GM and BRRR.

Markets are broadly flat to open the week as volatility continues to plummet here in the doldrums of the summer.

In macro and world news over the weekend, the Russian government has confirmed that the BRICS nations (Brazil, Russia, India, China, and South Africa) are planning to introduce a gold-backed trading currency. This announcement aligns with the ongoing de-dollarization trend in the global economy, with central banks worldwide purchasing gold at a historic pace to diversify their reserves away from the U.S. dollar. The official announcement about this new currency is expected to be made at the BRICS summit in August in South Africa.

In other news, we’re covering the next potential phase of the banking crisis, as high interest rates and WFH are triggering a commercial real estate collapse in slow motion.

And finally - 75% of our readers voted have voted YES in our most recent poll - indicating they expect the Fed to cut interest rates this year.

Reader “Mark” added an insightful comment to his vote, proclaiming “the banks are a ponzi”.

Thanks, Mark.

AI: The Money Robots

No More Mad Men, Just Mad Machines: AI is the Future of Advertising

The online advertising industry is exploring the use of generative artificial intelligence (AI) tools to create more personalized and effective advertisements. These tools, including OpenAI's ChatGPT and others, have the ability to convert text prompts into compelling ad copy and visually engaging content. Major online advertising platforms, including Meta, Alphabet, and Amazon, are beginning to incorporate these AI capabilities into their ad development processes. Despite some initial challenges and reservations concerning quality and ethical implications, proponents predict generative AI could have a significant impact on the future of digital advertising by enabling unprecedented levels of personalization and efficiency.

• Efficiency and creativity enhancement: Digital marketing professionals are finding generative AI tools highly useful in reducing the time spent on creating ad content and in generating creative ideas. With tools like Midjourney, which converts text-based prompts into images, marketers can come up with engaging visual ads even without a graphic design background.

• Industry giants adopting generative AI: Major online advertising companies like Meta, Alphabet, and Amazon are betting on the future of generative AI in their businesses. These companies are developing and testing various tools to assist companies in creating tailored messages, images, and videos for their respective platforms. Despite the products still being in the trial phases, the trend signifies a big step forward in targeted online advertising.

• Challenges and Limitations: While generative AI shows promise, it also brings concerns related to brand safety, legal issues, and content quality. Companies are cautious about delegating ad campaign generation to AI due to potential bias or offensive content. There are also legal considerations related to data use for training AI models. Furthermore, current generative AI often lacks a distinctive voice or point of view, making the content it produces somewhat generic. The industry acknowledges these issues and is actively working on solutions.

  Read more

Ongoing Banking Crisis

More Banking Pain On Horizon?

The US banking sector is on the verge of significant transformation due to a combination of escalating interest rates, commercial real estate losses, and intensifying regulatory oversight. These factors are pushing regional and mid-sized banks toward a wave of mergers and acquisitions. Experts predict that half of the country's banks may be swallowed by competitors within the next decade, marking the most substantial shift in the banking landscape since the 2008 financial crisis.

• Pressure from Rising Interest Rates and Real Estate Losses: As interest rates rise, banks are experiencing deeper losses on securities and a pullback of deposits, negatively impacting their revenue. Losses from commercial real estate and other loans are also becoming more apparent, shrinking banks' bottom lines further. These economic stressors are prompting regional and mid-sized banks to warn of declining revenues.

• Tightening Regulatory Oversight: In the aftermath of the Silicon Valley Bank's collapse, a spotlight has been cast on the supervisory lapses in mid-sized financial institutions. Anticipated tightening of regulatory oversight, particularly for banks in the $100 billion to $250 billion asset range, is seen as another driver for banking consolidation. The increasing regulatory costs are causing additional financial strain on these institutions.

• Wave of Mergers and Acquisitions: The current banking landscape, shaped by economic pressures and stricter regulations, is predicted to result in a significant number of mergers and acquisitions. Fitch analyst Chris Wolfe projects that half of the country's banks will likely be absorbed by competitors within the next decade. The M&A trend is seen as a survival strategy for many banks, allowing them to leverage the strength of larger institutions in the face of economic turmoil.

  Read More

Our Take: We were already preparing to peel back exposure to risk assets given the recent run up and multiple expansion. Add some systemic banking risk to the picture and we could be looking at one more major valuation flush and panic before the Fed’s spigot is activated.

AI Art of The Day

The BRRR’s Portfolio Update

$OPRA is up 28% since we first wrote about it and added it to the watchlist in late June.

On Watchlist:
$AMD: NVDA’s strongest competitor
$ASML: They make the machines that make AI machines
$ADBE: Creativity & productivity software
$ISRG: Robot Surgeons
$OPRA: Growing web-browsing solution

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The BRRR is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.