The long awaited earnings report from Nvidia showed numbers beat across the board on both revenue and earnings. As of the time of this writing the stock reaction was fairly muted, which was unexpected as reports were that options markets were priced for moves around 10%. The messaging around Blackwell chips seemed promising and Jensen Huang expressed a sentiment that we’re still in the early innings of AI and that there is still plenty of need for increased compute. I’d summarize Huang’s case for Nvidia with him stating, “I’m fairly sure that we’re at the beginning of this new era.” I guess we’ll have to wait a little longer to see if investor’s continue to buy into the growth story or whether the overhang of the Deep Seek story, questions around data center capex and concerns about tariffs will weigh on investor optimism.
Post Nvidia earnings, if you're looking for a reason to be bearish, the yield curve inverted between 3m yields and 10 year yields. The inversion, where 10Y yields fall below 3m yields, has historically been considered a leading indicator portending a recession. In this blog we’ve spent a good bit of time discussing the inversion between the 2Y and 10Y, you can find a good link to a summary of the yield curve inversion and recessions in this post. It’s hard to know the current predictive power of yield curve inversions given the October 2022 inversion failed to predict a recession in the usual timeframe. But as some say, the four most dangerous words in the English language are “This Time Is Different.”
With uncertainty seemingly very high, it might be wise to revisit some of our previous discussions on the topic of “uncertainty”. You can find a bunch of posts that discuss “uncertainty” here. Some of my favorite advice around this topic are from Peter Bernstein:
“In making decisions under conditions of uncertainty, the consequences must dominate the probabilities" And "The more uncertain the outcome, the greater may be the value of procrastination."
Unfortunately, the procrastination advice doesn’t always tend to lead to good business and economic results - business always seems to be injured by uncertainty. However, the reality is that decisions are always made under uncertainty - being able to think in terms of opportunity cost can sometimes be a superpower.
In economic data the 10.5% decline in new home sales exceeded expectations for a less steep decline. It’s likely high interest rates coupled with high prices are weighing on sales and I wonder if the “great stay” in the labor market is a factor as well. Of course, when in doubt, you can also blame the weather, which was something a few commentators on the report did.
Fedspeak this week has been uneventful. The 7Y Treasury auction was solid, printing at 4.194%, which was through where When-Issued was trading. Foreign demand was solid, but not as spectacular as previous auctions this week.
If you’ve missed it, Tesla shares are somewhat quietly down ~25% this year. The S&P closed down very slightly at 5,952. The 2Y yield is 4.08% and the 10Y yield is 4.26%.
With Nvidia out of the way, attention turns to today’s GDP report and tomorrow’s PCE report.
XTOD: Much of investing is avoiding FOMO buying and panic selling.
XTOD: All the alleged details and alleged pictures you need about this alleged story about a girl allegedly named Mary Kate who allegedly slept with her boyfriend’s dad. Allegedly.
XTOD: I shared this note with the Washington Post team this morning: I’m writing to let you know about a change coming to our opinion pages. We are going to be writing every day in support and defense of two pillars: personal liberties and free markets. We’ll cover other topics too of course, but viewpoints opposing those pillars will be left to be published by others.
There was a time when a newspaper, especially one that was a local monopoly, might have seen it as a service to bring to the reader’s doorstep every morning a broad-based opinion section that sought to cover all views. Today, the internet does that job.
I am of America and for America, and proud to be so. Our country did not get here by being typical. And a big part of America’s success has been freedom in the economic realm and everywhere else. Freedom is ethical — it minimizes coercion — and practical — it drives creativity, invention, and prosperity. I offered David Shipley, whom I greatly admire, the opportunity to lead this new chapter. I suggested to him that if the answer wasn’t “hell yes,” then it had to be “no.” After careful consideration, David decided to step away. This is a significant shift, it won’t be easy, and it will require 100% commitment — I respect his decision. We’ll be searching for a new Opinion Editor to own this new direction.
I’m confident that free markets and personal liberties are right for America. I also believe these viewpoints are underserved in the current market of ideas and news opinion. I’m excited for us together to fill that void. Jeff
XTOD: Imagine being max long Orange Juice futures and getting smoked -40%, getting shoulder tapped at your job, and then having to go home to your wife and explain why the kids need to move to a cheaper school district.
XTOD: Charlie Munger: "It's hardly a competence if you don't know the edge of it. If you have a misapprehension regarding your own competency, that means you lack competency. You're going to make terrible mistakes."
https://x.com/naval/status/1894819207369630156
https://x.com/KFCBarstool/status/1894579246128943335
https://x.com/JeffBezos/status/1894757287052362088
https://x.com/sadvalueinvestr/status/1894887763482177676
https://x.com/kejca/status/1894509311423819805
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