Today's post was written while large unidentified drones surveilled my laptop...add that to your 2024 bingo card.
Equity markets traded lower as news of Nvidia being under investigation for monopoly by China seemed to dampen the mood. Bond yields rose slightly as oil continued to trade higher on the back of middle east instablity. The 2Y is 4.13% and the 10Y is 4.20%, both relatively range bond as we approach inflation data and major central bank decisions over the next week.
With Nvidia in the news, relating to AI, I thought this was an interesting take from Marathon Asset Management's podcast The Capital Cycle Podcast. The guest, Kai Chen, provided the following:
"I always think in the technology world, in the semiconductor world, there is Moore's law and then in AI there is the scaling law. And at Marathon we have the law of capital cycles, which suggest excessive investment is often followed by poor returns. And I think this is kind of what we are observing. There is a huge amount of investment fueled by the idea that the scaling law will continue.....but if the scaling law starts to slow down, then what we are going to end up with is massive overcapcity."
In economic "data", the NY Fed SCE was out and generally showed optimistic consumers who are increasing their inflation expectations at all horizons. While inflation expectations rose, so did uncertainty about inflation. In general consumers think they'll keep their jobs and get paid more in the coming year. These two summary points might tell you all you need to know about where we are in terms of risk perception in the economy: The share of households expecting a better financial situation in one year from now rising rose to its highest levels since February 2020, while the share expecting a worse financial situation fell to its lowest level since May 2021. The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.3 percentage points to 40.4%.
Within economics, I always enjoy economist Allison Schrager and her latest piece she expresses concerns that the economy might not fully grasp what a prolonger period of higher interest rates after such a prolonged period of low interest rates. She calls out recent homebuyers using ARMs and Private Credit as two areas of potential concern. She concludes her section of concerns with this:
"On a related note, the push to get more retail investors into private assets needs to stop. I’m not against private markets—they provide value and have a role in institutional portfolios. But private equity and credit have likely grown beyond optimal size, another byproduct of near-zero rates. Shrinking them back to size might create challenges."
Away from markets, though tangental I suppose, there is a suspect in custody in the murder of the United Healthcare CEO Brian Thompson. The suspect is a 26 year old as was reportedly carrying a three-page document which suggests, “He seems that he has some ill will toward corporate America,” police said. In addition it appears he was a fairly recent graduate of UPenn. The closest historical account that comes to mind as a parallel to this sort of vitriol toward corporate executives is the attempt on the life of "robber baron" Henry Clay Frick of Carnegie Steel back in 1892.
Further afield you have Jay-Z now firmly entangled with Diddy via allegations filed in court...just mentioning so you don't have to hear about geopolitics in this post.
Speaking of entanglements, have you ever heard of "quantum entanglement"? It's over my head, but quantum entanglement is the backbone of quantum computing. Google made some announcements in quantum computing with a chip called "Willow" I don't know enough but does this mean crytpo won't really be secure?
3Y Note sale is the highlight today.
XTOD: Me waking up my 8 year old son tomorrow at 4 am to hit the batting cages after Soto got $750 mil.
XTOD: Luigi Mangione, the champagne antifa loser who attended Penn and the $40k-a-year private Gilman prep school before murdering Brian Thompson in New York last week, appears to be a beneficiary of the vast Mangione family real estate empire in Baltimore founded by his grandfather. Among other Mangione family assets in Baltimore that supported Luigi's expensive private education were the Lorien Health Services chain of nursing homes, the Turf Valley Resort, the Hayfields Country Club, and numerous other holdings of real estate, hotels & radio stations.
XTOD: A record $140 billion pumped into US equities since the election, dwarfing any other time (Source: FT). Huge incremental demand (this money must be used to buy stocks) + Limited supply (few are selling) = Stock prices go up. Ceteris paribus, it’s just how it works.
XTOD: If you're hungry but too lazy to prepare healthy food, you'll consume junk food. If you're hungry for knowledge but too lazy to seek out the truth, you'll consume misinformation.
XTOD: Time is money but money is not time.
https://x.com/RossRead/status/1865958742119903437
https://x.com/BamaBonds/status/1866210216779612226
https://x.com/ecommerceshares/status/1866075456598110565
https://x.com/paulg/status/1866062402199957600
https://x.com/naval/status/1865679193440399675
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