Melt-Up Rally

“Investor memory has to fail us in order for the extremes to be reached.” ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ March 21, 2024 Melt-Up Rally “One important factor between booms, crashes and bubbles, is that investor memory has to fail us – and fail universally – in order for the extremes to be reached.” – Howard Marks [Special Reminder: In case you missed [our recent announcement]( The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge [here](. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.] Dear [Reader], March 21, 2024 – One feature of a modern “melt-up” rally is a surge in investor optimism leading to speculation, as well as an irrational belief that stock prices will continue to rise indefinitely. From Bloomberg’s The Open this morning: Nvidia, as you are well aware, is the poster child for the speculative mania in AI stocks. The company makes the chips that best perform at speeds necessary to make AI platforms run efficiently. Yesterday, Nvidia – already the subject of bubble talk – announced a new “superchip” that operates at 4x the speed of its previous chip. From the chart Bloomberg provided above, you can see how both AI and Nvidia have captured investor enthusiasm – and dismay – over the past 6 years. On February 23, 2024 Nvidia’s market cap officially topped $2 trillion, becoming only the third public company in U.S. history to do so, behind Apple ($2.1 trillion) and Microsoft ($3.1 trillion). This kind of run up and market cap, as well as the fascination of what AI can do in the future, has caused investor imaginations to go wild. That fever has supplanted discussion of the Fed’s ability to manage rates to a “soft landing” with discussions of the overall market rising. A strong speculative bull market in companies’ share prices tends to raise share prices for all stocks – even outside the “tech sector” in this case.  Today, right now, it’s hard to talk to anybody about the economy, let alone the stock market, without addressing historic new highs in the Dow, S&P 500 and Nasdaq. They’re all benefitting from the current rally. Normal people, without much investing knowledge, and very little bubble awareness, are crowing over gains in their 410(k)s. To which we say, “good on ya!” But beware. CONTINUED BELOW... >>ADVERTISEMENT<< 2024 – The Real Election Year Surprise In 2016, the October Election Surprise was Hillary Clinton’s email scandal… In 2020, the October Election Surprise was the suppression of all the dirty material on Hunter Biden’s “forgotten” laptop… Now, in 2024, we’re forecasting an October Election Surprise that almost no one sees coming — and this time it’ll be way more devastating than anything you’ve seen before. [Click here to learn about 2024’s real October Election Surprise »]( It’s not at all what you think. CONTINUED... While studying for our recent update of the best-seller Financial Reckoning Day (FRD), going all the way back to the Mississippi Scheme and John Law, Gentleman Swindler of his day, we observed these all-season bubble characteristics (offered up by our friend Dr. Marc Faber): The bubble model always involves a “displacement” which leads to extraordinary profit opportunities, overtrading, over-borrowing, speculative excess, swindles and catchpenny phrases, followed by a crisis during which fraud on a massive scale comes to light, then by the closing act during which the outraged public calls for the culprits to be taken to account. In each case, excessive monetary stimulus and the use of credit fuels the flames of irrational speculation and public participation, which in turn involves larger and larger groups of people seeking to become rich without any understanding of the object of speculation. During the early days of the tech bubble in 1999-2000, we were mostly concerned with stocks like Corning, a fiberglass insulation maker for home, which were the recipients of a boost in share price simply by affixing a “.com” to their name, opening a web site of its business and highlighting its investment in fiber optic cable. No fundamentals of the business had changed, but the market didn’t care. Another curious example was Krispy Kreme (DNUT), a maker of sugary donuts. Shares in DNUT traded on the Nasdaq, where most tech companies reside, and went along for the speculative ride while having nothing to do with the tech or information revolution whatsoever.  For our purposes today, we also profiled Cisco (CSCO) a maker of routers, the devices that make networking computers by splicing and shipping packets of information around the, then new, “internet” possible. CSCO was considered a solid “picks and shovel” play for the info savvy, because it provided the hardware for “the new economy” in the same way JCPenney made a fortune selling picks, shovels, blue jeans, and wagons for the Gold Rush of 1849. The same can, and is, being said about Nvidia. It’s a pure “pick and shovel” play for the AI revolution… with a bit of crypto euphoria thrown in for good measure. Here are three reasons for our concern… This chart depicts the share price of Nvidia mapped against that of CSCO which crashed spectacularly in the “.com crash” of 2000—01: One big difference between Nvidia and Cisco is perhaps reason to have more hope that Nvidia’s share price will hold up longer under the strain of speculation. After gaining market share and market cap for its router business, it used operating capital to go on an acquisition spree trying to build downstream uses for its successfully marketed and used routers. The acquisitions led to spectacular, if bizarre, accounting practices to justify the seemingly boundless growth in the business. Once investors figured out what was really going on, the jig was up. And boom… or, bust rather. Nvidia on the other hand has just released its new, faster superchip (as mentioned above) and growth projections are still based on sales of its own product. There’s no fuzzy numbers in the PnLs, as far as we know of, yet. The next cause for concern is this research published by Goldman Sachs: The chart reflects what happens when a smaller number of stocks marketwide begin to attract the lion's share of investible funds – retail and institutional, alike. Right now, you can see we’re at a percentile equivalent to the market highs in 1932 before the Great Depression. Prior highs occurred in 1964, during the Nifty 50 speculative bubble; in 1973, when the ‘73 Oil Embargo goosed the energy and resource market; in 2000, after the aforementioned “.dotcom rally”; and in 2009, following the speculative bubble in housing and mortgage backed securities. Nvidia’s innovative strength and forward-facing marketing strategy may be enough to keep the entire market afloat. But we wouldn’t bet our own 401(k) pile on it. So it goes, Addison Wiggin, The Wiggin Sessions P.S. Just one more cause for the road. The investment adage we like to adhere to, if in writing, not necessarily in practice (ahem) is “buy low, sell high.” In late 2023 through early 2024, we saw a spate of bigtime insider-selling of so-called Magnificent 7 stocks by major players. As reported by Motley Fool: A half-dozen billionaire money managers lightened their respective fund's stakes in the parent of Facebook, Instagram, and WhatsApp, including (total shares sold in parentheses): - Jeff Yass of Susquehanna International (3,037,082 shares) - Chase Coleman of Tiger Global Management (1,430,767 shares) - Philippe Laffont of Coatue Management (542,399 shares) - Steven Cohen of Point72 Asset Management (371,850 shares) - Israel Englander of Millennium Management (307,709 shares) - David Tepper of Appaloosa Management (100,000 shares) And... The parent of internet search engine Google, streaming platform YouTube, and cloud infrastructure service platform Google Cloud saw seven billionaires sell their stock, including, (total shares sold in parentheses): - Philippe Laffont of Coatue Management (3,302,342 shares) - Stephen Mandel of Lone Pine Capital (3,113,001 shares) - Chase Coleman of Tiger Global Management (1,278,300 shares) - Dan Loeb of Third Point (900,000 shares) - Ken Griffin of Citadel Advisors (806,651 shares) - Terry Smith of Fundsmith (571,317 shares) - Steven Cohen of Point72 Asset Management (236,969 shares) And… pertinent to today’s missive: The third Magnificent Seven stock that had billionaires willingly pressing the sell button during the fourth quarter is the infrastructure backbone of the artificial intelligence (AI) movement, Nvidia. All told, eight billionaires were sellers of the hottest mega-cap stock on Wall Street, including (total shares sold in parentheses): - Israel Englander of Millennium Management (1,689,322 shares) - Jeff Yass of Susquehanna International (1,170,611 shares) - Steven Cohen of Point72 Asset Management (1,088,821 shares) - David Tepper of Appaloosa Management (235,000 shares) - Philippe Laffont of Coatue Management (218,839 shares) - Chase Coleman of Tiger Global Management (142,900 shares) - David Siegel and John Overdeck of Two Sigma Investments (30,663 shares) While the rest of the world continues to make investing in Nvidia the hot stock du jour, it would be worth considering what big fund insiders are doing and what the impact is likely to be when the melt-up bubble comes to an end, eventually. P.P.S. On March 5, 2024, Jeff Bezos unseated Elon Musk as the richest in the world, in part by relieving himself of $4 billion in AMZN shares, his own Magnificent 7 company. Things that make you go “hmmm…” Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com. The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to The Wiggn Sessions delivering daily email issues and advertisements. To end your The Daily Missive from The Wiggin Sessions e-mail subscription and associated external offers sent from The Daily Missive from The Wiggin Sessions, feel free to [click here.]( Please read our [Privacy Statement.]( For any further comments or concerns please email us at feedback@wigginsessions.com. If you are having trouble receiving your The Wiggin Sessions subscription, you can ensure its arrival in your mailbox by [whitelisting The Wiggin Sessions.]( © 2024 The Wiggin Sessions 1001 Cathedral Street, Baltimore MD 21201. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after online publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Sent to: {EMAIL} [Unsubscribe]( Paradigm Press, LLC., 1001 Cathedral Street, Baltimore, MD 21201, United States