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

• Macro: The US Economy Shows Resilience

• Markets: How Is September For Markets?; NVIDIA’s Earnings Reaction Wasn’t Like-NVIDIA; Alibaba- Filling the NVIDIA Void; Small Caps In Action

• Digital Assets: FIS Bets Big on Stablecoins

• Lumida Curations: China’s Fascinating AI Strategy; Fed Independence Under Scrutiny; Summers Warns of Inflation Risks

Recognition

Lumida: Quarterly 13F Hedge Fund Analysis Review

We’re pleased to share Lumida’s latest Quarterly 13F Hedge Fund Analysis. Discover which stocks top fund managers are buying. Click here to access it.

Fractional Reserve Banking Is Human Nature

In a world where fractional reserve banking and rehypothecation does not exist, what are banks?

There would be no interest-bearing demand deposits.

Banks would safe-guard assets (custody) and there would be no money creation and no multiplier effect. 

Banks would not earn a net interest margin since collateral is not used for lending.

The money supply would equal the base money issued by a central authority (assuming fiat was the monetary regime as opposed to a commodity money). 

What would banks be?

Banks would be asset managers.

Even today, banks are in the asset management business matching assets and liabilities whether they realize it or not. 

What would happen in this world?

An entrepreneur would say to a depositor; ‘Let me lend out your deposit. I’ll pay you a portion of interest.’

Some depositors say “Yes”. 

Then after a critical mass this entrepreneur, let’s call him Bernie or maybe Madoff says: 

‘What if I let you lend your money, but still give you the option to withdraw it at any time?

Most people won’t all withdraw at once. I can keep a fraction in reserve for redemptions and lend the rest. 

You’ll get interest AND liquidity.’

Soon, other banks copy the model. 

What emerges, without coercion and without decree, is the very thing the system originally forbade—fractional reserve banking.

Then a Federal Reserve type entity appears as a lender of last resort. 

In other words, even in a world where banks were meant to be pure custodians and asset managers, human ingenuity—and the desire for both safety and return—pulls the system back toward money creation.

The end state rhymes with history: fractional reserve banking is not an imposition, but an emergent property of human preference & voluntary exchange.

Is Your Wealth Working as Hard as You Are?

Managing wealth as a high-net-worth individual or entrepreneur can feel like a relentless task.

According to Capgemini’s 2024 World Wealth Report, 65% of HNWIs struggle with a lack of personalized advice, missing opportunities to grow their wealth effectively. 

Tax inefficiencies pose another threat, with up to 40% of estate value at risk due to federal tax changes looming in 2026. 

You’ve worked hard to build your wealth; now it’s time to make it work for you, so you can ease off the pressure.

What’s the Solution?

Lumida’s Investment Management & Advisory services simplify wealth management with a personalized, endowment-style approach. 

We integrate digital assets, yield strategies, and tax-efficient planning to optimize returns, minimize risks, and align your wealth with long-term goals.

Ready to streamline your wealth strategy? 

Drop Marc an email to explore what Lumida can offer around tax mitigation or holistic wealth management ([email protected]). Or, you can also book a call with us here.

This is how Marc looks like in a Tuxedo. Ex-UBS, Fidelity, Messari - A+.

Macro

To Cut or Not to Cut, that Is the Question

The correct answer is ‘No’. We have tax-cuts coming, strong earnings growth, a capex boom, and a productivity boom, and a services economy boom.

The lower pace of NFP growth is driven by slowing demand and supply of labor. That structural feature is not addressed by rate cuts - it is addressed by policy.

However, what the Fed ought to do vs what the Fed will do is different.

The Fed decision will turn on the September NFP report which is issued this Friday.

We expect the Fed will guide towards another series of adjustment cuts - rather than a full on rate easing cycle.

This dynamic will continue to reward small cap value at the expense of categories (including large cap tech). Small cap value is transitioning from hated and non-consensus after three years of non-performance into a momentum asset now.

Look at what’s worked over the last 3 months, or even this Friday.

Rate cuts bolster small caps by reducing the heavy interest expense burdens that these thinly capitalized companies face. Add to that tax cuts, and you have a recipe for animal spirits to take hold here.

Indeed, over the last two months, we’ve seen animal spirits rotate from crypto, to crypto equities, to equities more generally, and now small caps more specifically.

The duelling ads between American Eagle and other brands adds more attention here.

We continue to own Better Mortgage, American Eagle, airline stocks, Norwegian Cruise Lines and plenty of other names in the small cap space.

Note: The Blackout period for buybacks begins soon. This will reduce the bid for large cap equities over the next 45 days give or take.

The US Economy Shows Resilience

This week’s data releases confirms our thesis: the US economy is stable and growing. 

• Q2 GDP climbed to 3.3% SAAR from 3.0%, reversing a -0.5% contraction from last quarter. 

• Real GDI increased by 4.8%. 

• Consumer spending increased by 0.5%- the highest in 4 months.

• Jobless claims dipped to 229K, confirming low layoffs.

PCE met forecasts, clocking in at 2.9% YoY for July, right in line with expectations. Headline inflation eased to 2.6%. 

In our last newsletter, we mentioned how markets were over reacting to inflation expectations; the data now confirms it.

This resilience shines throughout the economy; consumers keep spending, corporations hoard cash, all while the expectations for Fed cuts increase.

US companies now have $4 Trillion in cash flows - an all time high. The Cash flow is being used to boost capex, especially in technology.

On the inflation front, regional Fed surveys from five districts show prices-paid indices jumping to 56.0 in August, the highest since October 2022.

Nonetheless, the prices-received is a dip from previous months. People have inflation angst, but the data is improving.

Firms were able to reduce price hikes due to tariff by focusing on their productivity gains.

The Tariff pass-through increases have been gradual. Further, tariffs are priced in - just take a look at the stock of GM for example.

We might see the full impact of tariffs coming in Q4 or Q1’26 - markets are looking past that.

Market

In our last newsletter, we mentioned how markets generally cooled off following the Jackson hole. We expected the same for this week, and it turned out to be accurate.

S&P 500 closed this week at 6,460 almost exactly where it was last week (6,464). Russell 1000 also reacted similarly with a negligible change of 0.06% in the last 5 days.

How Is September For Markets?

We are going with a 4th straight SPY monthly gain into September.

The market wobbled on Friday, led by Tech, driven by the post-celebratory hangover after Nvidia’s earnings. Markets need to look forward to something - and there’s not much to look forward to except the end of summer holidays.

But, what to expect ahead?

September holds a historical reputation as the S&P 500's weakest month, with an average return of -0.7% over the past 75 years and positive performance in only 44% of instances since 1950. 

When the index closes lower, the average loss stands at -3.8%, contrasted by an average gain of 3.2% during upward months. 

Over the last five years, the index has posted a positive September in just one instance, averaging a 1.4% decline. 

However, current market trends provide critical context.

With the S&P 500 closing at 6,460 on Friday, above its 200-day moving average, historical data shifts favorably delivering an average return of +1.3% and a 60% probability of positive results.

Plus, the uptick in GDP growth and improving consumer confidence gives us a reason to be bullish.

We believe the resolution is primarily in positioning.

NVIDIA’s Earnings Reaction Wasn’t Like-NVIDIA

Since ChatGPT’s November 2022 launch, NVDA averaged an 8.5% earnings reaction, with peaks like +25% in May 2023. 

NVIDIA’s earnings response this week wasn’t as dramatic.

Shares dropped 4% post-Q2 FY2026 release, stabilizing to a 0.2% loss by Thursday’s close. 

Results showed $46.74B revenue, up 56% YoY, beating consensus at $45.9B. The EPS increased by 61% YoY to 1.08. 

The stock declined as a result of reduced guidance, where NVIDIA is expecting Q3 revenue at $54B, 50%+ growth. 

Jensen Huang noted: “The amount of computation necessary for reasoning agentic AI models could be a hundred times, a thousand times, and potentially even more.” “The demand is really, really high”. 

Colette Kress: “We see $3 to $4 trillion in AI infrastructure spend by the end of the decade.

Jensen Huang also suggested increased CAPEX from NVIDIA to keep up in the AI race. He also expects the competitors to follow suit. 

“As the AI revolution went into full steam, as the AI race is now on, the CapEx spend has doubled to $600 Bn per year. There's five years between now and the end of the decade, and six hundred billion dollars only represents the top four hyperscalers.”

We are holding NVIDIA, and our bets are in AI.

However, we acknowledge large cap tech can take a breather here after a meteoric rally.

Nvidia and other big tech names have a make or break this week - they need to bounce soon (and think they will tactically). By year-end, Nvidia should be higher as well. There does appear to be some distribution at play over the next couple weeks however.

Alibaba: Filling the NVIDIA Void

The real threat we see for NVIDIA in China is Alibaba; it recently announced the launch of its latest chips that are more versatile than anything the manufacturer produced earlier.

It aims to fill in for NVIDIA’s Chinese market share. However, it isn’t the only company trying. 

MetaX, a Shanghai based manufacturer, also claimed to have created a chip to rival NVIDIA’s H20. Similarly, Cambricon Technologies with its AI-chip Siyuan 590 is also in the race.

Alibaba expects its revenue to increase 26%, owing to AI & cloud demand. Their chipsets have seen increasing share in the Chinese market. 

WSJ expects 55% of chips used in China will be manufactured in China by 2027, compared to 42% currently.

The Chinese government is backing Chinese chip manufacturers, and AI developers to use home-grown technology in their race against the US.

We bought Alibaba in our passive accounts this week. We like the macro backdrop. 

The AI race is now global. 

Small Caps In Action

S&P 500 corporate earnings are broadening across the board. 

The share of S&P 500 companies reporting upward revisions in forward revenues and earnings over the past three months has risen notably in recent weeks. 

This points to a promising outlook for the S&P 493.

We have been bullish on small and mid caps- 80% of our portfolio represents them.

We wrote about them a few weeks back. You can read it here.

Digital Assets

FIS Bets Big on Stablecoins

FIS, the $14B FinTech serving 10K clients, is integrating Circle's USDC into its Money Movement Hub as a seamless real-time rail. 

Himal Makwana, Global Head-FIS: “We help where money is in motion. We help when money is at rest, and we help when money is at work.” 

“Stablecoin is a method and a vehicle to transfer between A and B, whether it’s consumer-to-business, business-to-business or person-to-person—quicker, faster, more programmable.” 

Makwana remarks that adding stable coins was a “natural decision”. Circle, along with other partners, will be owning compliance, custody, and wallets.

However, Himal highlights some challenges; 95% of stablecoin activity ties to crypto trading, with gas fees and legacy TMS integration eroding economics. 

“You’ve got gas fees, regulatory compliance, monitoring fees … All of these add up.” 

But, he is optimistic that the network effects could ignite adoption: “If I have it, I’m going to send it. If I can receive it, I’m able to send … It’s going to create the supply and demand effect at scale.” 

Looking ahead, tokenized deposits loom as the game-changer: “This is the next biggest thing to solve for our customers,” with FIS exploring via RFPs and industry talks, stressing risk reduction and interoperability. 

We have been writing about Stablecoins, and their potential to disrupt payment gateways with their seamless, 24/7, real-time transfer ability. 

Here’s the link to our podcast with Ben Foreman, where we discuss why stablecoins are a big deal, their impact on credit intermediation, and how they disrupt the existing gateways. Subscribe our channel here to listen industry experts speak on your favorite topics.

Lumida Curations

China’s Fascinating AI Strategy

China's five-year plans guide AI development strategically, outpacing global competitors while fostering innovation and economic growth.

Fed Independence Under Scrutiny

Scott Bessent argues the Federal Reserve's independence is at risk due to a drift from its core monetary policy mission since 2008, urging a return to its original focus.

Summers Warns of Inflation Risks

Lawrence Summers cautions that politicized monetary policy raises inflation expectations, potentially leading to economic hardship if not managed without excessive money printing.

Meme

Stay tuned, stay informed, and as always, stay ahead.

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