As of 4:41 p.m.:

Volume

NYSE volume 36% above its one-month average.

NASDAQ volume 9% above its one-month average.

VIX: up 20.61% to 17.91.

Breadth

S&P 500 Sectors

% Advancers

% Decliners

Advance-Decline vs SPY

From Kuppy:

On Friday afternoon at Gulfstream, Race #3 (Horse 6, Nvidia) finished dead last:

Gulfstream Park Entries & Results for Friday, 1-24-2025

Wink of An Eye won the race handily....

You see (Smails), it pays to do the research (and play the ponies)!

Here is the call of the race! Gulfstream Park January 24, 2025 Race 3

I added to MSOS and others today.

There is an old saying, if someone says "I am from the government, and I am here to help, run!"

There is no worse allocator of capital than the U.S. government. They should not be in the investing business. Yet it happens with every administration, and all they do is light money on fire. 

Every administration seems to pile in to what is cool at the moment, or what favors their big donors. Not only do they light the money on fire, the new administration also tends to cancel what the last administration was doing.

The latest in the AI frenzy is Project Stargate. Yay! In sum, Sam Altman and Donald Trump may be two peas in a pod. I set over/under on those guys getting along at under six months.

Meanwhile, Elon Musk is launching grenades at the whole initiative (which doesn't even have the money) from DOGE HQ. If Musk has his way, that is the first thing DOGE will, and should cut.

While it seems unwise on the surface to fight government policy, it may be more wise than people think. Fighting both government policy and government investment may be the wisest thing of all. Governments seem very good at piling in, right at the top.

What we just went through with alternative energy is a great example. I think not only the U.S. government, but governments globally.

The whole thing has been an unmitigated disaster. Remember the money the U.S. government flushed down the toilet on Solyndra?

Even with the global push to alternative energy, the stocks themselves have been an utter mess after the initial frenzy. For several reasons. The valuations were pushed to absurd levels that the businesses could never grow into, the underlying fundamentals of these businesses and the industry were never good, never economic, and never worked well, and because of all the capital that flooded into the space, there was ultimately too much competition, which destroyed pricing for everyone.

AI now is more "dis-economic" than alternative energy ever was. I don't recall any of the alternative energy businesses losing money at the auspicious rates open AI is.

Remember First Solar FSLR? The wind companies? All of it. Compete and utter failure, even with governments globally pushing this stuff for the last 15 years. It defies belief that businesses and equities could fail with every government globally standing behind them, but fail they did.

I think about the only successful stock has been Tesla TSLA, but that is its own animal. However, this stuff has also been a disaster for every other single auto company that was forced to invest in it, or chose to invest in it. It has been a massive destroyer of capital.

Now it is all being cancelled:

And we are on to the next. AI with Project Stargate. Maybe even Bitcoin too. These government initiatives seem more like they mark tops than they mark the start of something new. There are a lot of bad investors in the world, but none are worse than governments. They pile in at the top more than retail. And at least retail is smart enough to use short-dated call options to limit the amount of money they can flush down the toilet!

Interesting too. Amazon AMZN is having a real hard time making this stuff work. Amazon is about as well funded and as well resourced as anyone. When you see something like “no solid release date, not rolling out anytime soon” — that speaks volumes. My two cents, if it is not working well yet, it will never work well. Nothing is really changing. All they are doing is throwing more processing power, more electricity, and more water (cooling) at an underlying technology that does not work well and does not scale. And the water would be better left in the empty reservoirs in California anyway!

Is AI in DeepSeek?

And per my point about the government top ticking things, about five minutes after Project Stargate was announced, this Chinese AI happened.

If this is right, it looks like the Chinese found a way to do the same thing with a quarter of the Nvidia NVDA chips, and thus power. Chip projections will be grossly overstated, as are projections for power consumption, which is good. The couple hundreds of $billions that U.S. companies spent over the last few years will have been mostly wasted, although in my view a lot of that investment will have been wasted anyway regardless of what the Chinese may have done.

Just like with alternative energy, this was inevitable. A dis-economic product offering, capital floods the space, technology changes over time but never works great or becomes more economic than existing alternatives, etc.

It is somewhat ironic that the AI overlords are now clamoring for nuclear power (which is going to make a comeback regardless), and nuclear power is something the alternative energy overlords banned. Nuclear power was the cheapest, best and most economic option to begin with. And the same can be said for a simple internet search, as opposed to asking a gen AI tool to do it, and lose a lot of money producing a result that is often full of hallucinations and needs to be double checked.

Finally, this is another good point (and something that I have brought up repeatedly). All those lenders that took chips as collateral for their loans. OOPS! this could only end one way.

This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.

At the time of publication, Kass had no positions in any securities mentioned.

Interesting from Mark Andreesen:

Pretty soon they will be saying the same thing about AI. Just like they are now saying about alternative energy and all this other stuff. It is all just tulip bulbs on steroids.

Human nature does not change.

I just covered a small BITO short.

Dougie Kass

Great Idea - Shorting ORCL on last week's hype

Bad Idea - Covering ORCL after a couple of point decline (-$25)

* The positive implications of DeepSeek (lower cost for hyperscalers) are not that positive...

The potential positive implications of DeepSeek (lower cost for hyperscalers) are not as positive as people believe. The issue is it is the same thing done much cheaper, which is good, but the output still has all the same issues. 

Major parts of Apple intelligence were not shut down due to cost, they were shut down because it doesn't work. Same for Amazon Alexa. The underlying tech is still buggy and produces hallucinations. Same issue for DeepSeek.

Is murky error-ridden output at 25% of the cost life changing? I don't know. AI is so expensive, 25% of the cost is still far from cheap. It will have some value for some things, but overall I still think over-hyped in terms of what it can do and how it can be productively used.

DeepSeek is doing nothing different than Open AI, Anthropic, Perplexity, Gemini, etc. They all have the same basic defect of making things up and getting confused. This has not changed with DeepSeek, and will not change until there is an entirely different approach, which does not yet exist.

Also, interestingly, Nvidia NVDA is down almost 20% on volume today that is less than 2% of the float. Imagine if people really needed to sell this, or anything else!

And all those lenders banking on Nvidia chips as collateral for loans to money-losing businesses? Oh my.....

At any rate, I reiterate Project Stargate should be the first thing on the DOGE hit list. Private companies can waste their money, but please don't waste mine!

- New York Stock Exchange volume was 41% above its one-month average;

- Nasdaq volume was 3% above its one-month average

- VIX was up 22.22% to 18.15

Our channel checks for Elanco ELAN are a bit disappointing.

I was hopeful that the company would be street expectations, but that now appears challenging.

Though the quarter is not reported until February 24 (four weeks away), discretion is the better part of valor and I have sold most of my common holdings.

However, I am keeping my calls (as the pet company remains a bonafide takeover candidate).

Disruptive technology is often, itself, disrupted.

This is the DeepSeek message to me.

Moreover, in the fullness of time, DeepSeek is not likely to be the only disruptor to AI's monopoly-like price umbrella.

From Peter Boockvar: 

Home sales data

Contract signings of new homes in December totaled 698k, 23k above expectations and follows a print of 674k in November (revised up by 10k). The upside relative to November was seen in the Northeast and out West with slight declines in the Midwest and South. Months’ supply fell to 8.5 from 8.7 while the median home price rose 2.1% y/o/y, though is very influenced by mix each month and thus very volatile as opposed to pricing info from existing home sales data and CoreLogic.

Bottom line, the 698k figure compares with the 2024 average of 682k and 666k in 2023 and 685k in 2019. We know the challenges and opportunities of the US housing market. On the demand side, the market needs more inventory but with mortgage rates back at 7%ish, affordability including the high price of homes, remains a challenge. On the supply side, the NAHB said a few weeks ago, “Land is expensive and financing for private builders remains costly.” That though has been the opportunity for the larger publicly traded builders who have the balance sheet to discount product, buy down mortgages and purchase land.

New Home Sales

Month's supply

The flight to quality (higher bond prices, lower yields) is providing a tailwind to homebuilders today.

My remaining homebuilder position, St Joe JOE, is benefiting.

Consumer non-durables catching a bid - a likely sign that a possible rotation may be at hand.

For example, PG +$3/share.

Most active premarket ETFs as of 8:34 a.m.; QQQ & SPY reappear at 12th & 16th places.

From Peter Boockvar:

A big bell just rung and two other things to think about

Did DeepSeek just ring the bell on the extraordinary multi year dominance of the AI tech trade and finally call into question the efficacy of the hundreds of billions being spent on building out Gen AI? Yea, most likely. But there are two other things to think about too. Firstly, one of my big worries over the past few years has been the unintended consequences of the US government's/China hawks attempts to limit China access to parts of US technology (mostly chips and chip equipment) in our desire to suppress their advancement and avoid too their military from using it. That it would just poke the bear and dramatically incentivize China from eventually developing their own technology/chip/software base, along with still getting access to US tech/chips, that would at some point make them independent of us. And where US technology companies would not just lose the 2nd biggest economy in the world as a customer but China would eventually be a huge competitor to them in the years/decades to come globally.

Secondly, just maybe the stock market will shift its attention to the inevitable and sustainable beneficiaries of GenAI and that are the companies using it to enhance their efficiencies and productivities of their business and not the ones spending many billions on developing an incredible tool but one that is becoming commoditized.

China stocks are the ones rallying today by the way.

This selloff too in the market comes as at least measured by the Citi Panic/Euphoria index, market participants are the most Euphoric in years. Note the chart too below from Barron's calculating the level of insider selling. Over the past few months we've seen three jumps in readings with the most recent one being the most pronounced. Take note.

The state sector focused manufacturing and non-manufacturing PMI in China for January fell to 50.1 from 52.2 with both sides falling m/o/m. Manufacturing slipped one pt to back under 50 at 49.1 while ex-manufacturing dropped 2 pts to 50.2. As said here many times, the downturn in housing is the biggest strain on the Chinese economy right now and when their home prices stop going down (which we've seen some signs in their top tier cities), a bottom will be in the China growth rate.

The main thing of note in Europe was the January IFO German business confidence index which did lift to 85.1 from 84.7, the lowest since the 2020 Covid shutdowns and above the estimate of 84.8. The Current Assessment rose 1 pt while Expectations fell a touch to 84.2. In their succinct way, IFO said "Companies continue to be pessimistic." Manufacturing remains their main pain point, along with global trade.

German IFO

To a few earnings calls of note.

From American Express:

"we exited the year with increased momentum as fourth quarter billings growth accelerated to 8% overall, driven by robust holiday spend."

"Our US small and medium sized enterprise customer base continue to grow, with strong new card acquisitions throughout the year. And we saw an improvement in small business sentiment in the fourth quarter, which linked to stronger organic spending by our small business customers through the holiday season."

"We saw a stable spending environment for most of 2024 with an acceleration in spending as we exited the year. We continued to see healthy loan growth, and we achieved record net card fees...The increasing growth was broad based across both T&E (travel and entertainment) and goods and services categories, across geographies and across every customer segment."

Specifically, "Travel was higher this particular quarter, and particularly airline. Airline doubled sequentially q/o/q, up 13%. The more surprising number, I think, was front of the cabin, up 19%. And restaurant continues to be strong."

We know Amex caters to the higher income consumer which we know is carrying the US economy on its shoulders, along with AI spend, which will now be in question, and anything living off US government largess, both at the federal and state levels.

From Burberry:

"While comparable store sales were down 4% vs last year, we saw a sequential improvement in all regions as compared with the 2nd quarter. We've taken swift action in the quarter to address our inventory levels through enhanced end-of-season activity and this modestly benefited our Q3 comparable sales by a low single digit percentage."

"Globally, the Chinese customer group was flat vs last year, continuing to outperform Mainland China. Chinese spending abroad was mostly in Japan, South Asia Pacific, and Continental Europe. Japan grew 4% in the quarter, boosted by tourism spend from Chinese customers...The EMEA customer group was flat y/o/y, driven by an improvement in Continental Europeans shopping globally. Americas were up 4%."

Upside:

-AKRO +104% (reports preliminary topline 96-week results showing statistically significant reversal of Compensated Cirrhosis (F4) due to MASH, by both Completer and ITT Analyses, in Phase 2b SYMMETRY study)

-ETNB +43% (strength following AKRO drug study)

-DADA +28% (receives preliminary non-binding proposal from JD.com at $2.00 per ADS or $5.00/shr)

-VCIG +27% (acquires cutting-edge NVIDIA H200 AI Chips via Supermicro to Supercharge AI Cloud Business)

-LGTY +25% (Aptean enters into Definitive Agreement to acquire Logility at $14.30/share in cash)

-MBRX +5.7% (participates in Virtual Investor "What This Means" Segment; Discusses recent progress of Phase 3 pivotal trial evaluating Annamycin in combination with Cytarabine (also known as "Ara-C") for treatment of AML patients who are R/R AML)

-VNDA +3.4% (accepts FDA opportunity for a hearing on Tradipitant NDA in Gastroparesis)

-BOOM +3.3% (Steel Connect Issues Public Letter to DMC Global Board)

-AZPN +3.1% (Emerson to Acquire Remaining Outstanding Shares of AspenTech at $265/shr in cash)

-DEC +3.0% (nearing merger with Maverick Natural Resources)

-RNAC +2.6% (announces FDA Special Protocol Assessment Agreement for Phase 3 AURORA Trial of Descartes-08 in Myasthenia Gravis)

-INGN +2.3% (Yuwell, through its affiliate, has agreed to invest approximately $27.2 million in Inogen, representing a 9.9% common equity interest)

-T +2.3% (earnings, guidance)

Downside:

-ALLK -76% (AK006 did Not demonstrate therapeutic activity in CSU in Phase 1 Trial of AK006 in Patients with Chronic Spontaneous Urticaria; announces Restructuring)

-VERU -45% (Phase 2b QUALITY Clinical Study results of enobosarm)

-VST -15% (downside momentum)

-SOFI -14% (earnings, guidance)

-AVGO -12% (China’s DeepSeek passes ChatGPT as leading free app in the Apple App Store while utilizing lower-cost NVDA chips)

-NVDA -12% (China’s DeepSeek passes ChatGPT as leading free app in the Apple App Store while utilizing lower-cost NVDA chips)

-PLUG -3.9% (Trump Administration freezes DOE spending, loans as part of review; Seaport Global Securities Cuts PLUG to Sell from Neutral, price target: $1)

-COIN -3.4% (BTC weakness)

-MSTR -3.4% (files mixed shelf of indeterminate amount)

-WMB -2.6% (FERC reinstates certificate for Transco’s Regional Energy Access Expansion)

* Expect the unexpected...

The latest in the AI frenzy is Project Stargate. Yay! In sum, Sam Altman and Donald Trump may be two peas in a pod. I set over/under on those guys getting along at under six months.

Meanwhile, Elon Musk is launching grenades at the whole initiative (which doesn't even have the money) from DOGE HQ. If Musk has his way, that is the first thing DOGE will, and should cut.

There is an old saying, if someone says "I am from the government, and I am here to help, run!" 

There are no worse allocators of capital than the U.S. government. They should not be in the investing business. Yet it happens with every administration, and all they do is light money on fire. Every administration seems to pile in to what is cool at the moment, or what favors their big donors. Not only do they light the money on fire, the new administration also tends to cancel what the last administration was doing.

While it seems unwise on the surface to fight government policy, it may be more wise than people think. Fighting both government policy and government investment may be the wisest thing of all. Governments seem very good at piling in, right at the top.

What we just went through with alternative energy is a great example. I think not only the U.S. government, but governments globally.

The whole thing has been an unmitigated disaster. Remember the money the U.S. government flushed down the toilet on Solyndra?

Even with the global push to alternative energy, the stocks themselves have been an utter mess after the initial frenzy. For several reasons. The valuations were pushed to absurd levels that the businesses could never grow into, the underlying fundamentals of these businesses and the industry were never good, never economic, and never worked well, and because of all the capital that flooded into the space, there was ultimately too much competition, which destroyed pricing for everyone.

AI now is more dis-economic than alternative energy ever was. I don't recall any of the alternative energy businesses losing money at the auspicious rates open AI is.

Remember First Solar FSLR? The wind companies? All of it. Compete and utter failure, even with governments globally pushing this stuff for the last 15 years. It defies belief that businesses and equities could fail with every government globally standing behind them, but fail they did.

I think about the only successful stock has been Tesla TSLA, but that is its own animal. However, this stuff has also been a disaster for every other single auto company that was forced to invest in it, or chose to invest in it. It has been a massive destroyer of capital.

Now it is all being cancelled: 

And we are on to the next. AI with Project Stargate. Maybe even Bitcoin too. These government initiatives seem more like they mark tops than they mark the start of something new. There are a lot of bad investors in the world, but none are worse than governments. They pile in at the top more than retail. And at least retail is smart enough to use short-dated call options to limit the amount of money they can flush down the toilet!

Interesting too. Amazon AMZN is having a real hard time making this stuff work. Amazon is about as well funded and as well resourced as anyone. When you see something like “no solid release date, not rolling out anytime soon” — that speaks volumes. My two cents, if it is not working well yet, it will never work well. Nothing is really changing. All they are doing is throwing more processing power, more electricity, and more water (cooling) at an underlying technology that does not work well and does not scale. And the water would be better left in the empty reservoirs in California anyway! 

And per my point about the government top ticking things, about five minutes after Project Stargate was announced, this Chinese AI happened.

If this is right, it looks like the Chinese found a way to do the same thing with a quarter of the Nvidia chips, and thus power. Chip projections will be grossly overstated, as are projections for power consumption, which is good. The couple hundreds of $billions that U.S. companies spent over the last few years will have been mostly wasted, although in my view a lot of that investment will have been wasted anyway regardless of what the Chinese may have done.

Just like with alternative energy, this was inevitable. A dis-economic product offering, capital floods the space, technology changes over time but never works great or becomes more economic than existing alternatives, etc.

It is somewhat ironic that the AI overlords are now clamoring for nuclear power (which is going to make a comeback regardless), and nuclear power is something the alternative energy overlords banned. Nuclear power was the cheapest, best and most economic option to begin with. And the same can be said for a simple internet search, as opposed to asking a gen AI tool to do it, and lose a lot of money producing a result that is often full of hallucinations and needs to be double checked. 

https://www.wsj.com/tech/ai/china-ai-deepseek-chatbot-6ac4ad33?mod=hp_lead_pos11

Finally, this is another good point (and something that I have brought up repeatedly). All those lenders that took chips as collateral for their loans. OOPS! this could only end one way.

* All about NVDA... 

Given the magnitude of this morning's decline, let's revisit my four-part January 2025 market top columns from last Tuesday:

A January 2025 Market Top? (Part One)

A January 2025 Market Top? (Part Deux)

A January 2025 Market Top? (Part Trois)

A January 2025 Market Top? (The Finale)

Bonus — Here are some great links:

First All Time High of 2025

Some Good News for the Bulls

Stock Market and Crypto Analysis

Are Stocks Due for a Correction? 

Defying Gravity?

With S&P futures -160 handles I am covering a number of my shorts.

The S&P Short Range Oscillator moved much higher (at Friday's close) — to 5.61% from 4.73%.