Investment Bets, Rate Cut Dilemmas, AI's Race for Dominance

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

• Macro: FED Rate Cuts

• Markets: Cycle Highs, Meltup, Meltdown, Mayhem

• Company Earnings: Consumer Staples were resilient; Consumer Discretionary saw strong demand.

• AI: LLM Giants: The Final Five

This week, we had a great conversation with Bob Elliot after the FED rate cut.

Bob is the Co-Founder, CEO & Chief Investment Officer at Unlimited. 

He has built hedge fund strategies for more than two decades. Previously at Bridgewater Associates.

He was a member of the Investment Committee and developed strategies across asset classes. 

He also authored hundreds of Bridgewater’s widely read Daily Observations.

Click here to watch & don’t forget to subscribe to Lumida Non-Consensus Investing.

Apple | Spotify

Timestamps:

• 00:00 Introduction and Guest Background

• 02:07 Discussion on Fed's Rate Cuts

• 09:34 Economic Indicators and Market Reactions

• 18:02 Consumer Spending and Credit Analysis

• 26:18 Productivity and Technological Impact

• 38:10 The Fed's Recent Moves and Market Reactions

• 38:39 Economic Data and Rate Cut Speculations

• 39:28 Fed's Policy and Market Implications

• 43:07 Political Dynamics and Fiscal Policy

• 47:26 Asset Prices and Market Projections

• 50:26 Digital Assets and Market Trends

• 51:42 Growth vs. Value Stocks

• 55:30 Investor Sentiment and Market Strategies

• 01:08:40 Concluding Thoughts and Future Outlook

  MR MARKET HAS A FULL BELLY

Macro Update

The Fed cut 50 bps - an extraordinary move considering the economy is doing well.

Retail sales, industrial production, and even manufacturing beat expectations.

I would expect that by year-end we see a 6 handle on the S&P 500. 

Expensive valuations should get even more expensive, and we should get an IPO market next year. 

We probably have seen the low in the 10-year which has started to move as Mr. Market expects more nominal growth.

There’s no doubt that the Fed’s action is long-term inflationary since corporate earnings, and employment, and other real economic variables are strong.

Here’s data showing how the market reacts after the first rate cut.

The basic takeaway: If the Fed cuts and there is no recession (our base case), then markets like the cuts.

Note: We don’t expect markets to move in a straight line. Consider that in July 2019, the beginning of the last set of adjustment cuts, markets did sell-off. That happened again in September.

It wasn’t until Q4 that markets started to ramp.

We see something similar playing out today given signs of over-positioning we see in the markets, and horrid negative seasonality last thru month-end.

We believe having some extra cash set aside is a good idea to pick up assets at more favorable prices in October.

Markets

We have cycle highs for the percentage of stocks participating in the bull market. 

Fact: This is not what happens ahead of a bear market or what pending doom looks like. 

WE DON’T NEED RATE CUTS

Take a look at the data today:

• GDP Now revised up to 3% from 2.5%

• Manufacturing beat led by autos

• Retail sales surprised

• Industrial production rose sharply

Mr Market is simply confused and the public is hallucinating again. 

The asset manager industry, by and large, wants rate cuts like a toddler wants the bottle. 

Does the economy really need rate cuts? No.

Well, if the economy is strong and you are cutting rates, you are setup for a q4 meltup which we would expect (wohoo!). 

However, that can be followed by a melt-down when asset prices that are already priced for perfection get bid up higher.. 

Melt ups are ultimately followed by meltdowns. We’ve seen a few of those this year (Semis peaked in July, Digital Assets in Feb or May, etc.)

2022 was a bear market with no recession. 

2022 was the hangover effect. 

Also, we may well face a scenario in 2025 where the Fed has to do another set off adjustment hikes to offset the monetary stimulus here. 

The point is - premature cuts can add to market volatility.

If you are nimble and non-taxable, you can do well in this environment. 

Everyone else, buckle up.

THE ALPHA IS IN THE TRANSCRIPTS

Take a look at what our AI called out regarding Walmart’s earnings. 

Each of these bullets are not generally known to the public. 

Walmart has a CostCo copycat, GLP1 bet, and e-comm + curbside

No wonder the stock has done well

Company Earnings

Consumer Staples

• General Mills (GIS): Earnings and revenue beat. Revenue down 1.0% YoY. Despite a slight revenue decline, earnings beat indicates effective cost management and operational efficiency.

Consumer Discretionary

• Lennar (LEN): Earnings and revenue beat. Revenue up 7.7% YoY. Strong earnings performance reflects robust demand in the housing market and effective execution.

LINK TO SPREADSHEET

AI

What we know by now when it comes to foundation LLMs is what companies are going to be forming the industry:

• MSFT with OpenAI

• GOOGL with Gemini 

• META with Llama 

• Anthropic ( AMZN & GOOGL )

• xAI with Elon

ORCL's CEO said that in the next 3 years you will need to spend $100B just to be in the frontier foundation LLM model race so it is probably game over for all other companies wanting to be foundation LLM providers.

Lumida Curations

In case you missed it, here are some of the best curations from Lumida Wealth on Twitter.

Be sure to follow Lumida Wealth on Twitter, and on Youtube, where you can get more such curations. 

Instead of watching hour-long market podcasts - we distill the key insights in 1 min shorts and serve them in threads.

The goal is to maximize insight per unit of time.

Snippets from our Non-Consensus Episode with Mark Mahaney #1 Tech Analyst

Here are some highlights from our recent Non-Consensus Episode with Michael Weinberg