We talk a lot about the “wealth effect” as it relates to the interplay between asset price appreciation and the real economy.
The idea’s straightforward: If the on-paper value of your investments goes up, you’ll feel richer and thereby you’ll be more likely to spend.
The opposite’s true too: If the on-paper value of your stock holdings goes down, you’ll feel poorer and you’ll retrench.
If you want to explain “US economic exceptionalism” (and believe me, I’m every bit as tired of typing out that term as you are of seeing it), you might well cite the equity wealth effect which, measuring from the pandemic lows in March of 2020, sums to around $30 trillion. If you want to explain that windfall, you might well cite an epochal rally in mega-cap tech shares, and if you want to explain that, (or the latter stages of it, anyway) you might well cite Nvidia.
I’ve buried the lede. Without further ado: By noon on Wall Street Monday, the DeepSeek scare had wiped more than $600 billion from Nvidia’s market cap. That would count as the single-largest one-day value destruction event in history, and it wouldn’t be close.
As a quick reminder, Nvidia now dominates any compendium of large historical single-session value gains and losses such that there’s no point making lists. It’s just Nvidia, Nvidia, Nvidia, Nvidia and Nvidia, along with some dates. (“Dylan, Dylan, Dylan, Dylan and Dylan,” for those who’ll get the reference.)
Jensen Huang’s on-paper, implied net worth will plunge by an unfathomable sum Monday given his personal beta to Nvidia’s stock.
If you’re a longtime reader — or really just if you’ve been reading since 2020 — you know I’ve warned on this dynamic repeatedly. Put as a question: When one stock can erase half a trillion (or more) in market value in a matter of hours, what’s the point? Of anything?
At the risk of overindulging my penchant for self-quotes, I’ll leave you with the following excerpt from “The Coming Market Singularity,” published here eight months ago:
If it gets to the point where mega-cap [rallies] are good for, say, half a trillion or [selloffs] risk a $400 billion wipeout, everything else becomes more or less meaningless in a lot of important respects. It’s not clear where we’d go from there in terms of strategy and analysis.
If the end game is such an existential market moment, I suppose it’s only fitting: This is, after all, a rally predicated on a suicide mission to realize The Singularity.
Who doesn’t know the five best rappers of all time???
Jensen’s and Dylan’s fates were always going to be the same. They can’t spit hot fire forever…
I immediately went to Dylan Thomas. Do Not Go Gentle Into The Good Night – rage, rage before the dying of the light…
Why would this make strategy and analysis meaningless? I think this actually makes strategy and analysis meaningful again.
Last Friday was the day that people could have used some analysis and strategy to insulate themselves from these types of shocks or even benefit from them by being well positioned in certain sectors that rally today.
Plenty of opportunities, and for smaller businesses, commoditisation of AI can be an accelerant for growth that might previously only have been reserved for large caps.
Are you serious? Look at a waterfall chart of SPX or NDX return attribution for a given week, month or even for a whole year. These companies are all that matter. Ask David Einhorn about this. He’ll tell you.
I decided to look up leveraged NVDA exchange traded products this morning just for funsies, and there are some juicy 3x leverage options out there. They’re down ~50% last I looked.
Leveraged leverage. I wonder how many really large players have been using products like this to try beating, or even keeping up with the averages. And how many individual, mostly younger investors have been “killing it” and even shunning investing in a place to live to chase this rally up into the ether. And what esoteric products not even being discussed are tied to this rocketship to the heavens? Also wonder if this is the beginning of the end for the bullsh*t market, or just a preview of what’s to come?
I have stamped in my mind a date – 2035 – for singularity – real singularity, not just in equity markets. R1 has proven that it is coming and also shows how ridiculous the valuation of equities has become. But 2035 is too early. Our future is cyborgs – Spock of the Enterprise, if you will – and not the Huckabees and a large fraction of our populace who believe the Bible is more than a fairy tale. As sentient beings we have a long way to go Huang,,Musk, Trump and… insert any other billionaire you want … will soon be history unless through sheet idiocy, they kill us all first.