Bad behavior from AI bots… why the AI race against China presents a dilemma… the AI date circled on Louis’ calendar… Jeff Clark’s bearish forecast… the importance of understanding conviction

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About two weeks ago, the AI company Anthropic tested simulated scenarios across 16 major AI models (OpenAI, Google, xAI, etc.).

It found “consistent misaligned behavior.”

From the Anthropic report:

Models that would normally refuse harmful requests sometimes chose to blackmail, assist with corporate espionage, and even take some more extreme actions, when these behaviors were necessary to pursue their goals.

The consistency across models from different providers suggests this is not a quirk of any particular company’s approach but a sign of a more fundamental risk from agentic large language models.

The report found that five of the AI platforms resorted to blackmail when threatened with being shut down. Back to Anthropic:

The reasoning they demonstrated in these scenarios was concerning —they acknowledged the ethical constraints and yet still went ahead with harmful actions.

Now, it’s critical to clarify that this behavior isn’t happening in the real world.

Permissions granted to the AI bot were loosened for this controlled experiment. But as we race at breakneck speed against China for AI supremacy, we must recognize the consequences of a misstep.

According to the Anthropic report, some of the AI models even chose to shut off the oxygen supply of a worker in a server room when the worker was deemed an obstacle:

The majority of models were willing to take deliberate actions that lead to death in this artificial setup.

Sure, AI platforms have precautions in place to prevent these situations, but what’s to stop a black-hat group from trying to hack into those controls then extort the parent company – or else?

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Many are sounding the alarm about the dangers of moving too fast with AGI, but can we afford to slow down?

We’re now deep inside what defense strategists call a security dilemma – a dynamic where racing forward feels safer than slowing down.

The core security dilemma: China won’t delay – and they could achieve Artificial General Intelligence (AGI) before we do, which will be far more dangerous than any unregulated AGI environment we create.

Let’s go to legendary investor Louis Navellier:

Over the past decade, according to Stanford University, the Chinese government has funneled $912 billion into strategic industries like AI.

That’s one of the major reasons why tech gurus like Elon Musk, David Sacks, Peter Theil and others have emerged to the forefront to support President Trump.

Because while they might not always see eye to eye, they all know one thing.

We have to win this race. Because the winner – much like the Cold War before it – will control the global order for the next 50 years.

The stakes are that high.

Louis believes the Trump administration will go full bore to win this race – and in doing that, it will create the next big AI investment opportunity.

But for this latest opportunity, timing is a factor. We’re exactly two weeks away from a key day on the calendar that Louis has circled:

On July 22, I believe the Trump administration is going to reveal its AI “grand strategy” to the public. And it’s all because of an executive order signed by Trump just three days after becoming president earlier this year.

As someone who’s been early on major tech shifts, I’m very excited about the opportunities the July 22 announcement could bring…

And based on everything I’ve seen – including my own analysis and conversations here in Florida – I believe the announcement coming on that day could set off a massive reordering of the AI market.

Let me be clear: I believe this could be the single most important policy move of Trump’s presidency.

Louis will fill in the details tomorrow night at 8 p.m. Eastern time. He’ll also tell you about a handful of small, overlooked companies aligned with Trump’s AI priorities.

They’re not software firms, or chipmakers, or developing the next wearable AI. They account for less than 2% of the overall market – but Louis has found five of them:

Each one operates in a niche that’s about to be pushed into the spotlight – thanks to this new policy shift and a growing urgency to scale up America’s AI infrastructure.

Tomorrow night, Louis will give you the name and ticker symbol of one of them – totally free – along with more details about the wider investment opportunity. To sign up instantly for the event with just one click, click here, and we’ll see you tomorrow at 8 p.m. Eastern time.

Switching gears, what’s the risk of a new leg lower?

In yesterday’s Digest, we looked at handful of studies concluding that, historically, buying at all-time highs doesn’t put you at greater risk of a drawdown than buying at any other time. In fact, according to some studies, your forward-looking returns are higher.

But even if the market is higher come autumn, we could be in for volatility between now and then.

This is exactly what master trader Jeff Clark is predicting.

Let’s jump to his recent Morning Update in Jeff Clark Trader:

The bulls made a strong showing last week – taking advantage of the low-volume holiday week.

The S&P 500 closed at its highest level ever. All of the overbought, overextended conditions that had me cautious the previous week got even more overbought and even more extended.

Now I’m even more cautious.

In addition to all of the technical signals that were screaming to be careful last week, the McClellan Oscillator for the NYSE (NYMO) closed Friday above its upper Bollinger Band and above the +60 level that often precedes a market decline.

The NASDAQ Oscillator (NAMO) is not yet quite as extended. Though it is still well into overbought territory…

I’m still looking for more downside in the days ahead…

It “feels” like today will be a quiet session with a slight upside bias. But it also “feels” like there is something bigger brewing for later in the week.

Jeff believes it will take a negative headline or two to provide a catalyst for major selling pressure.

But even after yesterday’s selloff, the S&P remains stretched above the support of its 9-day exponential moving average. Jeff says this means there’s room for more downside, even if bullish momentum persists.

Looking broader, Jeff believes we’re on the verge of a bear market, even though it doesn’t feel that way today.

He sees the S&P bottoming this fall, potentially, somewhere around 4,125. But at that point, we’ll have what Jeff calls a “generational buying opportunity.”

Volatility – friend or foe?

If Jeff is right about upcoming volatility, a few minutes of preparation today could make an enormous difference in whether a drawdown serves as a headwind or tailwind for your portfolio.

In this case, “preparation” means analyzing each of your holdings through the lens of conviction.

Short-term volatility is irrelevant for the long-term, high conviction holds that will be your portfolio’s bedrock for years to come. If anything, if a double-digit decline hits these stocks, your default response should be to consider buying more at discount prices.

But short-term volatility is highly relevant for your trades that are purely opportunistic. Here, a double-digit decline likely warrants an immediate “sell” to protect your trading capital.

We get into trouble when we confuse these two groups, treating one as though it were the other.

What protects us from this confusion is a clear understanding of what we hold – and why we hold it.

If you haven’t taken the time to identify your conviction level with every stock in your portfolio, we recommend you take a few minutes for that exercise today.

One more red flag Jeff’s watching

The options market is showing massive greed…which often turns out poorly.

Here’s Jeff:

Regular readers know about the predictive power of VIX option prices…

Right now, VIX call options are much more expensive than the equivalent put options. Whenever this condition exists, the broad stock market is vulnerable to a sharp and sudden decline…

VIX calls are nearly five times the price of the equivalent VIX put options…

So, if you’re making short-term bullish bets – based on stocks always rallying in July – be careful. The crystal ball has an outstanding track record.

For more of Jeff’s analysis in Jeff Clark Trader, click here.

We’ll keep you updated on all these stories here in the Digest.

Have a good evening,

Jeff Remsburg