Month: December 2023

Although Nvidia reported ‘blowout‘ third-quarter earnings, an ominous sign that a peak in share price could be imminent is a report from Bloomberg that reveals corporate insiders are planning to sell the most stock in terms of dollar value in years. 

The artificial intelligence bubble has fueled a 349% rally in Nvidia shares from $112 per share in October 2022 to over $500 by mid-November. As of Monday afternoon, Nvidia shares are down 10% off the peak, trading around $454. Insiders know better than anyone else about what the future holds for share prices.

New data from Washington Service shows insiders in November sold or filed paperwork to sell 370,000 shares worth about $180 million – the most in dollar amount terms in at least six years. 

Meanwhile, in Nvidia’s earnings call, executives warned of a “significant” slowdown in China sales and gave fourth-quarter guidance that was also above consensus and, at best, matched the top end of the whisper range, which may have disappointed some investors as it shows that growth limits might have been hit. 

With that being said, is the AI bubble about to follow the same fate as the Covid/crypto implosion?

Google web searches of “ChatGPT” continue to wane after peaking in late spring. 

The number of times “ChatGPT” has been featured in news headlines also continues to slide. 

We have already pointed out that the AI bubble has likely peaked via an analysis by Deutsche Bank last month titled “Popping The AI Bubble: Companies That Drone On About AI In Earnings Calls See Their Shares Underperform.”

So, what insights do Nvidia executives and directors have about future growth that the market does not have? 

Authored by Daniel Lacalle,

The world equity markets ended November with their biggest monthly rally in three years. Optimism comes from:

1. better-than-expected inflation figures,

2. expectations of central bank rate cuts, and

3. general acceptance that earnings and economic growth will be weak but acceptable in 2024.

The main challenge for investors in 2024 is to confirm these hopes as trends.

The first problem is believing that inflation will drop magically without any significant impact on growth and ignoring monetary aggregates.

Inflation is falling due to the significant decline in money growth, and this means an abrupt slump in liquidity, a weaker economy, and financial conditions worsening.

Broad money (M3) growth is down 0.9% in the United States in the year to September, according to data compiled by the Institute of International Monetary Research. In the euro area, broad money growth was -1.0%, according to the ECB.

The United States will need to refinance $7 trillion of maturities in a declining broad money economy, and this means a massive vacuum effect.

A giant liquidity drain that hardly justifies multiple expansions and bullish sentiment.

Market participants cannot expect the Federal Reserve to implement massive rate cuts and even a quantitative easing program in the middle of an election year.

Furthermore, even if the Fed cuts rates, the impact is likely to be negligible compared to a seven- to ten-trillion-dollar liquidity drain, which is the equivalent of the refinancing required by the U.S. and other major governments in 2024.

Trusting in multiple expansions is concerning because, in order to achieve that, markets would need to count on rising liquidity, not a reduction.

The S&P 500 trades at a price-to-earnings ratio of 18.8 times if you believe the more than cheerful expectation of adjusted earnings growth for 2024 of 13.42% and a dividend yield of 1.61%. This implies an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) of 14.18 times, 2.4 x Price to Book, driven by Tech Megacaps. Europe looks cheap, but Europe always seems cheap for a reason. However, that is due to the difference in composition. The European stock market lacks the technology giants’ weight of the United States’, and its largest components are mature, low-growth stocks. Still at 12.8x Price to Earnings, 1.85 times Price to Book seems like a steep valuation to accept for utilities, banks, and mature industries, many of which have a poor track record of value destruction. Most stock markets are not cheap and need positive earnings’ surprise as well as rising liquidity to continue the bullish trend. None of those are likely.

In a scenario of liquidity drain, investors need to go back to fundamentals and pick the stocks that will keep margins and growth in a weak economy, but not bet on multiple expansion.

Market optimism is based on the idea that the unprecedented liquidity drains and declines in monetary aggregates will have no impact on earnings, margins, access to capital, or economic growth.

The only bullish argument that is often repeated is that central banks will act quickly if markets and economic figures deteriorate.

That may be the case, but not as quickly as market participants may desire and certainly not in the size required to offset the monetary aggregate slump.

A New York state lawmaker says she’s found ‘smoking gun’ evidence that New York City is trying to illegally register migrants to vote in upcoming elections.

“On page 50 of this contract, there is an entire section dedicated to voter registration,” said Rep. Nicole Malliotakis (R-NY) on Sunday, after she and four other Staten Island Republicans claimed a city contract with a nonprofit hired to run a Staten Island shelter includes a stipulation that voter registration forms are to be distributed among asylum seekers.

“We believe this is the smoking gun that proves what we’ve been saying all along — that the city intends to register non-citizens to vote.”

🚨 NEWS: My office has uncovered #NYC‘s secret scheme to potentially register tens of thousands of migrants to vote in our elections. Take a look at this contract between @HFH_NYC, the “non-profit” that kicked out seniors to house migrants, & the City of New York ⬇️ pic.twitter.com/Hr1Vzx17fw

— Office of Rep. Nicole Malliotakis (@RepMalliotakis) December 3, 2023

The contract in question, between the city and Homes for Homeless, governs the operation of the shelter at the site of a shuttered nursing home in Midland beach.

According to Malliotakis, who obtained the document via a state Freedom of Information Law request, includes a provision that the nonprofit will act in accordance with the NYC charter, which states that they “shall provide and distribute voter registration forms to all persons,” which are to be made available in Spanish and Chinese. In another portion, the nonprofit “shall not inquire about a client or potential client’s immigration status” unless it pertains to the services in question.

It is unclear if the language is standard in city contracts for shelter and housing services.

Under city law, Big Apple voters must be US citizens, have been a New York City resident for at least 30 days and be at least 18 years of age before Election Day.

A measure passed overwhelmingly by the City Council in December 2021, opened the door for green card holders and other legal non-residents to qualify to vote in local elections — although not in state or national races — but was struck down by a Staten Island judge.

Supreme Court Judge Ralph Porzio issued a permanent injunction blocking the law in June 2022, but that ruling is being appealed by Mayor Eric Adams’ administration. –NY Post

While it’s unclear if the language is standard in city contracts for shelter and housing services, the city’s Department of Social Services hit back on Sunday, saying in a statement “These allegations are false and baseless. DHS is legally required to include language around voter registration in shelter contracts and this guidance applies only to eligible clients who are citizens, and would clearly not apply to asylum seekers in shelter.”

What?

“They are bringing to you voter registration of people who are here illegally, and as soon as they’re here for 30 days, how is it they’re entitled to vote?” said State Assemblyman Sam Pirozzolo in comments to reporters. “What’s the first thing they’re going to vote for? Better hotel rooms?” he quipped.

“How do they even understand the American system of government?“

“There is nothing more important than preserving the integrity of our election system,” Malliotakis said in a statement. “The right to vote is a sacred right given only to United States citizens, and certainly not one provided to those who crossed over our border illegally and made their way to New York City last month. The City better not be acting in violation of the judge’s ruling that struck down the noncitizen voting law that would have allowed 800,000 noncitizens with a Green Card or Work Authorization and who have resided in New York City for 30 days, to vote.”

And watch the press conference here.

By Benjamin Picton, Senior Macro Strategist at Rabobank

The Boy Who Cried Wolf

Jerome Powell set off another sharp fall in US bond yields on Friday by suggesting that “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance”. Huh? Obviously he intended this to be a hawkish statement, but the market laughed it off and duly bought bonds anyway. Clearly, traders don’t trust the Fed Chair to deliver on any further monetary tightening as there is virtually zero probability of further rate hikes priced into Fed Funds futures, and 5 cuts priced in by the end of 2024.

Indeed, speculation that the hiking cycle has already concluded gained momentum after Powell said that monetary policy is “well into restrictive territory”. This helped the 2-year yield closed up by 14bps, the 10-year up by 13bps and the S&P500 up by 0.59%.

The price action became even more interesting on the Asian open today. Gold prices hit a new all-time-high of $2,135/ounce and Bitcoin busted through the $40,000 level. What does this tell us? If asset classes variously disparaged as an “pet rock” and “digital magic beans” are surging, are we heading back to the ‘good times’ of the Covid bubble economy? Or are higher prices for zero-yield monetary alternatives a signifier of the market’s (lack of) confidence in the US Dollar?

There is some argument for the latter. The DXY index has been under substantial pressure as rate cuts get pulled forward along the yield curve and signs of deflation emerge in major economies. The WSJ today reports on the deflationary trend, and points out that it provides a tailwind for central banks in their crusade to achieve their price stability targets, even as services price inflation remains stubbornly high.

No doubt that’s true, but how do you make sure you have just the right amount of deflation in just the right places? Last week’s announcement of “voluntary” OPEC+ production cuts of a further 1 million barrels per day have done nothing to staunch the weakness in crude oil prices, even as the unit of account that crude is denominated in (the USD) is falling fast. What does that tell us about the state of economic activity? Maybe the deflation is further along than popularly acknowledged.

If the WSJ judges a little bit of goods deflation to be no bad thing, they’re in good company. In 1888 the celebrated Cambridge economist Alfred Marshall (he of the Marshallian Demand) told a Royal Commission that “the evils resulting from a fall in prices are commonly overrated. I think that it is not clearly established that a rise in prices is to be preferred to a fall.”

Obviously, the modern view is that a rise in prices IS to be preferred to a fall. This is the orthodoxy among central bankers, who have long seen lower consumer prices as an existential threat to the economy. This thinking has become so ingrained since the adoption of inflation targeting in the early 1990s that the “rate cuts soon” meme that we sometimes poke fun at is really just a reflection of the mathy reaction function of your garden variety inflation-targeting central bank. This is the reason why bets on rate cuts are being brought forward, even as central bankers protest their seriousness on “higher for longer”.

There is an element of ‘The Boy Who Cried Wolf’ here. Why would markets believe central bank assurances of hawkish intentions when they have never delivered hawkish rates policy at any point since Long Term Capital Management blew up in the late 1990s? Have they updated their models, or revised their view of how the economy works?

Of course, the answer is no. After the three years we’ve just had (and the 12 years that preceded it) it might make sense to ask the question whether price stability mandates have been a good thing. In fact, the recent review of the Reserve Bank of Australia did ask this question, and concluded perfunctorily with a “yes, they have”. So, why did we have the review again?

In reality, few mainstream economists seriously question the usefulness of inflation targeting regimes. Despite suggestions that financial crises becoming more frequent, inflation targeting is treated as infallible, and widely accepted as best practice the world over. This was not always the case. The Fed itself did not have a formal inflation target until Ben Bernanke introduced one 2012, and in 1937 the Australian Monetary and Banking Commission had this to say on the matter:

“Price fluctuations are little more than symptoms, and the monetary authorities should not seek to regulate credit with regard to a price index.”

The implication here is that ‘price stability’ mandates are not some modern intellectual breakthrough cooked up in New Zealand in the 1990s, but an old idea that was repeatedly rejected in the past. Why was it rejected? Because, to paraphrase Mervyn King, it can result in measuring things that are not important and failing to measure the things that are important.

There is an argument to be made that capitalism breeds productive efficiency, which lowers unit costs over time. This implies a natural deflationary bias. If you set policy so that prices will grow at 2% p.a. in the face of this, it could be argued that policy rates will always be (structurally) too low, and therefore encourage speculation and the formation of credit bubbles. (Bitcoin is at $40,700 now!)

So, is it a coincidence that inflation targeting was adopted in the 1990s, asset price bubbles began in the 1990s, and policy rates have been marching lower ever since the 1990s? Rate cuts soon!

The headlines keep getting worse in terms of Ukraine’s future prospects, with the latest featuring urgent White House warnings communicated to Congress over stalled Ukraine aid.

“We are out of money — and nearly out of time,” wrote the Office of Management and Budget Director Shalanda Young to Congressional leaders in a letter made public Monday. There are a mere few weeks left before the US must stop giving money to Ukraine. Young warned that the sudden end to aid will “kneecap” Ukraine on the battlefield.

President Biden has been seeking a whopping $106 billion aid package chiefly for Ukraine and Israel. But budget director Young says the proverbial writing is on the wall amid GOP resistance.

“Without congressional action, by the end of the year we will run out of resources to procure more weapons and equipment for Ukraine and to provide equipment from US military stocks,” Young wrote. “There is no magical pot of funding available to meet this moment. We are out of money — and nearly out of time,” she said.

At a moment of soaring food and cost of living prices, amid a continually weaking US dollar under the Biden administration, taxpaying Americans might not be too pleased with the White House referencing a “magical pot” of funding… as if tens of billions handed to Kiev thus far merely ‘magically’ materialized out of nowhere.

“Cutting off the flow of US weapons and equipment will kneecap Ukraine on the battlefield, not only putting at risk the gains Ukraine has made, but increasing the likelihood of Russian military victories,” Young continued.

“Already, our packages of security assistance have become smaller and the deliveries of aid have become more limited . . . while our allies around the world have stepped up to do more, US support is critical and cannot be replicated by others.”

Yet, we should point out that Ukraine forces have been unable to advance even after being handed America’s longer-range missiles, state of the art drones, anti-air defenses, and intelligence assistance to boot. Some US government entities and officials have already begun to redefine what ‘victory’ looks like as the goal posts continually change.

Congressional Republicans, responsible for having blocked and held up Biden’s Ukraine funding, have only grown more skeptical also as Israel takes the spotlight. 

🇺🇦🇺🇸🇪🇺 – White House warns that US support to Ukraine could stop at end of month
• Presidential drawdowns of military aid are dropping, making Putin’s bet on Ukraine fatigue a winning one
• EU is now ahead of US in total commitments to Ukraine, crucially with multi-year support pic.twitter.com/w9kRU6uxud

— Agathe Demarais (@AgatheDemarais) December 4, 2023

A recent article in The Economist has summarized the recent compounding setbacks for Kiev as follows: 

For more than 600 days of full-scale war, America has been Ukraine’s greatest savior as it marshalled arms, money and more to help repel Russia’s invasion. Now America has become one of Ukraine’s greatest worries. Its aid for Ukraine is fast running out, and dysfunction in Congress is blocking new assistance. Nobody is sure when—or whether—it will be restored.

The effect is being felt at the front as America tries to stretch its dwindling funds. “In the spring the flow of military supplies was a broad river. In the summer it was a stream. Now it is a few drops of tears,” says one informed Ukrainian source. Ukraine faces a bleak winter amid great uncertainty: its counter-offensive has failed to break through Russian lines; its enemy is increasing its arms production; and its vital ally is paralyzed by political turmoil and distracted by Israel’s war in Gaza.

One wonders what the status will be one year from now… will a negotiated settlement finally happen by then? There are already behind-the-scenes moves being made, according to reports stretching back several months.

Meanwhile, mainstream media continues its dramatic narrative shift…

Washington Post: “victory for Ukraine” is now “far less likely than years of war and destruction.”

Those of us who pointed this out from the start — not just after nearly two years of war and destruction — were called Kremlin apologists. pic.twitter.com/06cm37t2Oe

— Aaron Maté (@aaronjmate) December 4, 2023

Authored by Paul Joseph Watson via Modernity.news,

Hillary Clinton told the Cop28 conference that “extreme heat” has killed half a billion people, most of them women and girls, but failed to cite any actual source.

“We’re seeing and beginning to pay attention and to count and record the deaths that are related to climate and by far the biggest killer is “extreme heat.”

The two time failed presidential candidate went on to claim that “extreme heat” had killed 61,000 people in Europe last summer.

“We don’t have that kind of number yet from Africa, Asia, Latin America but we know and estimate that we probably could measure about 500,000 deaths and the majority of those are women and girls and particularly pregnant women,” she added.

NOW – Hillary Clinton: “We’re seeing and beginning to pay attention and to count and record the deaths that are related to climate.” pic.twitter.com/6hVv4qFB1T

— Disclose.tv (@disclosetv) December 4, 2023

Really, Hillary. Do you “know,” or is this a ‘probable’ “estimate”?

We don’t know because there’s absolutely no source for the claim.

[ZH: We were intrigued by the other speakers on her panel… particularly the ‘Global Chief Heat Officer’...]

As we previously highlighted, Cop28 is being held at a rather inconvenient time for climate change technocrats since Europe is experiencing a potentially record-breaking cold snap.

The 61,000 extreme heat deaths figure from Europe is taken from a study by the Barcelona Institute for Global Health, which is funded by groups like the Bill & Melinda Gates Foundation which are heavily invested in pushing climate change hysteria.

I’m sure they’re not biased at all!

*  *  *

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By Mark Solomon of FreightWaves

UPS Inc. has raised its fuel surcharge on its U.S. ground parcel and SurePost delivery services by 50 basis points in what is believed to be the first time in more than 18 months that UPS has changed its formula to reflect applicable surcharges on those services.

Effective Monday, UPS will assess a 15.25% fuel levy on all shipments moving under those domestic services. The surcharge applies to the base rates and to any add-on charges known as accessorials. 

The last time UPS changed its fuel surcharge table was in April 2022 during a cycle when weekly diesel prices set by the Department of Energy’s Energy Information Administration (EIA) frequently exceeded $5 a gallon. Fuel prices spiked along with the price of oil amid fears that Russia’s invasion of Ukraine would disrupt commodity supplies.

UPS’ most recent move, however, comes amid an ongoing downward move in diesel pump prices. The weekly on-highway diesel price set on Monday by the EIA stood at $4.14 a gallon. That is 15 cents a gallon below the price set two weeks prior and nearly $1 a gallon below the average pump price at this time a year ago. UPS and rival FedEx Corp. adjust their prices with a one-week lag from the most recent EIA price.

By contrast, surcharge levels will decline for U.S. domestic air, international import and export services. They will rise for the carrier’s international import and export ground services. Air shipment surcharges are set to the EIA’s jet fuel index.

UPS was unavailable for comment at press time.

UPS and FedEx index their diesel levies to a band of prices established by the EIA. UPS has in the past adjusted its ground-delivery surcharges 25 basis points for every 12 cents-a-gallon move in the EIA diesel price. FedEx Ground, FedEx’s ground delivery unit, adjusts its surcharges for every 9 cents-a-gallon move in the EIA diesel price.

For example, UPS’ upcoming 15.25% levy is based on an EIA-established price that is at least $4.10 a gallon but less than $4.22 a gallon. Currently, the levy is 14.75% for prices falling within that band.

UPS’ action will bring its levy on U.S. ground shipments in line with FedEx, which currently assesses a 15.25% surcharge within the same pricing band. Nate Skiver, founder of parcel consultancy LPF Spend Management LLC, said one of UPS’ goals is to achieve parity with FedEx’s surcharge pricing. The other is to boost revenue per package, which has taken a hit due to pricing pressure and changes in volume mix.

“It also helps to set a higher floor on the fuel table, which is now relevant with diesel prices moderating,” Skiver said in a LinkedIn message.

UPS, FedEx and other parcel delivery carriers have wide latitude as to when they adjust diesel and jet fuel surcharges. In recent years, surcharges have remained elevated despite world price fluctuations that have headed south. Analysts who follow the fuel surcharge market have said that surcharge levels stay higher long after prices have dropped, thus allowing the carriers to reap additional revenue on each transaction.

Historically, small to mid-size shipper s have found it difficult to reduce fuel surcharges through negotiations, while bigger shippers have to tender certain volume minimums for the carriers to consider reducing the levies. However, in what has turned into an all-out price war as carriers aggressively bid for business, the carriers have let it be known that fuel surcharge discounts are very much on the table.

Domestic ground parcels are UPS’ largest business. SurePost is the name for a service provided in conjunction with the U.S. Postal Service in which UPS picks up and aggregates low-value, nonurgent parcels and inducts them deep into the postal infrastructure for last-mile delivery to residences.

Without doubt, military superiority belongs to Israel, and yet Secretary of Defense Lloyd Austin has raised eyebrows by saying Israel faces a “strategic defeat” if it doesn’t reduce civilian casualties in Gaza. The Hamas-run health ministry in Gaza says over 15,200 – mostly women and children – have died since the start of the war.

The White House has questioned the official death count from the Palestinian side; however, even by conservative estimates, civilian deaths are in the multiple thousands. In a recent New York Times article entitled “Gaza Civilians, Under Israeli Barrage, Are Being Killed at Historic Pace” (which proved controversial), the Times said more civilians have died in Gaza since Oct. 7 than have died in Ukraine after nearly two years of grinding war with Russia.

Lloyd Austin focused his Saturday comments on the long-term effects of mass civilian slaughter and not only the coming global backlash, but the potential for further radicalizing an entire population:

“The center of gravity is the civilian population and if you drive them into the arms of the enemy, you replace a tactical victory with a strategic defeat,” Austin said in a speech at the Reagan National Defense Forum in Simi Valley, Calif., on Saturday.

The secretary added that he has personally pushed Israeli leaders to avoid civilian casualties, prevent violence to settlers in the West Bank.

“We will continue to press Israel to protect civilians and to ensure the robust flow of humanitarian aid,” he added. —The Hill

Despite this very rare commentary and warning, Austin still emphasized US will remain Israel’s “closest friend in the world” and American support will never waiver. He said Washington’s backing of Israel remains “crystal clear.”

Watch Austin’s remarks given in California over the weekend:

US Secretary of Defence says protecting Palestinian civilians is key to avoiding ‘strategic defeat’

US Secretary of Defense Lloyd Austin says protecting Palestinian civilians in Gaza is ‘both a moral responsibility and a strategic imperative.’

Speaking at the 2023 Reagan… pic.twitter.com/b6vpnmG9bZ

— Middle East Monitor (@MiddleEastMnt) December 4, 2023

Already, nations of BRICS and throughout the Global South have voiced their increasing outrage over such a high civilian death toll. China and Russia have led these criticisms of Israel, and the US continues to be isolated in its ‘blank check’ support for Israel at the United Nations. 

The Guardian recently observed of what has long been typical concerning Gaza-related resolutions at the UN: “The US has ended up looking quite badly isolated after only 12 countries joined Washington and Israel at the UN general assembly in opposing a motion calling for a sustained humanitarian truce leading to a cessation of hostilities.”

At the same time, US Congressional hawks continue to add fuel to the controversy with statements like the below, wherein Sen. Lindsey Graham rejects and lashes out Austin’s messaging on ‘strategic defeat’…

Graham flatly rejected the idea, saying “He’s so naïve! I mean, I just lost all confidence in this guy.”

“How about focusing on protecting our soldiers, men and women in Syria and Iraq?” Graham continued. “Strategic defeat would be inflaming the Palestinians? They’re already inflamed! They’re taught from the time they’re born to hate the Jews and to kill them.”

Graham continued calling it “really naive” to say that Israel is fighting against a “tranquil population” that was “only inflamed after Israel goes in to defend itself.”

“I don’t want to kill innocent people,” he said. “but Israel is fighting not just Hamas, but the infrastructure around Hamas… Strategic failure is letting Hamas stand.”

Lindsey Graham just now when asked about massive Palestinian civilian casualties during the usual softball CNN interview:

“Did the American people worry about how many people died when we destroyed Tokyo and Berlin?” pic.twitter.com/91b5gIoPke

— Max Blumenthal (@MaxBlumenthal) December 3, 2023