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5 Things to Know in Investing This Week – The Freedom Issue

While Americans are focused on our own coming (and just passed) elections, Argentina had a monumental event. Using national ID and paper ballots, they were able to get votes counted the same night and found that a small-government capitalist in favor of sound money had won a huge and shocking victory. Here in the US, there’s more evidence of weaker pricing, except consumers appear to disagree. Nvidia has another spectacular quarter, but Wall Street has left no upside in the stock. Finally, Macau visitation continues to climb on a monthly basis.

This week, we’ll address the following topics:

  • Argentina votes to #EndTheFed.
  • $NVDA earnings are spectacular. Market shrugs.
  • Macau visitation continuing to climb. Impact on $LVS.
  • Consumer sentiment down and inflation expectations up.
  • Durable goods orders continue with last week’s disinflation / deflation theme.

Ready for a new week of sound money advocacy? Let’s dive in:

1) Argentina Votes to #EndTheFed:

Argentina is a country I love. I’ve visited multiple times and have wonderful friends who live there. It’s also been the multi-decade poster child for bad fiscal management. The government overspends in a way that would make the US Congress blush, and regularly defaults on its debt. The inflation rate has risen from 100% when I visited last winter to over 140% now. In response, they just elected Javier Milei, a political outsider, libertarian, and sound money advocate. He wants to reduce the size of the government, slash spending, embrace Bitcoin, disband the central bank (#EndTheFed), and reduce inflation by switching to a dollar standard. Many are calling him the first anarcho capitalist President in the world.

Milei at Presidential Desk

Here’s Milei looking much less manic than usual.

DKI Takeaway:  DKI is thrilled to see Argentina embrace freedom and sound money. (Click the link to see a series of stories about how hard life is in Argentina with massive inflation.) If Milei succeeds, it will be a painful transition, but the country will be much better off long-term. I hope I’m wrong about this, but Milei is facing a steep hurdle to succeed. As a political outsider, he doesn’t have the loyalty of the legislature. He’ll also be fought by the labor unions and the government bureaucracy that will be loath to give up their cushy guaranteed jobs. We can expect these groups to try to sabotage Milei’s plans. On behalf of DKI and freedom-lovers everywhere, we wish Argentina and its people nothing but success and a bright future.

2) Nvidia Earnings Spectacular – Market Indifferent:

This year, almost all of the gains in the S&P 500 have come from just 7 mega-cap technology stocks. Nvidia ($NVDA) has led the charge by making the world’s best graphics chips. These chips are able to do the kind of parallel processing that is required by artificial intelligence (AI) applications. About a year ago, the stock traded around $120 and it crossed $500 earlier in the week as results every quarter have been incredible. On Tuesday, the company reported earnings of $4.02 which beat expectations of $3.36. Revenue of $18.1B was well above estimates of $16.1B. Guidance for 4Q of $20B is 22% above prior estimates of $16.4B. This was another blowout quarter for the 2023 market leader.

$NVDA

Huge multiple on fantastic performance.

DKI Takeaway:  Despite crushing earnings expectations and raising guidance again by a massive amount, Nvidia’s stock fell a little in the aftermarket post announcement. The following day, it was down 2.5%. $NVDA is turning out best in class product in the hottest area of the market right now. However, at some point valuation matters. When you beat earnings expectations by 20% and raise revenue guidance by more than 20%, and the stock goes down, that’s telling you the stock has already incorporated great news.

3) Macau Visitation Continues to Climb – $LVS

Inside Asian Gaming reported that October Macau visitation was up 19% from strong September levels. In fairness, September did have a temporary closure due to a typhoon, and October had the big Golden Week holiday where gambling activity accelerates. Still, this is further evidence of the continuing recovery in Macau where Las Vegas Sands ($LVS) has leading market share.

Las_Vegas_Sands_Macao - 2

Macau is back as is $LVS.

DKI Takeaway:  Last week, we addressed market fears that weakness at one $WYNN casino was a negative for $LVS. That’s not true as Sands is taking share from Wynn Resorts in Macau. Lately, we’ve also seen some fears that a potentially weaker Chinese economy could reduce demand for gaming. DKI has disagreed and stressed that the Chinese people have “pent up bankroll” from three years of lockdowns and are eager to get back to gambling. This week, one sell-side firm reported that in the premium mass market where $LVS is focused, the average wager is now up 37% from 2019’s pre-pandemic levels. The company is rapidly heading for a full recovery while the stock is currently at Covid levels.

4) Consumer Sentiment is Down and Inflation Expectations Are Up:

The University of Michigan reported the November Index of Consumer Sentiment which showed significant improvement over a year ago. Unfortunately, November sentiment was down from October and marks the fourth straight month of declining expectations. There’s one obvious culprit:

U-of-M-Inflation-Expectations

The BLS says inflation is down. The consumer disagrees

DKI Takeaway:  At the time of this writing, the St. Louis Fed hadn’t updated its website, but the latest reading on consumer expected inflation is now 4.5%. That’s above the 4.2% shown above and is a big number. Inflation makes life difficult for people who don’t own hard assets and have dollar-denominated debt which is declining in value. That would be a key reason for lowered consumer sentiment. Further, the US Bureau of Labor Statistics keeps publishing a consumer price index that DKI has shown to be inaccurate. The BLS can insist inflation is declining, but the American consumer is seeing price increases above the CPI.

5) Durable Goods Orders Are Down – Sort of:

Continuing with themes discussed in last week’s disinflation / deflation issue where we talked about reduced demand for big ticket items, October’s durable goods new orders came in at -5.4%. Part of that is reduced demand due to a shift from goods to services. Part is due to inflation exerting pressure on household budgets. And part is related to the fact that Americans tend to finance big items, and those costs have risen with higher interest rates.

Durable-Goods-New-Orders-Percent-Change-Month-Over-Month-2023

Graph from MishTalk.

DKI Takeaway

DKI Board Member and economist Michael “Mish” Shedlock, offers an alternate explanation for the big negative print. Aircraft orders are both huge and inconsistent, and were down 50% in October after being up almost 100% in September. Once you exclude those, the remaining durable goods orders were flat with last year. That’s not great, but is a lot better than the announced number. Wall Street often trades the headline number, but we credit Mish for doing the detailed deep knowledge work himself and illustrating how much of the “data” that influences stock prices isn’t always reliable.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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