As markets are closed today, we’ve got a special edition of Talking Markets for you, recorded February 11. George Noble, author of the fantastic Noble Update, joined us to share why “the last shall be first and the first shall be last” - as markets are at a critical inflection point where the US-centric, tech-driven leadership of the last few years is handing the baton to the commodities, emerging markets, and value stocks. THE 17X BUBBLE AND “CAPEX CHICKEN” George challenged the narrative that the AI boom is a permanent “get out of jail free” card for the Magnificent Seven. He views the current spending spree as a game of “CapEx chicken,” a mutually assured destruction where companies are forced to spend billions on large language models just to keep up with their competitors. While the market previously rewarded this spending, George said we have “crossed the Rubicon” where investors are now punishing companies for poor ROI, citing the “Oracle debacle” as the canary in the coal mine. The scale of this potential misallocation is staggering… George cited research suggesting that the current tech boom represents a capital misallocation “17 times” greater than what occurred during the dot-com era. He pointed to “biblical” warning signs: surging receivables at Nvidia, inventory accumulation in warehouses, and billions in losses at firms like OpenAI that are being funded with “money they don’t have.” George also pointed out that the 3% US GDP growth seen last year was entirely driven by AI investment. So if that investment even just goes flat, the US economy faces a potential recession. THE CHINESE WHALE AND THE SILVER “MEME” George is bullish on metals, particularly gold and silver, but warns that these markets have become a playground for massive speculators. He highlighted a recent event where “one large whale in China” deliberately “smashed” the silver market at 2 AM to shake out weak hands. He compared this to the 2022 nickel squeeze where a “big Chinese dude” went short and the price eventually tripled once the market bottomed. Despite the froth, George believes gold and silver are headed “much higher than anyone could possibly imagine.” He said silver can easily become a “meme stock” when global liquidity piles in, as it has a relatively small float. For traders, he prefers mining stocks over physical metals, noting that companies like Barrick are trading at 10x earnings with 70% gross margins if you plug in current spot prices. “This is better than Nvidia,” he added. THE 5% BOND SIGNAL AND JAPAN’S “IMPOSSIBLE CHOICE” George described the global bond market as being on the precipice of a “dirt nap”. He is very bearish on bonds, viewing them as an “outright short” because fiscal policy is “insane” and the “bond market vigilantes” are finally starting to wake up. He sees a clear path for the US 10-year yield to hit 5%, a level that is currently “not on anyone’s dance card.” Nowhere is the pressure more apparent than in Japan, the world’s largest creditor country. The Japanese authorities face an impossible choice: defend their bond market or defend their currency. If they raise rates to save the yen from sliding past 160, they blow up their domestic debt, and if they keep rates low, the currency continues to collapse. George noted that while the current Japanese 10-year yield is low, the forward 10-year (where it’s predicted to be in five years) is already at 4.6%, signaling a massive global problem that US investors are largely ignoring. INTERLUDE: JOIN GEORGE’S BEST STOCK IDEAS SUMMIT George is hosting an online summit on March 11 where he will be joined by an phenomenal roster of guests: You can get exceptionally well-priced early Bird tickets through the link below: INTERLUDE OVER: THE “HIT ‘EM WHERE THEY AIN’T” STRATEGY For personal wealth preservation, George advocates for a strategy of “hitting ‘em where they ain’t,” a phrase borrowed from baseball legend Wee Willie Keeler. This means moving capital out of the crowded “first base” of Nvidia and the S&P 500, and into neglected corners of the globe. * Bullish on Energy: He calls the narrative of “excess oil” absolute “b*llocks,” noting that paper oil markets are 50x the size of physical markets and sentiment is completely washed out. He said that while oil prices have been flat, energy stocks have already started to “levitate.” * The China Liquidity Play: While many call China “uninvestable,” George argues the government’s priorities have shifted from real estate to the stock market, giving them “ample scope” to flood the system with liquidity (Paging The Blind Squirrel !) * The International Pivot: He likes Brazil for its 10% real rates and Spain for its embrace of AI and solar energy. * Bearish on the UK: He views the UK as being in a “going out of business sale” due to surging energy prices and a lack of industrial edge. THE DEATH OF PASSIVE? For years, the prevailing market wisdom has been that “the index always wins,” but George believes that the era of mindless passive dominance is facing a "biblical" reckoning. He warns that “the wolf is at the doorstep” - while the tech-heavy Nasdaq (the Qs) has remained flat year-to-date, energy stocks have already surged 30%, signaling a massive structural rotation. He said the very concentration that propelled passive indices is becoming a trap as leadership shifts toward the “untouchables” like commodities and emerging markets. As growth becomes more plentiful globally, it is spreading out, leaving those hidden in crowded US tech ETFs vulnerable. George’s bottom line is clear: the days of winning by simply holding the index are over, and investors may want to take a hard look at their portfolio before the next leg of this rotation takes hold… Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan. Get full access to The Noble Update at georgenoble.substack.com/subscribe
