Posted inFSA Spy

The FSA Spy market buzz – 23 February 2024

Calamos’s Nasdaq upside, Japan finds its mojo, Nvidia is impossible to ignore, Changes in the Magnificent 7, Climate action tussles, A moonshot delivered, The wisdom of J.P. Morgan and much more.

“How do you spot a bubble?”, a wily old portfolio manager asked Spy this week over a very enjoyable number of glasses of Don Papa Rum in a mid-levels boozer. “There are ALWAYS bubbles going on. Gold in the ‘70s, Japan in the ‘80s, tech in the ‘90s, China in late 2000s, then Bitcoin, FAANGs and now AI. The question is not so much – Is there a bubble? Rather, are you able to take some profits from the bubble and walk away before the party ends? Greed means most people stay too long instead of banking those juicy, bubbly profits that come along very quickly.” Ah, there’s the rub!

Spy spotted a recent launch on the US ETF market that made him go “hmm”. It was from an alternatives manager, Calamos. The fund is their Alternative Nasdaq & Bond ETF (CANQ). What is interesting, to Spy anyway, is how accessible alternatives have become to mainstream investors via the ETF structure. The fund uses options and bonds to (supposedly) provide, “uncapped upside to the largest and most recognized Nasdaq-100 stocks, coupled with the income and diversification potential of bonds.” Whether the average investor would understand what they are buying is another question entirely. It is certainly a brave new world out there, folks.

How long does an investor have to wait to be right? And, if it happens “eventually” does that validate one’s investment thesis? This thought was coursing through Spy’s mind this week as Japan’s Nikkei finally exceeded its previous high after a long – VERY long – hiatus of 34 years. Japan investment enthusiasts who have been calling bravely for a Japanese renaissance for decades can now brag and swagger around town. For those of us of a certain age, we can remember Alphaville’s 1980s hit “Big in Japan” which, ironically, preceded Japan’s recession, deflation and the bursting of a huge run up in Japanese equities. Is it a case of better late than never?

Spy can’t ignore the Nvidia mania. It was an extraordinary week for the chip designing firm as it became worth more $2trn dollars and had the single largest daily surge in market cap in history, $277bn, after blowout earnings and a healthy outlook (see chart). A number of commentators have pointed out that Nvidia’s strong predictions of revenue growth come in the face of export restrictions to China. In other words, all that growth is happening despite not being able to sell to the world’s second largest economy. Is Nvidia worth $2trn? That is a far harder question to answer. As Chuck Prince, the former CEO of Citigroup once said: “But as long as the music is playing, you’ve got to get up and dance.”

The “Magnificent Seven”, which of course includes Nvidia, might be a meme that needs a little updating. One company in the group has not fared particularly well in the last year – Tesla – and may need to be booted out of the group like a flat battery. Luckily, Musk’s machine has a ready replacement in the form of Eli Lilly, the drugs company. Eli is surfing the “solve obesity” wave with so called “GLP-1 weight-loss drugs”. Spy spotted a decent thought leadership piece out this week by Vontobel Asset Management that helps explain the hype behind the firm and why it is on such a tear. As the piece explains, “An alarming 24% of the world’s population will be classified as obese by 2035, up from 14% in 2020.” That is a lot of porky people and a huge potential to sell a lot of drugs.

The political tussle within asset management over the Climate Action 100+ group was in stark relief this week. The news broke recently that J.P. Morgan Asset Management and State Street had said they were not renewing their membership – casting a shadow over the group’s policy ambitions. This week, however, British firms, Schroders, LGIM and abrdn all confirmed they would remain involved. The divide between the US and Europe’s managers grows over how to address climate change responsibly. The anti-ESG backlash across America is no doubt driving American firms to tread very cautiously, especially in an election year. The British firms may just discover, if the tractor protests spread across Europe, that their strong positions may be harder to maintain.

A remarkable bit of news yesterday. An American company named Intuitive Machines, with the excellent NASDAQ ticker, LUNR, landed its Odysseus craft on the moon. This is the first time a non-governmental organisation has achieved such a feat. The US has not landed anything on the moon for 52 years. With Space X, Blue Origin and other firms regularly going into orbit, the private era of space exploration may well and truly be with us. Who will make the biggest profits?

A double quote this week. “Nothing so undermines your financial judgement as the sight of your neighbour getting rich”, said J.P Morgan about a 100 years ago. “Technicians will tell you all-time highs are bullish because there is no selling resistance; behavioural economics suggests it’s bullish due to FOMO and plain old greed,” said Ritholtz Wealth Management. J.P. Morgan was right then and Ritholz is correct today.

Until next week…

Part of the Mark Allen Group.