WOULD YOU RATHER — ROUND 2
We highlighted a somewhat absurd comparison last time between NVIDIA and a smattering of Germany’s finest blue chips.
Keeping with that theme, here are a few stats that are bound to really impress folk at a cocktail party (or — depending on the company — ensure you don’t get invited back).
Also, keep in mind that it’s been a few weeks since we pulled these numbers. NVIDIA tacked on another $500 billion or so in market cap since then, making the already shocking contrast even more shocking (as if to prove our point about how out of whack the markets are).
Anyway, take a look at this (market cap figures for each stock/sector):
- NVIDIA: $2.36 trillion
- S&P 1500 energy sector: $1.99 trillion
- NYSE Gold Miners Index: $207 billion
- S&P 1500 Marine Transport Index: $9.2 billion
Put another way, you could own the entire NVIDIA.
Or you could own all the energy, gold, and shipping stocks combined, and still have a couple of billion in change.
In terms of risk versus reward, we know where we would rather be investing our money right now (and it’s not NVIDIA).
(Y)ENDGAME
Many moons ago — back in 2017 — we discussed the land of the rising sun in Insider and pointed out the following (along with a simple way to capitalize off this):
Japan has arguably led the world in Central Bank batshit-craziness taking their debt levels relative to GDP to levels that defy imagination.
Part of what’s allowed this to take place has been both the relative coordination of similar policies by their global counterparts (ECB, FED and BOE). As we’ve argued before that coordination required and still requires political coordination and consensus. We no longer have that.
We believe the tail risk to Japan experiencing a currency crisis is underpriced and should they have one the Japanese equity markets (long shunned) will reprice violently upward.
Fortunately, Japanese equities are some of the cheapest in the world.
It took a little while, but this is now playing out.
The yen just blew through 155 like hot butter through a knife (just checking you’re paying attention).
As we mentioned at the time, our sushi-eating friends were able to get away with batshit crazy debt levels (263% of the GDP at the last count) for a loooong time. Now, you might ask, what has changed?
To answer that question, take a look at the US 5-year rate and JPY…
As you can see, they’ve been in lockstep since 2020.
Globally, yields have been falling for decades now — decades where Japan managed to sustain the ultimately unsustainable. But now, with yields rising around the world, all the problems we knew existed in Japan are revealing themselves… and the Bank of Japan (BOJ) is stuck.
Imagine you could borrow yen at the current 0.1% short-term interest rates when globally rates are moving decidedly higher. The Yanks offer 5 points, so you’ll borrow yen and invest it into US bonds.
This puts downward pressure on the yen (being borrowed), and so not only do you get the yield differential, but you likely walk away with an appreciating dollar against the yen. It’s a win-win. The BOJ can’t raise rates without their public interest expenses blowing out, and so they’re faced with a rather tricky situation.
The way we see it, they’ve one of two options:
- Let the yen slide and continue to experience inflation, probably hyperinflation if rate differentials remain so extreme.
- Support the yen by selling some of their massive hoard of US treasuries.
This second point makes us wonder if this is why that goblin-looking wench was recently in Japan?
The white-haired midget understands that if Japan wanted to defend its exchange rate, they could start selling some of the massive hoard of US treasuries they’ve accumulated over decades of running trade surpluses (the world’s largest, actually). And so now, this has become a political game.
While we’ve done pretty well with our Japan theme so far — considering all this — we don’t think it’s done by any stretch of the imagination. That’s why we keep reminding ourselves to be patient (we’ll have more on that in a moment)…
ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.
Insider member Anissa shared this comical or bizarre (it’s hard to decide which is more appropriate) video from our friend George Gammon:
A textbook definition of a screaming bargain!
URANIUM: A LESSON IN PATIENCE
We dedicated an entire section to patience in our last issue, but let’s today look at a more practical example. A case study, if you will, from a sector that’s very near and dear to our heart — uranium, specifically Cameco.
Let’s say you bought Cameco back in 2000 at the height of the TMT bubble (24 March 2000). Somehow you had a brilliant insight that uranium would be a big winner over the coming months/years.
Fast forward four years and Cameco was up some 330%. You may have been thinking of getting out and not pushing your luck (not too dissimilar to how many folks are currently feeling about the magnificent run in uranium miners over the last few years).
Now, let’s take Cameco’s performance from March 2004 to March 2007.
As you can see, it ended up going up another 300%.
In other words, just when you got the jitters of being up too much in the trade, you were only half way through the cycle.
Today, we suspect the same thing is playing out once again and we are closer to half way through the current bull market in uranium rather than closer to the end of the cycle. In other words, the greatest risk is getting out too early.
On another note, take a look at the first Cameco chart above and you’ll see that come March 2003, the S&P 500 was down some 45%, whereas Cameco was up 150%.
And how did Cameco perform in the lead up to March 2000? From 1995 to 2000 it was down some 44%. From March 1996 to 2000 it was down some 76%. Either way, by 2000 it was regarded as “toxic waste” by investors (as with all uranium miners), and the rest is an enlightening history.
There’s a handful of lessons in all this:
- Even in the face of a nasty bear market you can make good money by buying “toxic waste.”
- The more ferocious the bear market the longer the duration and magnitude of the bull market that follows.
- Don’t be too quick to take profits.
Of course, it is all so easy being a hindsight genius!
WEAR IT LOUD AND PROUD
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Have a great weekend!
