Weekly Points – January 24th, 2025 – 5 Things to Know in Investing This Week – The Dollar, Gold, and Crypto Issue

President Trump took office and immediately created excitement, new policies, and uncertainty that affects the dollar, corporate trade, the future of technology, gold, Bitcoin and other digital assets. We’ll address some of these topics in this issue and come back to others in next week’s 5 Things. Goldman Sachs enters a debate DKI has been having for the past two years: Is “the economy” in great shape, or are the aggregate numbers hiding weakness for a large segment of the country? The dollar and gold typically move in opposition to each other. Now, they’re moving together. How is this possible? We explain. President Trump announces the Stargate Project to keep the US at the forefront of the AI revolution. There are some big partners involved, but right now, the project is light on details. Netflix $NFLX had a great quarter continuing to fulfil our predictions from 2012 (yes – really!). Subscription price hikes on the way. Finally, Bitcoin and crypto trade wildly based on expectations for what President Trump would say, then what he didn’t say, then what he did. DKI repeats the familiar mantra, “stay calm, stack sats”.

This week, we’ll address the following topics:

  • Why Goldman’s economic ‘Sweet Spot’ is a misconception. Are more debt-funded government jobs really a sign of a strong economy?
  • The dollar and gold defy traditional inverse trends. Can they both be strong at the same time?
  • Stargate Project: A $500 Billion investment into U.S. AI infrastructure. Do the participants have the funding?
  • Netflix ($NFLX) smashes earnings while raising prices, sending stock soaring. US audiences appear willing to pay more. International audiences joining in record numbers.
  • Crypto volatility: Presidential silence causes price fluctuations. Everybody hodl on!

DKI readers know I typically use this section to highlight the meaningful contributions of our young Interns. Josh Reaves out of the University of Tennessee continues to raise the bar for himself. What you are about to read represents excellent effort and effective results from Josh who in a short time has become a real contributor to this publication. I’ve been incredibly impressed with the students at the UT finance program. If you’re looking to add a new college grad to your finance team, reach out and I’ll be happy to put you in touch with the program.

Ready for a week of news about different forms of money? Let’s dive in:

1) Why Goldman’s Economic ‘Sweet Spot’ Is a Misconception:

Goldman Sachs ($GS) Chief Economist, Jan Hatzius, recently described the U.S. economy as being in a “sweet spot.” He points to slowing but sticky inflation, and a strong labor market with stable unemployment and wage growth. If you look at the aggregate numbers, he’s correct. DKI prefers a more granular look.

In December 2024, the government reported a 256,000 increase in nonfarm employment. Much of this job creation came directly from the government or government-funded sectors. Specifically, 33,000 government jobs were created, alongside 23,000 jobs in social assistance and 46,000 in healthcare (a field largely funded by government). Employment among foreign-born workers has increased by over 4.4 million since before the pandemic, while native-born American employment has fallen by over 833,000. Additionally, the labor participation rate of native-born Americans continues to decline, sitting at just 61.4%. The almost 40% of the available labor force that isn’t working is not included in the unemployment figures. Chart from Michael Shedlock @MishGEA provides context.

Nonfarm Payrolls Change by Sector - Mish - Jan '24

Almost all growth from government and sectors largely funded by government. Graph from MishTalk. Mish is a member of the DKI Board of Advisors.

DKI Takeaway: While surface-level numbers suggest a “Goldilocks” labor market, the reality is we have a job market artificially propped up by the previous White House. There has been no full-time job growth among native-born Americans for years further obscuring the true state of employment. The lack of context in these statistics paints a false picture of strength. Government jobs funded by debt that will be assigned to the next generation doesn’t represent economic growth and valuable production; but rather, a source of continued inflation today, and higher taxes tomorrow. HT to @MishGEA .

2) The Dollar and Gold Defy Traditional Inverse Trends:

The U.S. dollar and gold have long been known to have an inverse relationship. A strong dollar often indicates a strong economy. When the economy is more uncertain and the dollar loses purchasing power, people turn to gold to protect against economic and currency losses. Recently, the two have both been trading at historically high levels, a break from the old dynamic.

While the U.S. Dollar Index $DXY currently trades around $108 which is up almost 8% in the past four months, the price doesn’t reflect the decline in purchasing power. Since the creation of the Federal Reserve in 1913, the dollar has lost 96.9% of its value. If like us, you believe the CPI is understated, the debasement of the dollar is even worse. Everyone reading this is well-aware that inflation is eroding the purchasing power of the dollar at a rate that’s above the Fed’s 2% target, which is 2% too high in our opinion.

The current price of gold in dollars is $2,752 which is close to the all-time high. Investors and foreign central banks are flocking to gold as a safe-haven asset to hedge against geopolitical uncertainty and persistent dollar inflation. In prior versions of The 5 Things, we’ve commented on the declining share of the dollar being held as reserves by foreign governments.

DXY and Gold Index Graph

Gold has been a huge performer for DKI subscribers. Dollar gaining strength against other fiat.

DKI Takeaway: For the past few years, finance writers have been commenting on the “strong” US dollar. American consumers have complained about inflation and difficulty making ends meet. DKI has consistently noted that both things can be true. Despite share losses, the dollar remains the world’s reserve currency and the strongest unit of fiat. The US Federal Reserve has been more hawkish (favoring higher interest rates) than other major central banks driving foreigners to the higher yields offered by the dollar (particularly in Japan). That has caused a rise in $DXY which is a fancy way of saying the dollar is strong if you’re a foreign exchange trader. Meanwhile, massive dollar printing caused by Congressional overspending has led to domestic inflation and a weaker dollar. US inflation and a desire of foreign central banks to have less exposure to the dollar have led to record gold prices.

3) Stargate Project: A $500 Billion investment into U.S. AI infrastructure:

On Tuesday, President Trump unveiled a $500 billion plan to maintain U.S. AI infrastructure as a global leader. This ambitious project is a collaboration between MGX, Oracle $ORCL, SoftBank, ARM $ARM, Microsoft $MSFT, Nvidia $NVDA, and OpenAI, aiming to build data centers to support the rapid adoption of artificial intelligence.

The initiative begins with 10 data centers in Texas, with plans to expand into surrounding states, creating an estimated 100,000 jobs. The project also includes investments in new AI research hubs, workforce preparation programs, and partnerships in the health and defense sectors for AI applications.

While many have praised this historic investment in the future of AI, skepticism remains. Elon Musk publicly questioned SoftBank’s financial ability to support such a large-scale initiative, though SoftBank’s partners denied these claims. Critics have also raised concerns about the U.S. energy grid’s capacity to handle the increased demand. In response, President Trump declared an energy emergency and plans to use executive orders to expedite grid expansion.

Project Stargate

Private and publicly-owned companies collaborating with the Trump Administration to ensure the US maintains a lead in the AI future. Image from Canva.

DKI Takeaway: Though the project’s viability is debated, it presents a unique investment opportunity. Partnership companies are poised to benefit from massive inflows of new business, while even non-partner companies like Dell $DELL are likely to see a surge in demand for infrastructure technology services and hardware. DKI has substantial investments in the kinds of companies and energy investments that would benefit from this project. If that’s interesting to you, please feel free to join us here.

4) Netflix ($NFLX) smashes earnings while raising prices, sending stock soaring:

Netflix $NFLX has been on a tear recently boasting over 302 million customers worldwide. Fourth quarter revenue of $10.2 billion was up 16% y/y. EPS doubled from $2.11 to $4.27.

With spectacular earnings performance, Netflix plans to increase their monthly subscription prices. The standard plan will increase by $1.50, the ad-supported plan by $1.00, and the premium plan by $2.00. The justification for yet another price hike is their venture into live streaming events like the Paul v. Tyson boxing match.

Investors sent the stock sky-high up around 12% from $870 to $983 in the same day. There is optimism this growth will continue as Netflix continues to expand into more live events drawing more advertisers and customers.

Netflix Stock Price Graph

Many thought the end of Covid meant the end for $NFLX. It’s now at all-time highs.

DKI Takeaway: Netflix $NFLX has strategically positioned themselves by taking advantage of both their advertising and subscription revenues with a move into live events. They bring in premium advertisers while justifying price hikes with new live content extending their lead across the streaming services. 12 years ago, I wrote TV is Next predicting that streaming television would destroy the traditional television business. The continuing rise of Netflix along with other streaming entrants like Alphabet $GOOG owned YouTube featured prominently in the report. Which business would you prefer to own right now?

5) Crypto Volatility: Presidential silence causes price fluctuations:

The crypto market experienced a hopeful rise followed by a sharp pullback on Monday as President Trump opted to not mention cryptocurrency in his inaugural speech. Bitcoin ($BTC) dipped down to the $100k level from an all-time high of $109,000 within hours on Monday. Similarly, Ethereum ($ETHUSD) tanked from $3,375 at the beginning of his speech to $3,280 at the end of the day. Recently launched Trump coin cratered from $49.85 at the start of the speech to $33.39 on Monday as well.

President Trump received considerable support from the crypto community who hoped for a meaningful announcement such as the creation of a strategic Bitcoin reserve. The intra-day volatility was intense, but as of this writing, Bitcoin has recovered to $105k.

Bitcoin Price Graph

Lots of volatility before and during the speech. Chart from CoinMarketCap.

DKI Takeaway: Cryptocurrency and Bitcoin investors have been overly anxious about regulatory risks with President Trump taking a pro-crypto stance. While investing in meme coins or alt-coin cryptocurrencies can present a fun and potentially lucrative opportunity similar to a night in a casino, DKI owns Bitcoin. While the recent regulatory-related volatility can be jarring, our plan is to hold Bitcoin as long as Congressional overspending continues to debase the fiat dollar. The expression among Bitcoiners is “stay calm, stack sats” which is just a fancy way of suggesting it’s best to look through temporary volatility and be a long-term holder. We’ll have more on the new cryptocurrency and banking legislation as well as the death of central bank digital currencies in next week’s 5 Things.

 

This week’s video version is available here: https://www.youtube.com/watch?v=1c-cumELQZc

 

Information contained in this report, and in each of its reports, is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied.  DKI makes no representation as to the completeness, timeliness, accuracy or soundness of the information and opinions contained therein or regarding any results that may be obtained from their use. The information and opinions contained in this report and in each of our reports and all other DKI Services shall not obligate DKI to provide updated or similar information in the future, except to the extent it is required by law to do so. 

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