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

• Macro: Trump Launches $5 Bn Memecoin, Tariffs, Trade Deficit and Quantum Mechanics, Tax Policy

• Market: Shifting Consumer Behavior, Market Conditions, Inflation Is Getting Better, Mean Reversion, Lumida Longevity Stock, Nvidia will be a robotics company

• AI: AI & S1 IPO prospectus, MSFT and AI adoption

At this Friday’s Crypto Ball conference in DC, Ram had the chance to meet with a couple members of the incoming cabinet: 

Scott Bessent, Treasury Secretary, and Howard Lutnick, CEO of Cantor Fitzgerald. 

Here’s a thread on the Crypto Ball and Trump’s meme coin which has a market cap of nearly $5 Bn. Trump may own up to 80% of it making his family the wealthiest Presidential family in history.

Hindenburg Research

Nathan Anderson, founder of Hindenberg, is disbanding the firm.

He did great work. We’ll miss him.

Some years after the 2008 financial crisis, I met Nathan when we were both due diligencing hedge funds and alternative investments.

He was the best person in the field and incredibly right.

The markets will miss his contributions.

What A Week

From markets to the crypto ball – it’s been really quite incredible.

This past Monday, markets opened up gap down on selling pressure from last week.

We discussed gapping markets last week and noted that “combined with the start of earnings season, the worst of the [ selling pressure ] may be behind us.”

We also noted that should we get a Monday morning gap down, it would be buyable:

Sure enough, markets gaps down and we were aggressively buying.t

We also had the start of Earnings Season with the banks this past Wednesday. On Sunday, we noted:

And on twitter, the night before CPI print, we noted that CPI could be cooler than expected. As we noted last Sunday:

It is kind of amazing how markets went from hot and two standard deviations over extended just two weeks ago at the conclusion of the CES conference.

Then one week later markets are convulsing.

As we’ve noted many times now, market are hyper-accelerated. 

Moves that normally get done in weeks get done in a single day.

A large reason for this is the dramatic rise of options trading including zero-day options, twitter trading, copy cat trading, and social media.

It run both ways.

The week before last Twitter stocks were correcting significantly - down double digit percentage points.

This week they rallied.

Fortunately, we have created analytics to study these movements and dynamics and share these observations with you here.

When we look at a stock now, we are considering the social media implications on the name.

That’s not what they teach you in the CFA curriculum.

Social media has transformed investing. 

Investing was always social. Investment clubs and ideas traded with friends are all a part of that.

Ever since the rise of Wall Street Bets and Gamestop in 2021, however, it’s become a force of its own.

And, the average Twitter stock has outperformed the S&P and hedge fund. (Note: That was not the case from Q1 thru Q3 of 2024 – so you have to approach this with care and skill – like our Animal Spirits indicator we shared in recent weeks.)

If you’d like to explore a relationship with Lumida, please shoot a note to [email protected]

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

Send Marc an email if you’d like to explore what Lumida can offer around tax mitigation or holistic wealth management ([email protected])

The Most Valuable Asset Is Your Attention

A key example in point of all this is Trump’s meme coin: $TRUMP

Let’s try to make sense of TRUMP coin.

Is it Gold? No.

Bitcoin? No.

Land? No.

The most valuable asset in the world is your attention

Your lived experience is nothing but your accumulated attention decisions.

A memecoin is a symbol. 

That symboil has an identifier, and it trades in an attention market.

All markets are attention markets.

Investing was always social.

The difference between a memecoin market and traditional markets is the primary driver of value for a memecoin is attention and community.

Not free cashlow.

If attention is fleeting, then so is its value..

Meme coins are a type of community and values-based marketing.

Nike built an extraordinary brand by linking the iconic Nike swoosh to values of heroic athleticism.

People want to identify with that imagery of herculean excellence.

People buy Nike shoes and link their identity to the value statement of the Nike brand.

So, it is with memecoins.

Nike is a Tribe. Trump is a Tribe.

The memecoin is a bet on the attention market around Trump.

The primary underwrite for all memecoins is the durability of the attention, which is always cylical, and the community around the coin.

The first time the Trump family launched a coin: World Liberty Financial WLFI - it was a flop.

The coin did not have bottoms up community participation.

This time, the team executing this meme coin launch learned and executed well:

 Bitcoin 

1. They linked the coin to the 'Fight, Fight, Fight' moment. That moment may have been the most culturally memorable symbol in 2024

2. At the crypto ball, there was a photo booth with a statue of Trump with the 'Fight, Fight, Fight' pose

You had a trifeca of this cultural memory, and a real world statue at the event, and a meme coin to match.

3. The coin drop took place on the day of the Crypto ball. The crypto ball is arguably the center of the crypto community. 

All the right people were buzzing about it in real time.

The Trump team had a launch that came from the inside of the community rather than a hope and pray type launch as in the case of WFL.

Trump is a Master of Weilding Attention

By launching a memecoin, Trump is monetizing his attention machine.

The Trump family now apparently has most of their net worth in the form of cryptocurrencies as compared to any other asset class

We are on a new timeline.

(Note: Be an adult and own the outcome of your decisions, good or bad. I'm not endorsing any coins, just giving a way to think about memecoins.)

The Real Winner… Solana?

Multicoin is getting an incredible return on backing Trump.

The TRUMP memecoin is accessible only on the Solana platform.

At the crypto ball, you had predominately bitcoin wealthy investors. Most did not have Solana.

Now this population needs to download a Solana wallet.

My sense is we will get a proliferation of meme coins in the coming weeks and move towards a parabolic intermediate top.

It’s similar to the IPO market. When there’s too much low quality issuance, buyers get burned after the initial enthusiasm, and then assets sell off.

Buyers hate the asset. And the cycle continues anew.

The same dynamic in stocks happens in the crypto market.

So, enjoy the ride but if you own TRUMP consider placing trailing stops or taking your initial principal out.

The token is now worth $50 Bn+ — more than Coinbase and FedEx.

If you’re not involved, best to just watch from the sidelines now.

I would recommend looking at my X posts this weekend as this evolved in real-time.

Tariffs: A Framing Problem

The United States is overwhelmingly the economic dominant player. 

You could say it is ‘unbalanced’ relative to the world. 

Mag 7 are cash machines. 

You could say they are ‘unbalanced’ relative to 493

Le Bron James is a ridiculous athlete. 

You could say he is ‘unbalanced’

Does any of that need ‘balancing’ like Harrison Bergeron?

Same story with the trade deficit. 

The American economy’s return on capital is so high, foreign investors give us stiff today (merchandise) in exchange for promises in the future. 

Those promises are called bonds. 

The ‘unbalanced’ trade deficit is identical to American economic exceptionalism.

The trade deficit reflects the demand for capital assets. 

We have a matching and perfectly offsetting ‘capital account surplus’ 

No one wants to balance that. 

Softbank investing $100 Bn is part of the capital account surplus. 

Should that be balanced?

The United States attracts capital because capital is productive here due to rule of law and a culture of entrepreneurship and capital markets. 

The trade deficit is actually scoreboard. 

It measures how much the United States gets today for stuff we may or may not deliver in the future. 

It reflects optimism in the future. 

The higher the scoreboard the better. 

There’s nothing to be ‘balanced’.

Stephen Miran on Tariffs

Stephen Miran is the incoming pick to lead the Council of Economic Advisors.

This week, we’ve curated insights from an interview of Stephen Miran below.

Stephen’s view on tariffs are an untested theory, but you can hear them for yourself.

Secretary Bessent on Tariffs

I’m a fan. 

He could be one of the strongest Treasury Secretaries we have seen in decades. 

Bessent channeled Milton Friedman when he said: 

‘Inflation comes thru increasing the money supply’

Friedman, the father of Monetarism, famously said:

‘Inflation is always and everywhere a monetary phenomenon’. 

Money is the primary factor in setting the Price Level. 

But, it’s not that simple. 

This is coming from a guy that has Free to Choose, and Friedman’s original ‘Price Theory’ book on his bookshelf. 

Evidence:

1) 2008: Fed pumped money supply. 

Goods inflation was absent for decade plus. 

Boost in money supply did nothing for inflation. 

Liquidity traps are real. 

2) Supply chain shocks did contribute to inflation

…addition to QE infinity and in $3 Tn in stimulus

3) Friedman: 

‘The case for free trade is overwhelming. It is based on the fundamental principle of freedom and on the enormous economic gains it brings.”

— Milton Friedman, Free to Choose (1980)

Very simply — if your labor costs or cost of goods sold go up, then your production costs go up. 

Anyone furniture dealer, homebuilder or auto dealer knows this. 

It’s called ‘cost push’ inflation. 

Washing machines from China went up 12% during the 2016 trade war (for instance)

Bessent is making a more abstract point :

The overall price level is a function of money supply; tariffs impact relative prices

That’s true. 

• MV = PQ

• M = Money

• V = Velocity

• P = Price Level

• Q = Quantity

Still… it’s super wonky. 

It’s not much solace if you are an importer who is paying higher costs. 

Tariffs make the importer relatively poorer. 

Now, there is a new 3D chess argument that Steve Miran floated on Forward Guidance. 

Miran is saying the USD can go up at the same time and push the cost to the tariff(ed) country. 

That’s an interesting theory. 

It’s just a theory though and there’s whole lot of word salad involved in explaining that theory. 

The USD shot up in 2022 due to rate hikes. 

That was the dominant factor - not tariffs. 

And Miran’s theory is NOT the same theory Bessent is saying. 

tl;dr left curve meets right curve. 

To paraphrase Friedman:

Adding a tax on imports anywhere and everywhere makes it more expensive

Common sense. Occam’s razor. 

No mental gymnastics required. 

Bessent knows this. 

He put on a nice show.

Trade Deficit and Quantum Mechanics

Here’s the thing… if foreign investors want US assets like Mag 7 stock (and they do) and Americans don’t want to own China stocks then there will be a Capital Account Surplus.

That implies a current account deficit.

That’s just math. It’s an accounting identity.

Current Account + Capital Account = 0

Re-arranging terms you get,

Current Account (Deficit) = Capital Account (Surplus

It’s that simple.

The trade deficit was never a problem and still isn’t.

The simplest way to understand this equation.

All trade imports are financed with matching exports OR the sale of bonds and stocks.

If you make no distinction between trade in capital (eg, stocks and bonds) and goods — then the net deficit (capital account + trade account) is zero!

It is the composition of trade that always sums up to 100%.

So long as the United States remains an attractive place to invest, there will always be a trade deficit.

Foreign investors are willing to give American stuff (e.g., merchandise) today, in exchange for IOUs or promises (e.g., bonds in the future).

Copy this into GPT if you want lo learn more:

‘Explain to me the the balance of payments and how a trade deficit implies the United States has attractive investment opportunities that foreigners want to invest in. Explain how the trade deficit finance investments in the United States.’

Tax Policy

Bessent is considering making car payments tax deductible.

This would soften the blow from tariffs and help names like GM and Tesla.

As we noted last week, a rational and fully consistent tariff policy is hard.

If you squeeze in one area, you have an issue in another area.

So, if you place tariffs on Mexico, consumers pay more for autos. So now consumers need a tax deduction.

By our count, this is iteration #3 of the tariff plan.

Shifting Consumer Behavior

What do you see below?

Do you remember when the CEO of Louis Vuitton blamed the global vibecession as a reason for disappointing alcohol sales?

The reality is preferences are shifting.

Consumers value experience and travel over goods and services.

However, there is pent up demand for building – held back by high mortgage rates.

Market Conditions

The recent volatility is a preview of more to come in 2025.

However, until we see signs of negative earnings growth we believe one should remain invested.

The fact is Animal Spirits are taking hold - greater small business and consumer and corporate - confidence and we’re going to see continued economic expansion.

The left-tail risk to keep an eye on is inflation.

Inflation Is Getting Better

The inflation data this week was favorable.

Jeremy Schwartz, CIO of WisdomTree, had this analysis:

Plugging in more real time data on shelter, headline inflation improves from 2.9% to 1.8%

Core inflation improves from 3.2% to 1.9%

Alt Inflation metrics off their lows but still below Fed's 2% target!

Mean Reversion

The dominant theme in markets this past month is mean reversion.

Mean reversion is when laggards rally, and momentum winners pullback.

These two charts show why certain categories in technology (e.g., SaaS and Tesla) are massively overbought, and why healthcare stocks are cheap.

AI & S1 IPO prospectus

Goldman Sachs CEO David Solomon says that AI can draft 95% of an S1 IPO prospectus “in minutes” (a job that used to require a 6-person team multiple weeks).

“The last 5% now matters because the rest is now a commodity,” per Solomon.

Lumida Longevity Stock

Sleep Apnea Leader: ResMed (RMD)

Goldman Sachs decided to slap a BUY rating on one our healthcare stocks ResMed today

(The number of times this GS follows in our wake is uncanny) 

Secular Trend: Check

Dominant Market leader: Check

Trend: Check

Valuation: Check

Earnings Growth: Check

Nvidia will be a robotics company

AI

MSFT and AI adoption

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