Discover more from Nicholas Vardy's The Global Guru
NVidia: “What were you thinking?”; Be a Rich Snitch; Go for Gold
Hayek on the Power of Prices; Cold War2
Today at a Glance:
· One Stock: What Were You Thinking?
· One Side Hustle: Become a Rich Snitch
· One Commodity: Go for Gold
· One Quote: Hayek on Prices
· One Interview: Niall Ferguson on ColdWar2
“What were you thinking”
Nvidia (NVDA) soared by more than $184 billion last week to a market cap of nearly $1 trillion.
This followed the company’s projection of $11 billion in sales over the next three months. That’s nearly $4 billion ahead of consensus expectations.
Bank of America said it was the largest raise in estimates they had ever seen. And bulls are betting big on the company's continued dominance in the artificial intelligence (AI) market.
Still, the smart money is warning that Nvidia's valuation now looks stretched.
And now they are asking…
Is Nvidia the Next Sun Microsystems?
In the 1990s, Silicon Valley company SUN Microsystems was a Wall Street darling.
At one point during the 2000 dotcom bubble, SUN’s stock price soared to $64 before crashing back to $10.
SUN CEO Scott McNealy later chided investors who had bought SUN shares at its peak.
"At ten times revenues, to give you a 10-year payback, I have to pay you 100 percent of revenues for ten straight years in dividends," he said. "That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard for a company with 39,000 employees. . . assumes I pay no taxes. . . [and] assumes that with zero R&D for the next ten years, I can maintain the current revenue run rate.
“What were you thinking?” asked McNealy.
Today, Nvidia’s trailing 12-month sales are around $27 billion, with a market cap of $963 billion.
That means Nvidia is priced at over 35 times trailing annual sales.
That’s more than TRIPLE SUN’s peak valuation.
Sure, those sales could snowball with AI.
But even if Nvidia maintains its current margins forever, it would need to increase sales by around tenfold to justify its current share price. That implies 30% higher sales than Microsoft today.
What was SUN’s eventual fate?
At its peak in 2000, SUN reached a market cap of $200 billion -or $340 billion in today's money.
Oracle bought SUN nine years later, in 2009, for $5.6 billion- at less than 3% of its peak valuation.
You’ve been warned.
Become a Rich Snitch
You read a lot about side hustles to supplement your income.
Here’s one that pays more than most.
The Securities and Exchange Commission (SEC) is paying snitches big bucks.
Recently, the SEC paid an anonymous whistleblower $279 million- the largest payout in its history.
The payout was for information that led to a $1.9 billion fine against a major financial institution. A casual Google search reveals that HSBC paid a fine that size for money laundering in Mexico.
This is not the first time the SEC has paid out a large sum of money to a snitch.
In 2014, a former Goldman Sachs employee received a $104 million payout from the SEC.
The SEC's whistleblower program was created in 2010. It’s no accident that it was created on the heels of the SEC’s egregious failure to follow up on warnings about Bernie Madoff.
The program pays up to 30% of any money recovered from companies violating securities laws. Whistleblowers can also receive job protection and reimbursement for their legal fees.
Since the program's inception, the SEC has paid out more than $1.3 billion in rewards to 328 whistleblowers.
Adjust for these high payouts, and the average SEC award still works out to about $28 million per whistleblower.
Here is what the SEC is looking for:
Financial reporting fraud
Unregistered securities offerings
If you have information about any of these activities, you can submit a tip to the SEC here:
If you know something, say something.
The next two generations of your family will thank you.
Go for the Gold
In London's Mayfair, £12,000 per year bullet-proof, high-security vaults used for stashing gold are all but sold out.
The price of gold has been on a tear in recent months, reaching its highest level in over a decade.
This surge in demand is being driven by several factors, including:
Geopolitical uncertainty: The ongoing war in Ukraine and the threat of nuclear war have generated fear and tension in the global markets. Gold is a safe haven asset in times of turmoil.
Inflation: Inflation is at a 40-year high. Central banks around the world are struggling to tame it. Gold is a hedge against inflation.
Central bank buying: Central banks from China to Russia are buying gold to diversify their reserves. They want to reduce their reliance on the US dollar. No wonder some investors expect gold to soar to a new inflation-adjusted peak of around $3300 an ounce.
If you want to replicate the investment strategies of the global elite storing their gold in Mayfair vaults with far less hassle, contact my friends at Asset Strategies International (ASI). Tell them I sent you. They offer several ways to invest in gold directly.
No £12,000 per year safe in Mayfair needed.
Hayek on Prices
In his paper "The Use of Knowledge in Society," the Austrian-British economist F.A. Hayek argued that the market price system is the best way to coordinate economic activity in a world where knowledge is dispersed and constantly changing.
In Hayek's view, prices reflect the collective wisdom of all market participants.
By responding to prices, individuals can coordinate their actions in a way impossible to achieve through central planning.
The power of collective wisdom applies to prices in financial markets as well.
However, as anyone who trades stocks can tell you, the limits to financial markets' "collective wisdom" are glaring.
Fear and greed, herd behavior, and market sentiment often far outweigh the impact of collective wisdom.
Put another way, both Hayek and standard modern finance taught in business schools ignore the importance of narratives.
They ignore the” story” in “story stocks.”
As the founder of "narrative economics," Yale's Robert Shiller argues that narratives can distort reality when they become too dominant or are based on false information.
Speculative episodes are driven by little else.
But what is the alternative?
Yes, the market price system is imperfect. And compelling but false narratives often lead to inefficient outcomes.
But the market price system is still far superior for coordinating economic activity in a world where knowledge is dispersed and constantly changing.
Niall Ferguson on Cold War2
There are few people of whom I admit to being jealous. Stanford professor and Hoover Fellow Niall Ferguson is one of them.
His thorough understanding of history, the sheer range of his output, and his ability to communicate complex ideas in a relevant and compelling way are mind-boggling.
But he is a day older than I am, so he had a head start.
Here’s a recent interview with Ferguson on the Cold War II with China on the Hoover Institution’s interview series “Uncommon Knowledge.”