The holiday streaming season is almost here
Are you ready? As revealed in our holiday playbook, Roku Ads Manager lets you easily set up, measure and optimize your self-serve holiday ad campaign. You can even create a shoppable ad unit that lets streamers buy directly from their remote.
Good morning partner,
A few things to cover this morning:
** PREMIUM MEMBER REMINDER (If you haven’t yet) ‼
You can now access the Telegram Community to receive our live trade desk alerts in real time (no more waiting on emails to hit), and a dedicated Q&A space with access to Gabriel for anything you’d like to discuss
Yesterday’s Session
The AI leadership is continuing into what we have been breaking down this week, Phase 3.
While not entirely clear and confirmed, it does seem the AI trade as a whole is taking a hit today from the NVIDIA CEO news, and wherever the leader in the sector goes, so will its followers.
This leads us to the usual way markets had behaved in the previous quarter, a classic tug-of-war between the AI complex and everything that sits on the opposite end.
Real economy, defensive names that is.
Timing the market with fundamental data is nearly impossible, but you can (and should) use that fundamental data to at least get a sense of direction.
And right now, GDP and PMI data have given us a pulse on where economic activity is really picking up/slowing down.
While AI investments and infrastructure used to be a major driver, it has now taken a backseat to give way for the defensive areas of the economy to take over instead.
It’s no coincidence a 100-year-old machinery business we just bought is already up more than 4% in a single day.
And we continue to add names like this into the Offside portfolio as we speak…
Let’s take a look at Yesterday’s leaders and laggards:
Healthcare, Defensives, Energy.
Quite a different day from what we had over the week no?
I would look at this sudden rotation out of AI once again as a twofold implication on the broader market mechanics.
The tug-of-far favoring non-AI plays and sectors
A “growth shock” scenario coming back into the mix
With this, I am reminded of the importance of the above fundamental data driving my searches and decisions.
Especially in the consumer defensives space, and it makes all the sense in the world.
At today’s price, NVIDIA would have to grow its revenues by 45% per year for the next ten years uninterrupted just to keep the ~$165 price mark.
If you really do believe the company can generate close to $2 trillion in revenues by 2030, be my guest and buy this dip.
Personally, I do not believe this is neither doable nor realistic…
Instead, I went out and bought a company whose current price suggests negative 1.5% revenue growth for the next decade, while its historical average sits closer to 12% annual growth.
Investing is driven by expectations just as much as it is by financial data.
The Root of Profits
Did you know you could have outperformed the S&P 500 during the dot com bubble and the 2008 financial crisis by buying Chinese stocks?
And,
Did you know you will most likely outperform the S&P 500 this next decade by doing the very same thing?
One of the main reasons why sits in this chart above, which covers current total factor productivity (TFP) levels for several countries.
This is essentially the measure of how productive a nation’s people are, bringing gains to their respective sector and overall economy.
You can easily see how a more productive nation can be amplified by just having more people in it, so consider this:
China’s TFP is 1.8x that of the U.S.
China’s population is 4.0x that of the U.S.
Their only sin?
Having poured too much capital too quickly into expansion, and now having spent the past six years trying to reduce that excess and let the market figure out what to do with it.
Just like the overinvestment that gave us a huge payoff in the Micron puts trade.
Here’s the biggest driver of all though…
China is going through the exact same cycle that Japan did in the 1980s and South Korea in the early 2000s.
A reversal of this “capital deepening” wave.
Both of which ended up in 300-500% gains during the following decade.
I believe China promises that much upside while the S&P 500 figures out how to get rid of all the AI concentration and excess.
News
NVIDIA Board May Cut Jensen Huang off the mix after reports of another affair came out to the light, this time with a company executive. That’s two strikes now for the CEO turned celebrity, and not a great future for NVDA.
Anthropic Will Trade on the NASDAQ this November 19th, with an IPO valuation of $1.4 trillion falling short of their $2 trillion goal. You will quickly find that the true “fair value'“ is closer to $800 billion according to our S-1 analysis.
BP Looks to Sell an Oil Business in Brazil to Petrobras, confirming the capital flight out of the country’s economy and stock market after a last-minute Lula win in the elections.
Goolsbee Pushes for Rate Hikes after the most recent inflation data came out, which was hotter than expected even with an easing on the Iran front, killing hopes for a lower Treasury yield market in the U.S.
Movers & ES Levels
Micron 📈 Rallied by more than 11% as the Phase 2 rally across AI names continues, however, it is back down again in the pre-market session as we potentially enter into the Phase 3 selloff.
Caterpillar 📈 Led by over 4% to join the mix of a Phase 2 rebound in the AI complex along with the rotations back into the defensive areas of the economy, now that the AI premium is mostly gone, the opportunity is back on the table.
Strategy 📉 Falls more than 5% after the MSCI removed it from its indexes, proving this Bitcoin Ponzi scheme has run out of legs to lean on with rising costs of capital and forced liquidations. Bitcoin, on the other hand, may have bottomed after this washout.
Alibaba 📉 Lost roughly 5% after the U.S. placed more pressure on China’s access to international AI chips, the truth is, China is now making its own chips that are just as powerful as the leading ones in the U.S.
Now let’s get into some ES levels for today.
As strategized yesterday, $7,615 remains the key level to close above in order to confirm a continued rally in the index.
So far, there has been an overnight breakout above this level, only to see it come back down into the range sharply.
It’s clear that aggressive sellers stepped in at $7,623 or so, creating a level buyers would want to tackle and ram through these sellers.
If you’re a seller, I would look to play this $7,623 on a false breakout or sharp reversal.
If you’re a buyer, you’re probably looking at a breakout past $7,623 to go back down to it with aggressive order flow and shift it into support.
Otherwise, give the market a chance to go lower into $7,575-$7,550 and see if we hold it, do not anticipate anything here with a potential Phase 3 AI unwind happening.
Portfolio
For a second consecutive day this week, we have begun buying into the PMI watchlist we released last weekend.
As you can see, those two positions right at the bottom are already up close to 4.0% combined!
Talk about timing…
In other news, we may have to unwind some of last month’s PMI trades and take that profit off the table, another great round after booking a ~35% combined gain in our VVV vs VLO trade.
Just how we do it.
Here’s the positioning update for today’s premium members:
Subscribe to our premium content to read the rest.
Become a paying subscriber to get access to this post and other subscriber-only content.
Upgrade