VRA Investment Update: NVDA Blowout Earnings. Jackson Hole Tomorrow. The Roaring 2020's.
/Good Thursday morning.
Nvidia’s second-quarter earnings are in, and they did not disappoint. Revenues crushed the already hefty Wall Street estimates, sending shares 7% higher in premarket trading. Estimates heading into the earnings were already sky high, with whisper numbers for sales of $12 billion but even those estimates proved too low. Revenue came in at $13.5 billion during Q2, more than doubling the prior mark of $6.7 billion. NVDA also projected that sales in Q3 would come in at $16 billion.
"A new computing era has begun," Nvidia Chief Executive Jensen Huang said on Wednesday, adding that the "race is on" to adopt generative AI.
And, it was just 3 three months ago that Nvidia's CEO shocked the world and saved the markets, as we were experiencing the shocks of a regional banking crisis, declaring "the beginning of a major technology era.” Huang told us there was a "rebirth of the computer industry" underway, where "AI has reinvented computing from the ground up.” It certainly appears that this man, and this company, should be believed.
Why NVDA Matters to Us
While we do not own NVDA in the VRA Portfolio, we own positions that are being directly affected by the birth of AI. While NVDA is up 360% from the 10/13/22 bear market lows, VRA Portfolio position SOXL (3 x Semi ETF) is up 286% during the same time frame while Palantir (PLTR), VRA 10-Bagger is up 170% from its bear market lows. Remember, Dan Ives…the well-known tech analyst behind bullish calls on Apple and Tesla, and now Nvidia…has called PLTR the “Lionel Messi of AI” and has a strong buy rating on it.
By owning SOXL, we not only have direct exposure to the chip space but we have the diversification of owning more than 20 companies. The risk of owning a 3 x leveraged ETF is clear; if we’re on the wrong side of major moves we feel the pain 3 x over. There will come a time, likely years from now, where we will own the bearish 3 x ETF for semis. We’ll rely on the VRA Investing System to make that call.
Above and beyond all, we have entered a new bull market, one that we believe will rival the dot-com melt-up of 1995-2000. With tech stocks leading, look out above.
Significant Inflection Points Have Arrived
The stars appear to be aligning for significant primary and counter-trend moves to occur. Over the last week we’ve discussed the level of demand destruction that’s taking place, with a 5.5% Fed funds rate and better than 7% mortgages, all while the Atlanta Fed estimates that the US economy is picking up speed, growing at 5.8% in Q3.
Remarkably, this is occurring as both the European and Chinese economies are in the toilet. Chinese 10 year yields are near all-time record lows, in the 2.5% range (as US 10 year yields are 4.21% this AM). When both the Chinese and European economies sneeze, the US catches a cold. AKA, something has to give. I expect that ‘something' will be a reversion to the mean, with US rates collapsing into Q4 and 2024…as the US economy slows and disinflation continues to build…and as we learn that the Fed has (once again) overplayed their hand once again, another J Powell policy error. We expect rate cuts in 2024.
The combination of everything I’ve laid out above will also be highly bullish for US stocks, as we’ll essentially have a “Great Reset” of a different kind, with rates falling for an extended period and as the markets prepare for future rounds of rate cuts and eventually more financial engineering from the Fed (more QE). A perfect set-up for the roaring 2020’s.
All Eyes Now on Jackson Hole
We’ll be watching J Powells speech at Jackson Hole tomorrow (10 AM EST) and then Tyler will host the podcast tomorrow after the close. Sign up for VRA Podcast Alerts @ vrainsider.com/podcast
The 10-year yield got back above the October 2022 highs this week, but they also just reached extreme overbought on steroids. A potential double top exists as well. A move lower in rates is in the cards, quite possibly lining up with J Powells Jackson Hole speech this Friday.
Last year at Jackson Hole Powell delivered his now infamous “Pain Speech” saying that businesses would feel some pain from the continued rate hikes, but that the Fed was unwilling to allow the “far greater pain” that would result from letting inflation continue to run hot.
Now, one year and 6 rate hikes later let’s see if the Fed chair will have a more optimistic tone.
We think that he will. As Ed Yardeni said this week, Powell should acknowledge that inflation has moderated (at least in CPI terms) and that the Fed will stick to their plan of lowering interest rates sometime next year. The most recent Fed dots for 2024 were calling for 3 rate cuts for next year, contradicting this would be a very dangerous day.
Tom Lee of Fundstrat agrees with Ed Yardeni and even took it a step further saying the probabilities favor a bottom in the market at or before the speech on Friday. He also pointed out that the long-term bond price ETF (TLT) just saw a massive liquidation take place with -1.8 billion in outflows last week. It’s the largest outflow since March of 2020.
VRA Bottom Line: We are nearing significant inflection points, everywhere we look. Soon...I think we’re getting close now, to be honest…the bond market will peak and that will be it for the ramp higher in yields. I’m as certain of this as just about anything. The charts confirm this. The Fed wants the fever to break, meaning they want disinflation to continue and the economy to hit the breaks (a bit). Demand destruction is underway now…certainly underneath the surface. 5.5% Fed funds rate and better than 7% mortgages will have that effect. The Fed’s biggest risk now is overdoing it, something J Powell…the worst Fed chair in my lifetime…has mucho experience with.
Until next time, thanks again for reading…
Kip
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