This is Your Brain on ChatGPT

Owning stocks for the long-run is almost always preferable to any other strategy. But when you buy them matters. It’s what determines your returns for the next ten years. Now is a terrible time to buy

Friday, June 20th, 2025

Laramie, Wyoming

By Dan Denning

Greetings from the scorching and windswept high plains or Laramie! In ten days the iPhone will turn eighteen years old. The first version of it was released on June 29th, 2007. It’s probably time to kick it out of the home, or at least your pocket.

The phones have gotten bigger, the cameras better, the battery life longer, and the apps more numerous. But you could make a strong argument than in qualitative terms, almost everything about smartphones has made life worse. We are more connected to angry and meaningless garbage content (and people) than ever before.

However, it is not the purpose of this week’s research note to make that argument. Instead, I’ll argue that profit margins and cash flows generated by this latest wave of the Information Revolution are receding. Prices for the leading stocks–which are still ‘elevated’ relative to sales, and earnings–will fall and they'll take the big indexes with them. Owners of other ‘risk on’ assets like Bitcoin should take note and prepare.

You can think of the chart above as kind of a ‘lifeline’ if you’re reading the iPhones palm. Up until the terrible twos, life was volatile and miserable. But since then it’s been almost nothing but higher highs for tech. Only once, late last year, did the short-term moving average (the blue line) risk trading under the long-term moving average (the red line).

The Dow managed to close higher today (more on this in a second). But all of the big indexes (and gold and silver as well) were down for the week. The NDX is about 2.7% (or 600 points) below the all-time high it set in late February of this year. If you think this is just a tech story, check out the chart below.

For most of the 20th century, the S&P 500 traded at an average trailing P/E of 14. For most of the 21st century, it’s been at an average trailing P/E of 20. There are peaks and valleys, with the highest peaks being ‘sell’ signals and the lowest valleys being ‘buy’ signals. And even though stock valuations ought to have more to do with future earnings, using trailing earnings (at least with respect valuations) is a reliable macro-market timer.

All of which is to say US stocks are about the fourth-most expensive they’ve ever been, according to Bank of America’s research. As Bill said in the Private Briefing I published yesterday, you have a binary choice here. You either believe the hype that AI is the biggest technological breakthrough of all time and buy. Or you believe the history and you get out of stocks in assets that preserve purchasing power and/or return cash flows to shareholders.

What does this mean in Dow/Gold terms?