When Everyone Says It’s Not A Bubble…
"You know it's a bubble when everyone starts telling you it's not a bubble."
That's BofA's Michael Hartnett, describing the current market zeitgeist.
I'm sure it occurred to Hartnett that his colleagues in equity derivatives published a piece this week called "Volatility suggests AI isn't a bubble...yet."
I editorialized around that piece (the derivatives note) mid-week. Long story short, in the lead-up to burst bubbles, volatility tends to rise with the price of whatever it is that's experie
30 day Vol on MSFT: 18%, AAPL: 22%, NVDA: 48%…market cap weigh those and NVDA shoves the market around. Something should budge- but will it in 30 days?
Some of these statistics are downright scary!
I am curious, however, to see how Nvidia trades on Monday, post split. Also, not sure how the relatively large short position (12% of the float) gets resolved.
A flaw in the note from the BOA’s derivative team, from my perspective (or bias, as I short it), is that the market cap of a single company has never been this enormous. In other words, to support an increase in historical mean volatility, a significant amount of liquidity is required. I doubt this is “fundable,” even in the current QE environment.
Picking a few stocks and saying that they are a bubble makes for an easy headline. But the other commonalities between these stocks is the high barrier of entry for any one that wants to get its share of the business. And that is really hard. Can a monopoly be a bubble ?
These businesses are not monopolies really, but we’ve never seen such large businesses in the past and so I think we have no idea where this is heading. But it seems impossible for any startup to meaningfully challenge any of these businesses in the long run, no matter how good they are at it. One way or another, they’ll get reigned in and swallowed. So maybe it’s not a bubble, not a monopoly, but another form of uncompetitive and hence “artificial” pricing situation.
Yes, I am “extremezing” a little the current situation, but I think it’s not completely off.