical format. You're probably watching this podcast in, in the typical letterbox format, but. Now we've got to convert it to vertical. That takes some time. And when you do that for anybody that's out there doing. Video, you know, you got to zoom in and now you've got to scroll and then you're going to have to put in some closed. Captions. And then if you really want to get clever, you're going have to pulsate the words like you see. On these very popular tik tok and reels videos. It's a lot of work and I can tell you that from one podcast. If I wanted to get three or four. Videos, I'm probably looking at a few hours worth of work. Well. This website for a cost of I think it's around 29. Dollars a month. I can upload a full length. Video. Put in a brief description about what I want and it will do all the work for me probably in a couple of minutes, and it will spit out, uh, four or five of the best moments in my video. And I got to tell you, it does a great job in finding. Those best moments. I'm not sure I could have done a better job. It seems to know me. Better than I know myself. It goes in it grabs those moments, puts it in a vertical format. And sometimes even if I'm doing a network TV show and I'm on with an anchor, it will split it in half and have us both up there. It knows that. All right. Or it'll scroll scroll over to the person talking. What I'm trying to say is here, it's making me much more. Productive as a human. Being. I can get more done, I can take on more projects, and if I can take out more projects, I can probably be more profitable. All right. I think this is just a drop in an ocean of things that are happening in our country today. I think AI is starting to translate beyond the tech sector to the industrial complex, finding dozens and dozens of ways to use this. I suspect there are thousands of sites and applications right now that are using generative. AI to do some task that we did in a manual form. So I came. Up with this. Just, you know, early this morning and I started to look around and started to go to trade magazines, see what's happening. In other industries. And I found some headlines that I found interesting. Interesting. You see some of them up on your screen right now. I found one from the it was a trade magazine for manufacturers. And clearly, they're training their workers in artificial intelligence. AI adoption seems to be translating in the health care sector. I find a lot happening in in the insurance sector. I'd love to dive into that and see what the insurance industry is doing with artificial intelligence. What I'm saying is, is that virtually almost every industry and. Company out there is going to be using this tool in some way and it's going to make them more productive. So what is what does that do for stocks in general? Well, generally speaking, if if you're more productive, right. And you increase productivity. You get higher earnings, profit margins rise, you probably end up with increased GDP and. Economic output generally leads. To higher investor confidence. And more importantly, one of the things we're most concerned about. Concerned with it probably helps, you know, reduce inflationary pressures. If you translate it into. Numbers. For the market. It starts to get really exciting. If you look at this chart here where you're looking at, you know, you know, profit margins for the S&P 500, we. Generally were residing somewhere. Between 12 and 13. And is projected to rise. What if those. Numbers are wrong? What if it's more than that? What if it's instead of one or two points? What if it's three or four or even five points of productivity? In other words, we could. Increase the. Margins by. Three, four, 5%. You could be talking about market. Multiples that we haven't seen since the bursting of the Internet. Bubble. Even with nothing. If this is a bubble. Easily, we could go from 22 earnings to to say, the high twenties, four or five multiple turns. You're talking about forget being up 10%, think 20, 30, even 40% if what I'm saying could could pan out. So we could be looking at multiple years of extraordinary growth in earnings margins. And of course, with it, stock prices. Now, all the. Usual suspects of worries are. Out there. Certainly every corner of the planet is a geopolitical hotspot. The I brought up on this very podcast the concept of tactical nukes being used in warfare. Today we have probably a few countries on the planet that could actually do that. So all of these are. Risks that are real and out there. And of course, government itself is a massive risk because of the debt loads that they're taking on and the deficits that they're running. But this is one of the bright spots and technology is certainly leading the way in this market. And it's not going to be just good for the tech sector. It's going to translate to almost every industry and company that you could possibly invest in. All right. I touched on a. Lot of topics and. It may be too many. To digest in a single sitting. But if you want to get access to these charts and access. To my some of my daily. Postings and even some of the. Network interviews that I do on a weekly basis, they go up on my my. Substack site DCNelson123@substack.com until next time. I'm David Nelson and this is. The Money Runner.