Here’s a preview of what we’ll cover this week: 

• Macro: Healthcare Sector, Productivity Growth and AI, Year-End Positioning, Aging & Longevity, US 10-Year Yield, P/E Ratio Growth, Uber, GM, Sovereign AI

• AI: Agentic Reasoning Era, Amazon on AI and Energy Needs

• Investment Insights: Paradoxes of Investing, Trump on Joe Rogan

RWA Summit NYC

Another strong week for Lumida! 

This Tuesday, Ram spoke on the panel at the RWA Summit NYC about the macro environment, discussing macro, tokenization, and capital markets.

Thanks to the Centrifuge Team for having us.

Next week, Ram will be at Money 2020. If you'd like to connect, email us at [email protected]. Next stop: Vegas!

He also had a nice hang session with Scottie Pippen. More here.

Nvidia's Recognition

We had a nice call-out regarding our views on Nvidia. 

Kind of amazed people are still not talking about CoreWeave, which I expect will out-perform Nvidia (again).

Nuclear Renaissance & ASPI

We were thrilled to see such strong interest and positive feedback on our recent piece about the Nuclear Renaissance.

Thank you for recognizing the value we bring—it's what drives our passion! If you missed our last newsletter on ASPI and Nuclear Renaissance, take a moment to check it out!

Additionally, feel free to explore our deck for a deeper understanding.

Macro 

This Monday, I issued a video elaborating on our concern on risks from higher rates and a stronger dollar.

Others noticed and we have the first down week in the S&P 500 in 6 weeks.

Here was our comment expressing concern at the elevated level of rates last week.

We did get that pull back.

Take a look at homebuilders this week:

The category is the most oversold.

Now, had we sold our homebuilders we would be paying short-term capital gains.

In an ETF format, I can do an ‘in-kind transaction’ - swapping the homebuilder for another equity asset. Then there is no tax.

This is why I can’t get the idea of an ETF out of my head.

It’s a form of tax alpha.

To that end, if you’d like us to launch an ETF, please fill out this form here at www.lumidaetf.com.

There are a couple different product variations we are considering and your input is valuable.

We are close to 200 that have expressed interest. I’d like to get to 500

Market Performance Since Rate Cuts

The Dow Jones has given back all of the gains since the Fed 50 bps rate cut. (The other major indices still have some gains.)

Mr. Market has a great deal of irony, and loves to punish people who FOMO chase.

It’s like Mr. Market just remembered it left the stove on and rushed back to keep people off sides.

Looking between now and year-end, we remain bullish on the market.

Earnings season has been strong, and we don’t see that changing. 

Earnings season is like Christmas—some companies just get coal, but most are finding something shiny in their stockings this year. 

From a tactical perspective, we believe a peak in the 10-year rate is imminent this week.

What we see:

Earnings growth is on track. Mega-cap tech is showing strong performance. 

• We expect that to continue thru the quarter, and we expect strong earnings this week on average from Google, Microsoft, and Meta.

  • All eyes will be on Microsoft’s usage of Co-Pilot and Cloud Growth

  • Meta’s capex spend and revenue growth

  • Google we believe has substantial negative news priced in and we have a ~5% ish or so position (wouldn’t mind owning more but we see a lot of opportunities)

The economy is resilient, in a “Goldilocks” state, and consumer retail stocks often do well in the fourth quarter.

• Abercrombie had a pullback, perhaps driven off of negative news surrounding the prior CEO

• Retail stocks have historically had a very strong Q4 performance. If we are correct that the US consumer is strong, as also evidenced by recent retail sales reports, owning quality retailers is a good idea. We like Abercrombie, although a case can be made for Dicks Sporting Goods and Amazon.

The corporate earnings blackout period is ending. This opens the door for more stock buybacks.

We will see about $1 Tn in corporate buybacks next year. Alongside, ‘programmatic buying’ they are a real force in equity prices. 

Don’t get too gloomy if we see an election related swoon. Use that as a buying opportunity.

Mutual funds’ tax-loss selling will end soon.

US equity markets ended their correction on October 26th of last year. It’s October 26th today as I write this. This isn’t a coincidence.

With earnings and market sentiment where they are, we see a strong setup for a significant catch-up rally and prefer mean reversion ideas.

Now is a good time to reach out to us at [email protected] if you’d like us to get you in these strategies.

Undoubtedly, people will reach out at the top of the market on December 31st. We see an attractive backdrop as folks get recognition around Goldilocks and strong corporate earnings.

Quality names are expensive. CAVA has a nosebleed 300x forward PE ratio. In a no recession environment, we will see plenty of other firms catch up as capital rotates from expensive to less expensive. 

We’ve been accumulating positions in oversold names that show earnings growth, attractive valuations, and consistent buybacks. 

Healthcare

Last week, we mentioned scouring for opportunities in the healthcare sector. 

The healthcare sector failed on a recent test of its 50-day moving average and appears destined to have a date with the 200 day moving average. 

We had purchased stocks like Regeneron as XLV approached the 50-day. However, after failing to see a bounce, we quickly exited those positions.

That was a good call as Regeneron continued to drop and is a greater bargain now.

What’s happening in healthcare is two forces:

Leadership weakness in GLP1 providers such as Novo Nordisk. Take a look at Novo’s chart here - fairly ugly. 

The stock is back to January 31st levels.

When leaders decline, the sector often follows.

Second, Medicare Advantage news has impacted all such insurers in the category: United Health, CVS, and Elevance.

What was once seen as negative idiosyncratic news around CVS is actually impacting the entire sector.

Together these forces are causing a negative re-rating of healthcare stocks.

However, we are seeing signs of indiscriminate selling. The rising costs of healthcare benefit medical devices and testing providers.

Those stocks are down too - and that doesn’t make much sense.

Notice the relative strength of medical device firms.

Ultimately we believe these Medicare Advantage healthcare names will present as compelling bargains. However, we believe the easier bet is to focus on medical devices category.

Recall last week we were taking a close look at the sleep apnea category. It lines up nicely with our aging demographics theme, and the increased utilization of healthcare.

This Wednesday, the day before earnings, we picked up ResMed (ticker: RMD). The business is the dominant leading provider of Sleep Apnea devices.

ResMed reported the day after and the stock went up 7%. 

This is part of a new strategy we are testing where we will assess opportunities to get into certain positions just prior to earnings if we see an attractive entry.

This worked in 3 out of 4 attempts this week:

• Res Med (medical devices)

• CLS (datacenter play)

• FTI (energy transition)

• FCNCA (regional bank)

The basic idea is this… If you believe you have skill or edge, the larger the universe you can operate on, the more you can diversify your idiosyncratic risk.

We are big believers in diversification - but owning names that we believe are mispriced or have attractive risk-adjusted returns.

Peter Lynch at the tail end of his tenure at Magellan held thousands of securities (many S&Ls), and in the earlier part of his career he held dozens and still beat the SUP 500 handily.

The trade-off is that you must invest heavily in intense research and continuous monitoring. 

Peter was a voracious reader and consumer of information. 

If you iterate on this to the n-th level, you get a strategy that starts to resemble Citadel or Millennium – they have thousands of small positions each with some ‘edge’ - manager skill.

The rise of AI is absolutely increasing our productivity, speed of learning, and ability to monitor.

So, it was great to field test this tweak to our strategy. Over time, we see the number of positions we own increasing from 30 to perhaps 50 or so.

Back to healthcare. 

I recommend waiting for the XLV to get closer to the 200 DMA. The sentiment in that sector is quite dour and washed out. If you are a long-term investor, you can do well to take a close look at this sector.

It seems as if each quarter Mr. Market is putting a new sector the market on sale. Take advantage of that.

Productivity Boom

A thread we come back to often is how the productivity boom is underway and no one is talking about it.

I saw a TikTok video that showcased how AI created a faster, more efficient rocket engine in two weeks.

This is a task that would typically take a team of very expensive humans five to six months.

Here’s a link to a video explaining how AI is transforming rocket engineering.

When AI can build a rocket engine in two weeks, it makes me wonder what I’ve been doing with my life these last few months. :)

This is one example of how productivity is poised to accelerate, especially for forward-thinking companies with AI strategies. 

This reinforces our thesis that the next 10 years will feature a “feast or famine” dynamic. Companies that lead with AI will take market share, those that do not will have their lunch eaten.

IBM’s earnings report reinforced this point. They are losing consulting revenue. The company attributed that to clients greater demand for AI related projects.

When I talk to leaders across the field, they recognize the future is AI driven. The transformation is happening.

Productivity Growth and AI

I believe most of the productivity growth we are seeing is not yet AI driven.

There’s more good news to come.

Microsoft and Meta’s results this week will be particularly telling. 

We’re curious: are customers actually using Microsoft Copilot, and what’s the traction? 

Year-End Positioning

Between now and year-end, we anticipate strong performance from the Mag 7 names. 

They’ve lagged the broader indices, with several still below all-time highs. 

We pointed this out last week in a video: If you track the MAGS ETF, it’s rebounding at the expense of small caps, which have taken a hit from the "higher for longer is back" theme which we discuss in the video.

ResMed - The Sleep Apnea Leader

A bit more on ResMed.

I asked our AI to share the bull and bear case for you to give you a glimpse of how we are using AI today.

Here’s the bear case:

We like that the firm has buybacks.

In fact, our approach with ResMed is a strong example of Lumida’s macro-thematic integration, combining sector positioning with stock selection to capitalize on trends. 

And this is why we’re investing heavily in AI. As we expand our coverage, AI will boost analyst productivity and portfolio monitoring. Investing is a process—a set of workflows turning inputs into outputs, requiring insights.

But as we’ve seen, even insights can be AI-generated. Take, for example, the insights from our AI analysis on Walmart a few months ago. 

For those heading to the Money 2020 Fintech conference, I’ll be there again this year. Consider it Halloween practice—a room full of finance folks is scarier than any haunted house. I’m arriving Sunday, so shoot me a note; it would be great to reconnect.

And I’ll be back just in time for Halloween with my family and kids. Nothing like the market to remind you that real monsters don’t always wear costumes.

Investor Tip: Aging & Longevity

Earnings Growth is Better than Revenue Growth

I prefer operating leverage in growing businesses

A smaller increase in revenue growth - which is more sustainable if combined with a moat - can lead to a disproportionate growth in earnings

ResMed, leading sleep apnea solution provider demonstrates this: 

‘ResMed delivered robust Q1 FY2025 results, showcasing 11% revenue growth to $1.22 billion, driven by strong performance across its AirSense platforms, masks, and software solutions. Earnings per share (EPS) rose 34%, highlighting improved margins and operating efficiency.’

We bought ResMed the day before it reported earnings yesterday, up 7% on the result

By contrast, rapid revenue growth is correlated to negative future performance. 

See All Birds, Snowflake, or your random VC IPO

Lastly, Batman’a nemesis Bain may have suffered for a severe case of Sleep Apnea

US 10-Year Yield

The Ten-Year Yield is now equivalent to the S&P Earnings Yield.

I expect we will see a top in the 10-Year yield soon.

And, tax loss selling is ending soon + buybacks are coming back.

You should be bullish going into next week.

10-year yield up over 56 bps since the Fed cut rates in September. 

This reinforces our view from prior weeks that the Fed made a mistake cutting 50 bps.

P/E Ratio Growth

The S&P 500's trailing 12-month P/E ratio is now above 26, up from 17.1 at the start of the bull market in late 2022.  In the 90th percentile of its 10-year range.

Markets are expensive.

However, there is no reason to expect we’ll see an end to the bull market soon.

I could see an after New Years hangover, much like we saw last year.

But earnings growth is there and productivity growth is as well.

From JP Morgan (better late than never I guess?):

“.. Last week’s robust retail sales reaffirm our hypothesis that the US Consumer is in a position of significant strength. .. we are seeing multiple upward revisions in #GDP growth .. Atlanta Fed estimates 24Q3 GDP to be 3.4%, .. a +1% upward revision since August.”

If you recall, last week we pointed out retail sales would likely beat.

I do like the idea of buying retail stocks this quarter. They tend to perform well now.

Should Uber acquire Expedia?

Sunday mornings are for not only for chill, but for an Uber discussions. 

Check this video where Ram talks about whether Uber should acquire Expedia. [Link] 

GM Delivered on Earnings

I love the buybacks too. 

I still believe GM has far more upside than Tesla. 

I shared my thoughts on this in June; feel free to check it out.

If that is difficult to conceive, you may have technodoriaitis - inflamed love of tech stocks. 

GM is up 7% after earnings. 

I can’t stand the auto sector. 

But, I don’t mind owning the leader in a weak category. This is a classic strategy of Peter Lynch - find the leader in a weak sector.

The leader can use their ROE and competitive advantage to re-invest and take share from weaker players over time.

GM is gaining market share and already has pole position + unit economics + FCF + buybacks. 

And GM has an EV play and driverless play and a defense play. 

The difference from when we bought GM and Peter Lynch? Peter bought it at 8x forward PE according to “Beat The Street”.

GM is at 5x now, up from the 4x levels.

GM is up 100% since last November lows. 

That was during peak negative news sentiment during the UAW strike. 

Why did GM perform well?

1. Multiple expansion. The P/E went from 4x to 5.2 now

2. Earnings per share growth up 58% (driven also by large buybacks relative to market cap)

This combination is something I try to look for wherever I can – a combination of multiple expansion, earnings growth, buybacks, and some catalyst.

Ali Baba had this setup earlier this year for example.

I believe we have a number in our portfolio.

Sovereign AI Is Coming

We started writing about Government AI in 2023.

That term didn’t really land well. So, the word is Sovereign AI.

Take a look at this news from Denmark below.

Japan and Saudi Arabia also want to build a ton of datacenters.

AI will transform defense as we know it.

One small example: drone warfare and drone defense.

Also, this past week Nvidia dethroned Apple as the world's most valuable company.

Meanwhile, Apple is at the higher end of its forward PE. If they don’t get an upgrade cycle this Q4 their stock will fall. 

We see no compelling features in their first AI phone other than an upgrade to Siri.

AI

Agentic Reasoning Era

Excellent article by Sonya Huang and Pat Grady of Sequoia, "The Agentic Reasoning Era Begins", and the $10 trillion opportunity with service-as-a-software.

"Thanks to agentic reasoning, the AI transition is service-as-a-software. Software companies turn labor into software. That means the addressable market is not the software market, but the services market measured in the trillions of dollars." [Link to the tweet]

Lumida is investing in Agentic AI.

If you are a VC that wants to throw us an absurdly rich valuation, email us subject line: $$$. ;)

Amazon on AI and Energy Needs

Take a look at what Amazon’s CEO has to say about energy needs.

"If you think about these generative AI models... estimates suggest that in two to three models' time, an individual model may require somewhere between one to 5GW of power, which is equivalent to powering a small to medium, or even a large city"

Investment Insights

Paradoxes of Investing

Investing Tip:

One of the paradoxes of investing…

1) Quantum computing will change the the world. 

Investing in quantum computing stocks will likely lose money. 

2) Nuclear fusion will change the world. 

Investing in nuclear fusion startups will likely lose money. 

3) CRISPR technology will change the world. 

Investing in CRISPE stocks will likely lose money. 

4) EVs will change the world. 

Investing in EVs will likely lose money. 

5) Cathie Wood themes will change the world. 

Investing in Cathie Wood themes will likely lose money. $ARKK $ARKG

6) AI will change the world.

Investing in AI apps will likely losemoney.

The answer to the paradox is this…

Investing in things that make money, is how you make money in investing.

Trump on Joe Rogan

I listened to the Joe Rogan / Trump interview

Apparently so did 5 MM others

Speaking as objectively as possible -

That interview was a decisive win for Trump

The format plays to his strengths

No rambling, no gaffes. 

He brought his A game

He had clearly defined attack vectors and defusing of hot button issues with a friendly interviewer, and most importantly…

Storytelling. 

Harris has played ‘conservatively’ while her polling was previously ahead (eg, recorded Al Smith videos, CNN interview, taking both sides on issues, etc)

That strategy has backfired

The main edge for Harris here is :

1. ground game 

2. more campaign dollars 

3. MI / PA Governors campaigning 

Overall, however, that Rogan interview was priceless and a victory for the Trump campaign

This might be the first (or second) election determined by social media

they were talking about MMA, JFK, Aliens, and Trump did a Macron french accent impression

People love that relatable Page 6 content

The Russia / Ukraine answer was both vague and yet plausible

At this point, Trump needs to adopt the Harris strategy and play it safe. Ride on momentum. 

Harris needs to ‘create events’ and show Play Action. 

But their campaign is anything but aggressive. 

You can write the post-mortem already.

At this point, Trump needs to adopt the Harris strategy and play it safe. Ride on momentum. 

Harris needs to ‘create events’ and show Play Action. 

But their campaign is anything but aggressive. 

You can write the post-mortem already.

The Obama - Eminem show was a nice move

But, the opening act is not supposed to outshine the main event

Obama is a politician at a different caliber (and he was vetted thru a primary process that did not take place to great detriment for the DNC)

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