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• Nvidia’s P/E Ratio Suggests Bubble Territory
• Major Consolidation in the S&P 500
• Diving into the 79th Debt Ceiling Raise Since 1960
• Tether Ventures into Bitcoin Mining
• UAE and Hong Kong as New Crypto Hubs — What it Means for the US

• Nvidia Becomes a $1 Trillion Company as Shares Up 3.5% Premarket (source)

Boosted by the AI hype, Nvidia briefly touched the $1 trillion market cap threshold on Tuesday. If we count just US companies, this is a select club of just four mega-caps: Apple, Microsoft, Alphabet, and Amazon.

Image courtesy of VisualCapitalist.com

This makes Nvidia’s market cap comparable to that of the entire crypto market, which holds at a $1.1 trillion market cap.

To put it differently, Ethereum’s entire market cap itself, at $220 billion, was inches away from Nvidia’s gains throughout a timespan of just a few days, at $217 billion.

Investors have good reasons to view Nvidia favorably, as it became the main supplier of chips for Google Cloud, Oracle Cloud, Microsoft’s Azure, and even Amazon Web Services (AWS).

You see, AI differs from classic data center operations in a major way. AI is more GPU than CPU reliant. Nvidia CEO, Jensen Huang, explained why:

“Instead of retrieving data, you’re going to retrieve some data, but you’ve got to generate most of the data using AI. So instead of millions of CPUs, you’ll have a lot fewer CPUs, but they will be connected to millions of GPUs,”

And Nvidia has already established itself as a GPU leader.

Intel holds dominance in much weaker integrated GPUs (iGPUs), while Nvidia holds 88% dominance in (dedicated) discrete GPUs (dGPUs) needed for AI data centers. Image courtesy of wccftech via Jon Peddie Research.

However, there might be a problem.

The AI demand expectation boosted Nvidia’s stock so much that it now has the highest 12-month price-to-earnings (P/E) ratio. This ratio tells us how much investors pay (by purchasing the stock) for each dollar of Nvidia’s expected future earnings.

From Nvidia’s semiconductor peers, this makes it stand out:

Image credit: Bloomberg

In just 6 months, Nvidia’s P/E ratio went from 57 to nearly 200.

Historically, that doesn’t bode well, as in…we could be dealing with an AI bubble, with Nvidia as the main beneficiary based on a lot of assumptions.

With that said, we have literally never seen anything like AI in recorded history. This innovation is anticipated to overshadow all others, from the steam engine to the internet itself.

If properly managed with precise prompts, the latest AI iterations could replace wide swaths of knowledge expertise — coding, diagnosing, art crafting, legal drafting, accounting, the list goes on and on.

Nonetheless, even if AI is as revolutionary as many believe, the bubble narrative could still stand, for a few reasons:

• It takes time for technology to mature and scale.
• As it affects white collar jobs more than blue collar jobs, the former are more likely to organize and lobby against the integration of AI.
• The regulation of AI remains an ongoing conversation.

These headwinds could put Nvidia in cart-before-the-horse territory. With a P/E ratio of nearly 200, things certainly look that way.

Only time will tell where AI goes from here — and the velocity at which it is implemented.

• Ten Companies Account for 35% of the S&P 500 Market Cap (source)

Did you know:

Just a few years ago, there wasn’t a single $1 trillion US company.

Apple punched through this threshold first, in 2018, topping it with another first, at $3 trillion in 2022.

With Nvidia recently entering the 6-member $1 trillion club, this leaves the S&P 500 in a very lopsided state.

In broader terms, only 10 companies account for 35% of the S&P 500’s entire market cap. Reminder: the S&P 500 consists of 500 ‘large-cap’ companies.

Often enough, only the mega-caps are green, upholding the entire market. Image courtesy of finviz.com.

Without the Big Tech behemoths, such as Apple and Microsoft (14% of SPX), the S&P 500 would be in the negative range instead of ahead at +10.38% year-to-date.

According to the WSJ, the S&P 500 outperformance against an index with equal weighting is the largest since 1990.

So, what’s going on? This trend is not only present in the tech sector. In all US industries, except for telecommunications, top 10 stocks surpass their peers. For stock investors, this means that the S&P 500 index is not a valuable representation of the entire stock market — nor its health.

There are a couple of reasons why:

1. Large companies, as both human and technology capital aggregators, tend to absorb competition.
2. This is akin to new bodies entering Jupiter’s gravitic sphere, getting trapped while some get absorbed into Jupiter’s core, earning the gas giant the nickname ‘vacuum cleaner of the solar system.’
3. As such, mega-caps are more resistant to negative macro forces that would cull smaller companies. Investors know this, so any liquidity inflows are then poured into these business ‘jupiters’.

We can see this quite clearly as we track the Federal Reserve’s increase of the M2 money supply.

A stark correlation between the Fed’s M2 money supply and the S&P 500. Image courtesy of Blockware Solutions.

In short, economic uncertainty makes big companies even more attractive, further boosting their inherent value as capital aggregators.

This is beneficial for governments as well, as they have few players on the field left to interface with.

• US Debt Ceiling Bill Passes House with Broad Bipartisan Support (source)

What has now happened 79 times since 1960?

The US raising its debt ceiling.

At this point, you may be thinking, why is it called a “debt ceiling” in the first place? And why would it be so controversial, yet predictable simultaneously?

Basically, this phenomenon is a function of the prevailing monetary model. Debt is baked-in, but everyone understands that debt has a high cost, if not unsustainable entirely.

Then, a formalism called “debt ceiling” has to be adopted to acknowledge the badness, which doesn’t stop it from racing on the road to unsustainability.

US national debt since the founding of the Federal Reserve, on December 23 1913. Note that President Nixon ditched dollar-to-gold convertibility in 1971. Image courtesy of the US Treasury.

At the present $31.4 trillion debt mark, the sustainability race isn’t getting any better, wherein (theoretically) every person in America owes $94k.

First, let’s see what was in the deal, called the Fiscal Responsibility Act, having enjoyed bipartisan support at a 314–117 vote in favor.

The federal borrowing limit is removed until January 1, 2025, by adding at least $4 trillion to the existing national debt. However, it is somewhat conditional:

• It cuts non-defense discretionary spending by $42 billion and discretionary spending by $12 billion in FY 2024.
• It introduced an automatic 1% spending cut provision across discretionary spending if lawmakers fail to pass all 12 annual appropriations bills by January 1st.
• It introduced the first-ever Administrative Pay-Go statute that makes the President accountable for executive actions. For instance, President Biden’s executive actions have so far resulted in at least $1.5 trillion in spending.
• It introduced a limit to social programs, TANF and SNAP, preventing states from waiving work requirements. At the same time, it expanded work requirements for SNAP, for able bodied adults without dependents.
• It ended President Biden’s moratorium on student loan repayment, approximately costing taxpayers $5 billion per month, previously extended 8 times.

Nonetheless, in the greater scheme of things, the debt is raised regardless of some limits. This can be summed up on an individual level as less-than-sustainable.

The most glaring consequence of such enormous debt is an increase in net interest costs. Last year, the federal government had to spend $476 billion, a +35% increase from 2021.

According to the nonpartisan Congressional Budget Office (CBO), the latest projection would make interest payments overshadow entire budget categories.

Image courtesy of Peter G. Peterson Foundation.

In turn, there’s less money available for productivity as money is debt-burned. And speaking of money burning, the US Treasury is now ready to raise $1 trillion to refill the Treasury General Account (TGA) by issuing new debt via T-bill auctions.

But by doing so, the Treasury drains market liquidity, which could trigger the Federal Reserve to start QE again, devaluing the dollar in the process. Legendary investor Stanley Druckenmiller blames Janet Yellen:

“QT has almost been entirely offset by Janet Yellen running down the Treasury Savings Account. She could have sold 10 years for under 1%… instead she runs down the Treasury Savings Account.”

For the time being, Goldman Sachs analysts think the new debt spree issuance will be absorbed by money market funds, having just over $2 trillion at Reverse Repurchase Facility (RRP).

If this rings a bell, recall the repo market crisis in September 2019, foreshadowing the novel lockdown implementation, which eventually allowed the Fed to increase the M2 money supply by an unprecedented +39%.

Let’s hope something like that doesn’t happen again as USDC stablecoin issuer, Circle, just ditched all T-bills in favor of cash and repurchase agreements to defend its peg to the dollar.

Image courtesy of BlackRock, Circle’s reserve fund portfolio manager.

• Tether Taps Uruguay’s Renewable Energy to Mine Bitcoin (source)

The storyline of Tether’s money-making formula continues.

As of yesterday, Tether’s USDT stablecoin reached an all-time-high market cap of $83.2 billion. As Circle and Coinbase struggle with US authorities with their USDC, it looks like offshoring is the winning ticket.

Binance’s own BUSD stablecoin, having gone down from a $23B to $5B market cap thanks to NYDFS, can certainly testify to that. The situation also created an apparent gap for USDT to fill.

So, Tether earned more money in Q1 than BlackRock, at $1.48B. It now topped its previous ATH market cap. It started investing 15% of profits into Bitcoin. What else?

Well, of course, go straight to the source and become a Bitcoin mining company!

Uruguay is widely known as having an abundance of renewable energy sources. According to the International Trade Administration, Uruguay is a green energy dream come true:

• 37% hydro
• 35% wind
• 18% fossil fuels
• 7% biomass
• 3% solar

By tapping into that energy matrix to boost the security of the Bitcoin network, Tether is angling to become a “global tech leader”.

As the most fudded stablecoin around, it would certainly be remarkable if that vision materialized.

For now, the Chad continues to… chad.

• A New Retail Era for Crypto in Hong Kong (source)

It’s no secret that Gary Gensler’s SEC has made the US a hostile territory for FinTech and crypto innovations.

There is no better example of this than Coinbase.

Brian Armstrong went out of his way to provide government agencies with blockchain tools and analytics.

He double-downed on getting preemptively regulated.

Image courtesy of Twitter.

Yet, all he got in return was a Wells Notice, prompting Coinbase to start exploring offshore ventures in Bermuda.

As the prestigious law firm Cooper & Kirk cleared up what’s suspected in an Operation Chokepoint 2.0 paper, it’s becoming clearer that smaller economic zones will serve as innovation hubs.

Hong Kong and the United Arab Emirates are the key candidates to capture scorned capital outflows.

On June 1st, the semi-autonomous Hong Kong launched a new regime for retail crypto trading, attracting many exchanges to become Virtual Asset Service Providers (VASPs).

What’s telling is that one of the applicants was ZA Bank, the largest digital bank in Hong Kong. The interesting part is that ZA Bank is actually a subsidiary of the Chinese state-owned Greenland company.

This means that China, having banned cryptocurrencies in 2021, is allowing Hong Kong to explore cryptocurrencies. In turn, China’s CBDC project can carry on unbothered by non-state assets.

Hong Kong-based First Digital already introduced a USD stablecoin, bringing Brian Armstrong’s recent statement to life:

“It’s not only China that can see the possibilities. Crypto, like the internet before it, has the potential to modernize finance.”

When it comes to the UAE, its futuristic Dubai has already established the Dubai Multi Commodities Centre (DMCC) zone, offering big tax breaks, networking channels and cutting edge FinTech infrastructure.

As such, the zone attracted over 500 crypto startups, growing by the year.

It is then no wonder that central banks from both UAE and Hong Kong are closely coordinating. At the bilateral meeting on Sunday, they have agreed to share both FinTech and regulatory knowledge in breaking down capital hurdles and trade settlements.

With each passing day, the future of digital assets seems more and more like it’ll happen outside US borders.

Remember all of those articles about strong jobs and wages are why the Fed has been raising rates?

It was all fake. The BLS revisions show a MASSIVE decline in the data since Q4 2022.

Ht @FrogNews

@WallStreetSilv

Latest update from ⁦@FDICgov⁩ shows number of banks on “Problem Bank List” has increased by 4 from previous quarter to 43 in 1Q23 … total assets held by problem banks were up by $10.5 billion to $58 billion

@LizAnnSonders

Beware: Some of the large cap stocks are priced at extreme valuations

Apple and Microsoft’s P/E relative to the 10-year average is in the 92nd and 88th percentile, respectively

This is not the time to FOMO in

@GameofTrades_

Wall Street Investors have officially abandoned the Housing Market.

With Redfin reporting a colossal 49% crash in investor purchases in Q1 2023.

This is the biggest annual decline on record.

Even bigger than the drop that occurred in 2005 right before the last crash.

@nickgerli1

The US will need to refinance almost half of its national debt in less than 2 years.

Let’s not forget that interest rates were at 0% just 15 months ago.

Wait until these debt instruments need to be rolled over at 5% rates.

One thing is true:

None of us own enough hard assets.

@TaviCosta