NOTE: This is a Jeffrey Epstein-free letter.

The Volatility Index ($VIX) closed on Friday at a lowly $16.45. At that price, the index is predicting that the S&P 500 will move up or down less than 1.05% over the next 30 days. Somehow, I don’t think that is going to happen, especially going into September, the most volatile month of the year.

Many indicators are showing the stock market is now the most overbought in history. (QQQ) at 60 days above the 20-day moving average, endless days of positive MACD, and so on. But I have a much better indicator than those. The number of hedge funds calling me and begging for short ideas hit an 18-year high last week, even more than I saw during the dire days of the Great Recession. Many are worried about the impact global tariffs will have on the US economy when they kick in on August 1. I gave them my favorites: Tesla (TSLA), Apple (AAPL), and Strategy (MSTR).

The bulls are arguing that if we are in a stock bubble, it could go on for a long time.

We are nowhere near a bubble top for AI. With China back in play, Nvidia (NVDA) is back on a ballistic revenue growth track. Microsoft (MSFT) and Alphabet (GOOGL) are still seeing explosive token growth. Spending on AI infrastructure is still taking place at the trillion-dollar level. Meta (META) is still seeing surging demand for its services.

The budget bill that passed last week gives tech companies a massive incentive to accelerate their capital spending. What it does is allow companies to expense capital investments in the year they are incurred instead of spreading them out over anywhere from 3-39 years, depending on the asset (my company amortized computers over seven years).

What this effectively does is take the oil depletion allowance unique to the energy industry adopted during the Great Depression and apply it to all industries. Readers in Texas will know what I am talking about, as if AI needed another incentive. Some 46% of all US capital spending right now is for AI.

If the government is trying to create a stock market bubble, this is a great way to do it. Worry about the inevitable crash later (1987, 2000, 2008, 2018, 2020, 2025).

Look at the chart below, and you will see that current technology valuations have barely scratched the surface of the highs we saw during the Dotcom Bubble in the late 1990s. Back then, sky-high valuations were driven by eyeballs and the vast potential of the Internet. Now we have massive AI spending.

Today, the S&P 500 (SPY) trades as a 23X price-earnings multiple, while hypergrowth Nvidia sports a 56X multiple. In 1999, NASDAQ (QQQ) reached a 100X multiple, while the lead stock, Cisco Systems (CSCO), hit 200X. Those were heady times!

It is not a trade without risk. The trade war might never end. The bond market could crash at any time from the rocketing National Debt. Investors might grow impatient waiting for actual profits instead of promises. China might release another DeepSeek AI competitor.

Which brings us to the Case of the Missing Tariffs. Since the new administration came into office, tariff revenues for the US government have rocketed to all-time highs. During the first five months of this year, the US Treasury has collected over $100 billion in tariff revenues. The previous record for a full year is $100 billion. Projections for the full year run as high as $300 billion.

Front-running of the tariffs has been massive, generating the above record revenues, with the Port of Los Angeles seeing record congestion. What happens after August 1 when punitive tariffs on 140 countries that failed to cut a deal kick in? International trade will grind to a halt, possibly dragging the US into recession. With imports for the Christmas season almost done, importers have enough inventory to last for the rest of 2025. Then what?

If the $100 billion is paid by American consumers, prices will rise, and inflation will take off. If tariffs are eaten by companies, profits will fall, and the stock market will plunge. Yet the inflation rate stood at only 2.7% YOY in June (click here). Will we see inflation in the July and August reports? Or is the stock market about to sell off? What if we get both?

Who paid the tariffs?

It is a mystery worthy of Sherlock Holmes.

My July performance started off with a bang, with a +47.89% gain, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +48.69%. My trailing one-year return rose to +88.05%. That takes my average annualized return to +50.64%, and my performance since inception finally topped +800.58%. These are all non-compounded numbers.

It was a totally dead week of desultory summer trading. I had three positions expire at max profit: a long in (AMGN) and two shorts in (TSLA). I then used selloffs to add two new longs in Wells Fargo (WFC) and Netflix (NFLX), the perfect stocks to own now because they are immune to the trade war.

That leaves me 80% cash, 0% short, and 20% long. With the Volatility Index hugging the $16 handle, we may be entering a trade drought.

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

A Stock Rotation but Not a Selloff? That’s what Bank of America thinks is happening this summer. Investor sentiment surged in July to its most bullish since February, driven by the biggest jump in profit optimism in five years and a record surge in risk appetite. Cash levels dropped to 3.9% from 4.2%, triggering a sell signal on the bank’s proprietary trading model. The most crowded of trades is the consensus on shorting the dollar (DXY), which, at 34%, replaces long gold as the most pronounced investor bias. The flipside of this stance is the net overweight of 20% to the euro, the biggest for two decades. Is the trade to buy dollars, sell Euros?

China’s Economy Grows by 5.2% in Q2, as exports hold up remarkably well. That compares to US growth, which is flat at best. Is China winning the trade war at America’s expense?

Trade Desk (TTD) to Join S&P 500, at the expense of Ansys (ANSS), which is being bought by Synopsis (SNPS). (TTD) was up 9% on the news. Shares of Trade Desk, which provides a platform for advertising buyers, were sharply higher in premarket trading Tuesday, up 15% to $86.79, after being little changed in regular trading Monday

The Port of Los Angeles Sees Import Surge as importers rush to beat tariffs. It processed some 892,000 twenty-foot-equivalent units or TEUs, a record for June and up 32% from the previous month. It also highlights the tariff whipsaw effect. There’s a concern among American outbound shippers that we’ll start to see more reciprocal tariffs on US goods. The surge should continue in July, but higher costs will continue to hit importers, with trade forecasters expecting a severe drop for the rest of the summer and through the holiday period.

US Military Becomes the Largest Shareholder in MP Materials, the largest producer of rare earths in the US. The shares soared 50% on the news. This business can’t stand alone against Chinese cost advantages in labor and a lack of environmental controls. Rare earths are strategic minerals essential for national defense, the supply of which China has cut off many times. The previous iteration of this company, which had a sole mine at Mountain Pass, California, went bankrupt years ago. The Feds as a shareholder! What’s next?

Netflix Earnings Beat. It has a very high growth rate for a $542 billion company. It has an option implied volatility of 40%. It also just announced blockbuster earnings yesterday, removing a potential downside risk. With a price earnings multiple of 60X, it is one of the most expensive stocks in the market, but in this case, the high multiple is justified. Revenue for the quarter reached $11.08 billion, up 16% year over year. But nearly two-thirds of the online streamer’s sales come from abroad. Much of the strength came from a weak US dollar. Buy (NFLX) on dips. It is one of the few companies immune to the trade war.

US Retail Sales Pop, in a rush to beat price increases from the coming tariffs, suggesting a modest improvement in economic activity and giving the Federal Reserve cover to delay cutting interest rates while it gauges the inflation fallout from tariffs.

Tariffs on Most Countries Don’t Kick in Until August 1, meaning that we haven’t even seen a hint of inflation yet. Prices will take off like a rocket next month, but not get reported until September 10. No wonder Jay Powell is in no hurry to cut interest rates.

Housing Starts Rise by 4.6% from the previous month to a seasonally adjusted annualized rate of 1.321 million in June of 2025, trimming the revised 9.7% slide in the previous month. Starts fell in the Midwest (-5.3% to 179 thousand), the West (-1.4% to 286 thousand), and the South (-0.7% to 674 thousand)

Fed Beige Book Turns Pessimistic, with businesses reporting that tariffs caused upward pressure on prices. Fed report says employment slightly rose, hiring decisions postponed due to uncertainty. The US central bank is expected to maintain the current policy rate until at least September

Morgan Stanley Reports Record Profits, but my shares in my old firm dropped on the news. Investment banking revenue falls 5%, lagging Goldman and JPMorgan. Client assets at Morgan Stanley Asset Management moved closer to the long-term goal of $10 trillion.

Government Lifts Nvidia Ban on Chip Sales to China. Sales of the Mid-level H2O chips to the Chinese were banned by the previous administration. What’s changed since then? Have the Chinese suddenly become nice? I have no idea. It was Lenin who said,
“A capitalist will sell you the rope to hang him.” (NVDA) gets about 25% of its sales from China. Buy (NVDA) on dips.

Producer Price Index Comes in Flat, taking the annual rate down to 2.3%. It looks like the recession is offsetting the inflationary impact of the tariffs. Companies have no pricing power. The data will likely keep the Federal Reserve in a cautious stance about resuming its interest rate cuts. Trump has demanded that the U.S. central bank start lowering borrowing costs now.

Inflation Rises in June by 0.3%, to a 2.7% annual rate. You can forget about any interest rate cut in July with inflation rising. A big jump is expected in August and September.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.


On Monday, July 21, nothing of note takes place.

On Tuesday, July 22, at 7:30 AM EST, the Richmond Fed Manufacturing Index is announced.

On Wednesday, July 23, at 7:00 AM, we get the Existing Homes Sales.

On Thursday, July 24, we get Weekly Jobless Claims. We also get New Home Sales.

On Friday, July 25, at 8:30 AM, we get Durable Goods Orders.

As for me, since many of you are now planning long-overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time.

After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?

When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult like following among impoverished, but adventurous Americans. The charter airline business was then booming, plunging air fares, and suddenly Europe came within reach of ordinary Americans like me.

Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters, to find those incredible travel deals. When he passed through my town some 50 years later, I jumped at the chance to chat with the ever-cheerful, worshipped travel guru.

Frommer believes there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, which have more preferential, lucrative, but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.

There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.

There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books programs offered by St. John’s University in Santa Fe, New Mexico.

Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by hotels and restaurants touting themselves.

The 93-year-old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.

Which country has changed the most in its 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur’s next trip is to Chile, the only country in the world he has never visited.

Arthur’s Next Big Play is Bali