Here are some things I think I am thinking about this weekend:
1) NVIDIA Versus the World.Jason Zweig posted this incredible figure on Twitter the other day which shows the market cap of Nvidia (NVDA) versus the entire market cap of different countries. Nvidia is bigger than the Canadian, UK, French, German and Italian stock markets. It’s bigger than Germany and Italy COMBINED.I don’t know what to make about stats like this. I’ve discussed the risk of concentration in the past and so long as that trend moves in one direction it’s irrelevant. Of course, if NVDA were to collapse it would suddenly become a very big deal. But I can’t help but think about the story about the Japanese Imperial Palance in 1989. During the infamous Japanese Double Bubble the Imperial Palace, which is just 0.45 square miles, was more valuable than the entire state of California.This isn’t quite the same of course, but it’s the sort of stat that makes me wonder if we won’t all look back in 5-10 years and say “man, remember when we thought AI meant that single companies should be worth more than entire stock markets?” Will it happen? I have no idea. I try not to waste too much time predicting the short-term moves of inherently long-term instruments, but it seems like a pretty obvious risk.
2) Rising Rates and Recession Risk?If you missed my piece on Bond Vigilantes from earlier this week then please give it a read. But one thing I didn’t discuss is why rates jumped in the last month.There was a lively debate about this on Twitter this week. On one side we had people predicting recession risk and the potential for US government default. And on the other side you had people who were predicting a more optimistic view based on re-pricing of Fed cut expectations. I fall more into the latter camp. As I discussed on Schwab last month the big rate cut in September resulted in a big compression in the yield curve that created the risk of a whipsaw on the long end. This meant that the long end was pricing in a very aggressive pace of rate cuts. The 10 year fell as low as 3.6% at one point in September even though the Fed’s long-term target is 3%. So you had a 0.6% premium to the overnight rate over a multi-year period. That implied a nearly recessionary style pace of cuts. And the data in the last month confirmed that a recession remains unlikely and that growth was a little stronger than previously expected. And the long end whipsawed as a result and the 10 year has jumped to 4.2%.My conclusion about this is simple – the expected pace of cuts got ahead of itself and now at 4.2% the 10 year is much more fairly valued as that implies a slow rate of cuts over the course of the coming 18 months. What I definitely don’t think this means is that inflation is about to surge again. So, rates fell in large part because the bond market had rallied a lot and now we’re normalizing. Could it overshoot on the upside? It certainly could, but in a world where inflation is now 2.5% a 4.75% overnight rate still looks very restrictive to me.
3) The Astoria Portfolio Advisors Summit in NYC.I’ll be in NYC next week for the Astoria Macro Summit. It will be a great event and I am speaking on a panel with Wes Gray, Corey Hoffstein and a bunch of other super smart advisors. If you’d like to try to meet up with me please reach out and I’ll try my best to make it work.More By This Author:We Need To Have A Talk About “Bond Vigilantes”
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