evening wrap, August 27...)
market vibes
“If you see a dollar in the street, bend down and pick it up.” Anonymous pit adage meaning make the easy trades.
NVIDIA fell 6 dollars, or 1%, on its earnings report this afternoon. I asked Grok for some metrics based on the numbers.
Price-to-Sales (P/S) Ratio: ~29.82 (or ~28.95 post-earnings drop)
Present Price-to-Earnings (P/E) Ratio: ~57.89 (or ~56.15 post-earnings drop)
12-Month Forward P/E Ratio: ~38.76 (or ~37.59 post-earnings drop)
Price-to-Book (P/B) Ratio: ~72.65 (or ~70.52 post-earnings drop))
Then I asked, “Where are these stats relative to normal valuations for leading high market cap companies in past history, e.g., the late 1990s or 2006 to 2008?”
Answer: “NVIDIA’s valuations are stretched like 1990s tech leaders but justified by real earnings growth, compared to dot-com unprofitables..”
Therefore I think, the reason NVIDIA is worth 8% of the S&P market cap is because it earned $46.74 billion in Q2, up 6% quarter-over-quarter and up 56% year-over-year. Otherwise said, NVIDIA makes a shit-ton of money.
Otherwise said, AI is doing to the equity markets what it is doing to the labor markets, including, computer programmers, manufacturing, low-skilled services, lawyers, telemarketers, proofreaders, copy editors, assembly workers computer hardware engineers, financial advisors, research assistants and so many more. NVidia is going up because employment is going down.
It is almost comical, the FOMC is focused on jobs as if a rate cut will stop NVidia. SMFH.
In other markets today
The Treasury sold $70 billion in 5-Year Notes at a high yield of 3.983% with a bid-to-cover ratio of 2.31. Dealers described it as average, but the market rallied into the auction and held its gains through the afternoon. Futures were trading at the highest prices since May 1 at 4:00 PM EDT.
The dollar Index settled +.13 bps.
Gold entered NY trading on the lows and rallied bell-to-bell. Silver fell 2 cents, copper 3 cents, platinum 3 dollars. After the pit close, gold rallied in the post again this afternoon. Usually that implies an early bid from Asia. Just because the Chinese were incredibly hot in 2024, doesn’t mean they’re still hot now.
WTI rallied 50 cents on Wednesday. There were some hawkish comments from Scott Bessent this morning, intimating a palpable lack of patience with Putin, but even more so with Europe. It’s becoming obvious Zelenskyy and the E-3 are gaming Trump with “check in the mail” tactics. Putin is selling cheap oil at will to India and China.
Meanwhile, the futures market keeps shedding depth and liquidity. At this point, it would be fair to say Trump is shattering the oil markets in the same way he shattered precious metals and copper.
It’s all very counterproductive. The capex coming to America is going to need commodities. Just wait. When the buyers come, it’s going to be a shit show.
WTI front spreads were strong, led by October. Yesterday, they were weak, led by October. Nothing is new. Open interest continues to fall. Conditions are very thin. If anything unexpected does happen, the futures market is as flat as I’ve seen it in a long time. Usually when no one has a position, no one wants one.
RBOB cracks are down $1.50/barrel since August 21, distillate cracks down $1.00.
NDX is down 85 handles post-NVIDIA earnings. Nice range, almost as untradable as the Powell text at J-Hole. Electronic trading is just so… words fail me.
Bitcoin rallied today and seems unfazed by this afternoon’s underwhelming beats. Any trade with a stop is a good trade.
my vibe
Scott Bessent was on the shows again this morning. We are lucky to have him. Later in the day, I stumbled on this thread on X.
Yes, the markets are rigged by a handful of algos and institutions. Some things will never change. However, other things are changing, and therein lies a chance for us. Good trading isn’t gifted by a higher power. It is simply participating. We don’t need AI to say the light is green. The door is open.
Two of my kids are lawyers. The smartest of them is a Magna Cum Laude triple major who clerked for 3 federal judges because they begged her to come back “one more year” for 3 years. When she left Trenton last year, she said, “The law is a dead end,” packed up her car, and headed west.
I said, “Hey, you just spent $250k at Vandy. What are you going to do?” She said, “I don’t know, Dad. If I go to a big law firm for money, I’ll die at 40. Maybe I’ll be a truck driver.” Big hug. My wife gave her a debit card. “Use this until you get a job.” And she left, another millennial gone looking for America like it was 1970. I have no doubt she will find it.
night all… good luck in Asia
JJ
If you like reading market vibes please hit the like button, and type in your e mail below to become a subscriber.
Share selectively with friends and colleagues and follow me on X @Alyosha745
Charts and data CQG and Bloomberg
Market vibes is not a registered investment advisor, and comments are for informational use only. Any mention of a particular security, index, derivative, or other instrument is NOT a recommendation to buy, sell, or hold that security, index, derivative, or any other instrument. Market vibes makes no representations as to the accuracy of data or any attributions.
I loved the story about your daughter and how proud you both are of her. Our son left an arteriosclerotic Australia last year for excitement and opportunities of Vietnam, and has fallen on his feet. His late grandfather (dad) was active in supporting the Australian military involvement against them in the Vietnam War and it goes to show how much the world can change in a short period.
Nvidia:
Yes, they make a shit ton. So does Apple and Microsoft. A couple others near their altitude too.
The thing is, for me, when does that money go to the owner? It's spend spend spend to keep it going and the only people getting rich are sellers of the business. Otherwise, you're riding the cycle of risk-on, risk-off. In other words, the greater fool senario. Exxon makes a ton too, but they have a meaningful yield. Etc. etc.
Seque:
Yield control may not be here yet, but it looks like Index herding might be?
The Fed:
There's lots of comical there. 1/4 point. 1/2 point. Like it matters past the hype cycle?!
Who borrows at the Fed Funds rate? How does a gilt obsessed wanna-be despot help confidence talking like Hugo Chavez? When will the "Crazy" move rates by the % points? You decide. I don't have to, because I'd never play there. U.S. government debt beyond the weekend? Lol. No thanks.
Ukraine/Russia
Ukraine resists or ceases to exist. They have decided.
Ukraine has allies who still recall Soviet times from first hand experience, and a few with memories of further back. The 40's. Say what we will re: who can afford what, and who's paying, that's not what is front of mind in Europe. England didn't fight The Battle of Britain after debating the budget. It is existential in their mind. It is also starting to look like a whole lotta Russian infrastructure is increasingly vulnerable. How cheap does oil get when 10% of the refineries there are on fire? 30%? It's happening now. Nobody opposed to Putin is fighting for anything but survival. I hear otherwise, but not with a rational that makes any kind of sense.
Your kids sound great. I'm not surprised they got smarts and an attitude to make use of them. Bold move, your daughter heading West. Wise beyond her years, and that's something I'd put money on being successful.
Here's to Peace, Health, and Happiness. 🥂