“You become what you give your attention to.”

- Epictetus

Friday Attention-Grabbing Charts

The news from this week was high inflation, low retail sales, global recession and new all-time highs in stocks.

Does one of those not belong?

Maybe we were in too much of a food coma from the 1.45 billion chicken wings we consumed on Super Bowl Sunday to notice that the macro data had taken a distinctive turn for the worse this week.

Or maybe we did notice, but didn’t much care — there are so many other things to pay attention to at the moment, like the unveiling of OpenAI’s text-to-video model, Sora, so who has time to worry about interest rates anymore?

We’re too busy contemplating the consequences of AI-generated woolly mammoth videos to bother much with CPI reports, even bad ones.

The videos are more fun, and probably more important, too. 

If AI proves as transformative as we think it will, it won’t matter whether the Fed’s first rate cut is in March or May or June…or never, even.

Nvidia is going to sell a lot of very expensive GPUs regardless.

This is why NVDA overtook GOOG and AMZN this week to become the fourth largest stock in the world. 

Naysayers will see that as a sign of a market that’s gotten dangerously exuberant.

But we can probably all agree that if Nvidia were to ascend to third place by passing Saudi Aramco, it would be a sign that things are getting better. 

We want more AI and less oil, so that’s what we’re paying attention to.

Nevertheless, macro will eventually matter again. 

Much of the Magnificent 7’s profits come from either selling ads or gadgets, both of which will suffer in the next recession.

That recession is nowhere in sight at the moment, but I would bet it happens before we know whether all the Nvidia-powered LLMs now being built are actually useful.

So, as distracting as AI is, we should reserve some of our attention for macro matters, too.

Let’s check the charts.

Inflation is real:

The 3.1% CPI print that briefly worried markets on Wednesday is not even a blip on the long-term chart. But inflation is real: The WSJ reported this week that the Tooth Fairy is paying an average of $6.23 per tooth, up from $5.36 a year earlier — with some kids getting $100 bills even! I can’t relate. When I was a kid, we had to pay the Tooth Fairy to come take our teeth away. (Also, we walked to school uphill both ways.)

The kids are alright.

As long as we’re on the subject of how easy the kids have it, @corry_wang notes that the median income for US millennials is now trending 18% higher than prior generations and that Gen Z is trending even better than that. When I was a kid, you needed three jobs just to pay for bus fare. 

Different this time:

This has (so far) been the most painless labor market correction we’ve ever had. Things are cooling off by job openings falling without unemployment rising, which has never happened. Sadly, kids today might miss out on the salutary effects of a disciplining recession. (Also, get off my lawn!)

The renters, however, are not alright:

The one and only bad thing about being 25 is that you probably live in an apartment and your rent is probably going up (again) because no new apartment buildings are being built. Multi-unit housing starts (ie, apartments, in blue) continue to fall while single-unit starts (ie, houses, in red) are surging.

This year’s market in a picture:

SMCI (a maker of AI-optimized servers) is up 750% over the past year, making its market cap ~4x the next biggest constituent in the Russell 2000. This scatter plot from Koyfin is perhaps the clearest illustration of how hyper-focused markets have gotten on AI. 

The bear case in a picture:

Overlaid charts are the very lowest form of financial analysis, but this one from an FT op-ed captures the curmudgeonly concern that the current market is rerunning the 1990s dotcom playbook with Nvidia in the role of Cisco. TLDR: Get off my lawn with your newfangled AI stocks!

But maybe the market knows what it’s doing?

The previous NDVA/CSCO chart plays into the narrative that we investors are all lemmings rushing headlong off whatever the latest investment cliff may be. But this chart of Uber outperforming Lyft by 150 percentage points should restore your belief in the discerning hivemind of the market. Active investing lives and we might, collectively, know what we’re doing.

Let’s hope our collective focus on AI turns out to be right as well.

Have a great weekend, attentive readers.

― Byron Gilliam

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In this week's roundup, Mike and Vance dive into the latest developments across crypto including the state of Bitcoin ETFs, the return of ETH as money, and the growth of prediction markets.

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