Ducktaped Banana For $6.2 Million

Good Afternoon. It's been another positive week for the markets. Companies reported good earnings, Bitcoin is approaching the critical milestone of $100k, and a duck-taped banana was sold in an auction in New York for $6.2 million. CNBC reported, “Whoever bought this banana for $120k five years ago flipped it for $5 million. That return is more than 25 times better than the S&P over the same period and twice as good as Nvidia. Anyone who thought the buyer of that banana was foolish—it turns out the joke is on us.”

Bitcoin: The week's highlight was that Bitcoin is approaching ~$100k. Multiple factors now make it clear that Bitcoin is an established asset class. It will remain volatile, but it's here to stay. The key turning point was the SEC approval of crypto ETFs, which made investing in Bitcoin easy and brought it to the mainstream. The other key factor differentiating Bitcoin from other crypto coins is that Bitcoin is considered digital gold. Most other crypto coins, such as Ethereum or Solana, are smart contracts and can facilitate transactions, but Bitcoin is unique. There are many options in smart contract coins, with Ethereum being the most popular. However, there are no alternatives to Bitcoin. Bitcoin has a fixed supply of 21 million coins, so we all know what a fixed supply and increasing demand will do to the price of Bitcoin. In addition, mining new Bitcoins keeps getting difficult over time with the regular halving schedule. All this makes Bitcoin a permanent asset class. It will surely be risky and volatile, but it's here to stay. Below is the chart that shows key events in the Bitcoin adoption:

Source: Bloomberg

Walmart: Another highlight was Walmart and Target’s earnings, which showed the stark difference between the two retailers and how Walmart is best positioned to take on Amazon. Walmart’s e-commerce is growing at ~20%+ rate and is expected to continue this path. Walmart is taking share from other retailers in this space, such as Target, thanks to its Walmart+ service, which is similar to Amazon Prime. Since I got Walmart+ for free via my Amex platinum card, I started shopping more from Walmart, especially for items I need with same-day delivery. With a vast network of Walmart stores all over the US, you will likely get your product delivered quicker with Walmart than with Amazon. I still do most of my online shopping from Amazon, but I have been using Walmart a lot more in the last two years and have not solely depended on Amazon. Over the next few years, there will be more consolidation in the grocery and retail space around Amazon and Walmart, with smaller players finding it hard to compete.

Nvidia: Nvidia reported stellar earnings on Wednesday as expected, but guidance was lighter than the street expectations. Nvidia is so powerful that the markets were down on Tuesday due to Ukraine/Russia war news; however, by afternoon, markets turned positive, primarily attributed to the expected Nvidia earnings the next day.
Nvidia's revenue surged 94% year-over-year in the quarter ending Oct. 27, marking continued strong growth. However, this reflects a sequential deceleration from the prior three quarters, which saw increases of 122%, 262%, and 265%, respectively.

Source: Reuters

The fourth quarter forecast implies 70% YoY growth, which appears slower than the growth rates reported by the company in recent years. We are talking about a company with a $3 trillion valuation growing at a 70% rate.

Department Of Government Efficiency:

The Department of Government Efficiency already has 2M+ followers on X, and it posts serious content and raises the right issues. It will be interesting to see if it really drives meaningful changes in the way the US government functions.

For the week:

• The S&P 500 is up 1.68%, the Nasdaq is up 1.73%, and the Dow 30 is up 1.96%.

  

  Source: Barchart

CNN's Fear & Greed Index now stands at 61 (Greed) out of 100, up 2 points from last week. Details here

The top five trending stocks on Reddit are Microstrategy, Nvidia, SPY, Archer Aviation, and Tesla. Full List

Here is a summary of this week’s key economic releases:

Flash US PMI® data for November signaled the strongest business activity growth in 31 months, driven by surging demand and improved confidence. Expectations for future output reached their highest since May 2022, supported by prospects of lower rates, stronger growth, and pro-business policies anticipated in 2025.

Source: S&P

Target Rate Probabilities for Dec 18th FOMC Meeting:

CME FedWatch - as of 23 Nov 2024 07:23:42 CT

$6.2 Million Banana: Crypto investor Justin Sun has made headlines by purchasing “Comedian,” the duct-taped banana by Italian artist Maurizio Cattelan, for $6.2 million at a Sotheby’s auction. The winning bid, paid in cryptocurrency after a competitive bidding war with six others, underscores the intersection of viral art and the soaring values in the crypto space. Read

Next U.S. Treasury Secretary: President-elect Donald Trump has announced his intention to nominate Scott Bessent, head of the macro hedge fund Key Square Group, as the next U.S. Treasury Secretary. Read

Reuters Poll: The U.S. Federal Reserve is set to lower interest rates next month, but economists surveyed by Reuters now anticipate smaller rate cuts in 2025 than previously expected. This adjustment reflects concerns over potential inflationary pressures stemming from President-elect Donald Trump's proposed policies. Read

According to the Federal Reserve's latest survey, the U.S. government's growing debt burden has emerged as the top risk to financial stability, surpassing concerns over persistent inflation. The Fed's semi-annual financial stability report highlighted that "concerns surrounding U.S. fiscal debt sustainability" now lead the list of risks, followed by rising geopolitical tensions in the Middle East and uncertainty over domestic policy. Read

Richmond Fed President on Inflation: According to Richmond Fed President Tom Barkin in a recent Financial Times interview, the U.S. economy is increasingly susceptible to inflationary shocks compared to earlier periods. While Barkin anticipates inflation to decline further, he highlighted a growing trend of businesses more readily passing cost increases onto consumers. Read

NY Fed President on Inflation: John Williams, President of the Federal Reserve Bank of New York, expressed optimism about inflation easing and interest rates declining further in an interview with Barron's on Thursday. Read

US Mortgage Rate approaching 7%: U.S. mortgage rates climbed to a four-month high this week, potentially dampening housing market activity as elevated rates combine with rising home prices. Freddie Mac reported the average 30-year fixed-rate mortgage increased to 6.84%, up from 6.785% last week and approaching its July peak, though still below last year’s 7.29% average for the same period.

Amazon’s AI Investment: Amazon announced on Friday that it will invest an additional $4 billion in Anthropic, an AI startup founded by former OpenAI research executives. Read

Lowes Beat: Lowe's Cos (LOW.N) projected a smaller-than-expected decline in annual comparable sales, citing an anticipated boost in current-quarter sales from hurricane-driven demand despite ongoing pressure on big-ticket spending. The retailer also exceeded third-quarter estimates for comparable sales and profit, mirroring the strong performance reported by larger competitor Home Depot (HD.N) last week. Read

Walmart Beat: Walmart raised its full-year forecast, citing stronger sales of discretionary merchandise, increased home deliveries, and an early start to holiday shopping. The retailer now projects net sales growth of 4.8% to 5.1%, up from its previous estimate of 3.75% to 4.75%. The improved outlook follows third-quarter earnings and revenue that exceeded market expectations. Read

Target Miss: Target fell short of Wall Street's quarterly earnings and revenue expectations on Wednesday, with customer traffic showing only a modest increase. This underwhelming performance comes despite widespread price cuts and an early holiday sale aimed at driving demand. Read

Nvidia Beat: Nvidia's third-quarter earnings exceeded expectations for both sales and profits. Revenue surged 94% year-over-year for the quarter ending October 27, driven by robust demand. Key customers, including Microsoft, Oracle, and OpenAI, have begun receiving Nvidia's next-generation AI chip, Blackwell. Read

Palo Alto Networks Beat: Palo Alto Networks exceeded Wall Street expectations for first-quarter revenue and profit, driven by robust demand for its cybersecurity services amid increasing digital threats. The company announced a two-for-one stock split, with trading on a split-adjusted basis set to begin on December 16.

Deer Beat: The company delivered stronger-than-expected quarterly earnings, but its forward guidance highlights ongoing challenges for the farm equipment manufacturer. Read

Snowflake Beat: Snowflake exceeded expectations on both revenue and earnings report. The company projected $3.43 billion in product revenue for fiscal 2025, reflecting a robust 29% year-over-year growth. Read

Why Renting A Home Better Than Buying:
Owning a home typically costs around 14% more than renting once expenses like insurance, taxes, and maintenance are accounted for. However, a recent Yahoo Finance report highlights a striking shift—buying a home now costs 42% more than renting. Read

Source: Yahoo Finance, John Burns Research

I am certain that renting is always better financially than buying. However, home ownership is an emotional decision; for many, the financial sense is a secondary consideration. Buying a home is a personal decision; only the individual making that decision knows what is best for him. I would just say that anyone buying a home should know the financial aspects of the decision and not just follow the widespread belief that paying rent to someone is wasting money. Numbers definitely do not support this argument. Please check my detailed blog, “Why Renting a Home Might Be Smarter Than Buying,” for a detailed analysis.

Cash On The Sidelines Expected To Flow In Bonds, Not Stocks:

Between March 2022 and September 2024, the Fed's interest rate hikes drove a $2 trillion increase in money market account balances as investors capitalized on attractive yields. As per Apollo, with the Fed cutting rates, this capital is expected to flow into higher-yielding opportunities, such as investment-grade private credit, as investors adjust portfolios to maintain competitive returns in a lower-rate environment.

Source: Apollo

The RBA advisor’s detailed analysis this week provides valuable insights. Below are the two most essential graphics.

The graph above shows that the household stock holding grew more than the cash portion. However, the stock holding growth seems modest considering the stock market valuation growth. This tells me that this household cash is more defensive in nature and will not go into stocks. The graph below highlights this even more. The household stock allocation is at a historic high. Hence, in high likelihood, the cash on the sidelines has more chances to move into high-yielding bonds if the yields remain decent due to a higher neural rate (r*) in the coming years. Read

This makes earnings growth even more crucial for the equity market’s growth in the coming years.

Importance Of Dollar Cost Averaging:
The Bloomberg chart below highlights that it’s tough to time the market, with S&P 500 returns varying from 0% to 400% over 10 years.

Bloomberg

I think the market is in balance and can go either way. Hence, if you remain on the sidelines, waiting to time the market, you may never have the opportunity to enter it. At the same time, if one invests a sum at once at this valuation, one risks facing the low return predicament mentioned in the above chart. Hence, dollar cost averaging over the long term is the best passive way to remain invested in the market.

Source: Primal Thesis Newsletter

Source: Financial Times

Risks Facing Global Economy:

Recently, Austin Carstens (General Manager, Bank for International Settlements) gave a speech about risks facing the global economy. Below are the four key risks he highlighted -

1. Inflationary backdrop since the COVID-19 shock” Inflation has come down recently in the developed world. However, some emerging markets are still facing significant challenges in controlling inflation. Higher policy rates may be needed to control inflation in the future. Hence, asset managers and financial institutions must be ready to deal with consistently higher real rates in the long term.

2. Challenges posted by asymmetric fiscal policy: The public debt is at an all-time high, but the financial markets are resilient. One reason may be that markets expect fiscal consolidation to occur in the future. Market perceptions of risk can shift gradually but often reprice abruptly, triggering financial instability and, in emerging markets, reigniting inflation via currency depreciation.

   

3. Low productivity: Persistent stagnation and slow productivity growth could make it harder to curb inflation and erode confidence in the ability to curb public debt. The US is a notable exception, with robust productivity growth.

4. Market Volatility: Events such as banking stress in March 2023 and the yen carry trade unwinding this year reflect the vulnerabilities built up in the systems due to the decade-long easy monetary policy. Financial markets appear increasingly "hypersensitive" to macroeconomic news, particularly employment data, amplifying the sharpness of market reactions. Read