| The latest from the PCE Index … how will the Fed interpret it? … the shifting targets of cybercriminals … how to protect and profit from it Before we begin, our offices will be closed on Monday and Tuesday in honor of the Fourth of July. If you need help from our Customer Service team, they’ll be happy to assist you on Wednesday when our offices reopen. The big news this morning is that the Personal Consumption Expenditure (PCE) Price Index continues to cool As we’ve detailed in the Digest this week, today’s Personal Consumption Expenditures (PCE) data is important. That’s because the Fed believes the PCE numbers provide the best lens into the true state of inflation. So, how these numbers come in will have a big impact on the Fed’s interest rate policy going forward.
How did the numbers shake out?
The Index rose just 0.1% in May, and only 3.8% year-over-year. Those results are down sharply from the 0.4% monthly and 4.3% yearly numbers for April.
This is certainly good news – and the market is responding as such with all three indexes deeply in the green as I write Friday at lunch.
But while the headlines I’m reading are filled with proclamations of our victory over inflation, we need to dig a bit deeper. ADVERTISEMENT The #1 Stock for the AI Revolution According to Silicon Valley Insider – Luke Lango – the AI tech boom has arrived, and it’s poised to create a new class of ultra-wealthy Americans. Click here to discover how to gain access to his #1 AI recommendation. Regular Digest readers know that the Fed doesn’t just watch the headline PCE number In fact, it prefers the Core PCE data, which strips out volatile food and energy prices.
So, while assessing the headline PCE numbers are good to give us context, that’s not what the Fed is watching most closely.
When we look at the Core PCE numbers, though inflation eased, it didn’t fall by nearly the same degree as the headline data.
Core PCE increased 0.3% for the month, which was in line with Dow Jones estimates. And it rose 4.6% from last year. That was 0.1 percentage point below expectations.
So, this is good – we’re moving in the right direction. But this isn’t a slam-dunk report. More importantly, it’s unlikely to soften Federal Reserve Chairman Jerome Powell’s recent interest rate hawkishness.
To understand why, below, we look at the Core PCE numbers (measured year-over-year) since July of 2022. Ask yourself if you see a meaningful downward trajectory.
July 2022 - 4.6%
August 2022 – 4.9%
September 2022 – 5.1%
October 2022 – 5.0%
November 2022 – 4.7%
December 2022 – 4.4%
January 2023 – 4.7%
February 2023 – 4.6%
March 2023 – 4.6%
April 2023 – 4.7%
May 2023 (the latest from this morning) – 4.6%
And it’s not meaningfully better when we look at month-over-month changes instead of year-over-year.
So, while the market is applauding the headline PCE number and concluding that inflation is over, just be aware of the limitations of that perspective.
Powell & Co. are looking at this morning’s Core PCE numbers and seeing them coming in at the exact same level as July of last year. And if you wanted to be hawkish, you could look at how the year-over-year number has accelerated from this past December.
So, while we cheer the progress we’re making on inflation, let’s be objective. Expecting this morning’s numbers to turn Powell into a dove seems unlikely. Shifting gears now, while the market has been all about Artificial Intelligence all year long, keep your eye on this real-world AI problem A few weeks ago, the Russian hacking group Clop broke into the file transfer system of business software maker Progress Corp.
Clop stole sensitive information from hundreds of companies, including British Airways, Shell, and Price Waterhouse Coopers. We’re talking customer names, photos, driver license numbers, addresses, date of births, and even partial Social Security numbers.
Now, regular Digest readers know that we’ve profiled cybercrime many times. And usually, it goes along the lines of “company gets hacked, criminals freeze the company’s IT infrastructure while demanding a ransom, the company either pays the ransom or spends far more trying to fix the problem themselves.”
Well, thanks to AI advancements, these hackers are beginning to turn their focus from the companies themselves to a new victim…
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During the event, we even reveal An-E’s predictions of the stock prices of NVDA, AAPL, SYM for FREE. Watch the replay here How AI is making you a more attractive target than corporate America From Financial Times: ID theft scams, which combined with the latest in so-called deepfake software may prove even more lucrative than extorting companies…
Experts have long warned about the growth of deepfake scams where criminals pair artificial intelligence software with personal information to create realistic digital likeness of people to bypass traditional security checks.
According to the verification platform Sumsub, the number of deepfakes used in scams during the first quarter of the year crushed the number of deepfakes for the entirety of 2022.
From Sumsub’s Head of Artificial Intelligence and Machine Learning, Pavel Goldman-Kalaydin:
As AI advances, more tools become available to fraudsters…the use of synthetic fraud is rising at an alarming rate. Earlier this spring, we highlighted a story from The Washington Post that illustrates how difficult these “synthetic frauds” can be to detect: The man calling Ruth Card sounded just like her grandson Brandon.
So, when he said he was in jail, with no wallet or cellphone, and needed cash for bail, Card scrambled to do whatever she could to help…
Card, 73, and her husband, Greg Grace, 75, dashed to their bank in Regina, Saskatchewan, and withdrew 3,000 Canadian dollars ($2,207 in U.S. currency), the daily maximum. They hurried to a second branch for more money. But a bank manager pulled them into his office: Another patron had gotten a similar call and learned the eerily accurate voice had been faked, Card recalled the banker saying. The man on the phone probably wasn’t their grandson.
That’s when they realized they’d been duped. Unfortunately, these scams will only become more elaborate and convincing as AI improves.
Our hypergrowth expert Luke Lango recently put together a research video that touches on the problem with deepfakes. I encourage you to watch it for free by clicking here. Two actions today in response to this growing threat The first will help protect your wealth, the second will help grow it.
For protection, experts suggest a “trust but verify” approach to anything that carries even the faintest whiff of being unusual and involving money – even if you know the person making the request.
So, stop the incoming communication (hang up the phone, don’t reply to the email, don’t click the link, stop watching the video…). Then, reach out to that person directly via the phone number or email that you already have, which you’re certain is theirs.
If the request was aboveboard, you’ll get their confirmation. But if you discover the person has no idea what you’re talking about, you just saved yourself a headache and, potentially, a lot of money.
As to our second point about growing your wealth, that puts top-tier cybersecurity companies in the spotlight.
As our world deals with cyberthreats, it is fueling a tidal wave of dollars flowing toward leading cybersecurity companies. Here are some numbers on this from our macro specialist, Eric Fry, in his newsletter Investment Report: Globally, countries and corporations spent about $159 billion on cybersecurity last year.
But that number is on track to soar to $270 billion per year by 2026, according to the research firm Gartner. 
That’s because cyber threats are growing by the day. Given this massive problem (and opportunity), Eric has recommended the ETF HACK for his subscribers. They’re currently up 25% in the position.
HACK holds many of the top names in cybersecurity –Palo Alto Networks, Fortinet, and Verisign, for example.
You can follow Eric into HACK, or you can use it as a start for further research as you look for one or two companies to add to your portfolio. After all, concentrating your investment capital in one stock carries the possibility of far greater gains than investing in an ETF (though greater risk as well).
To illustrate, look no further than Palo Alto Networks (PANW). As you can see below, while HACK has climbed 15% on the year, PANW has surged 82%. 
ADVERTISEMENT Elon Musk’s Multi-Trillion Dollar Gold Rush A new gold rush is brewing in San Francisco courtesy of Elon Musk but 99% of Americans will miss it because of this. Learn all about it here. While we’ve focused on the dark side of AI today, remember its overwhelming positives Earlier this week in the Digest, we profiled the huge profit opportunity as AI intersects the biotech sector. We also highlighted an AI investment tool from our corporate partner, TradeSmith that helps predict upcoming stock price movements with scary accuracy. These are just two out of an abundance of examples of how AI will be a tremendous positive for our world (and your portfolio).
But as we’ve discussed today, while we do our best to grow our wealth thanks to AI, just be aware of its dark side. “Trust but verify” could save you a lot of pain.
Have a good evening,
Jeff Remsburg |
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