NCI: Claude Reverse Uno Card

NCI_Claude Reverse Uno Card

[00:00:00]  Good afternoon. It is Tuesday, April 21st, 2:00 and change. We're really excited to please to present the next episode of Lumida Non-Consensus Investing. There's a lot going on out there. [00:05:00] Here's some topics I wanna get through today. One is I call it the Claude Resverse Uno card. It was the title of my FSD video yesterday.

I'm gonna elaborate on that and some posts I've shared recently on x and on our newsletter. I'll talk about bank earnings, which came out. I always love to see what bank execs are saying and the status of credit. You get that through earning season. The banks, the big banks just reported. Earnings is a lot of insight to the economy that's invaluable there.

Take a look at that. We'll also talk about, uh, SpaceX, the AI trade, markets, positioning. Uh, and if you've got some names you want me to take a look at, maybe you can flag them. We can do that here too in the next 45 minutes or so. So with that said, uh, let's get started. You know, I'll start off with this, uh, with this post I wanna share.

I wrote this, uh, this morning, really building off a, a thread I'd shared, you know, the [00:06:00] prior week around kind of the thoughts in the market. Like overall, you know, as I stated in our last podcast, we believe this is a bull market. This is a non-consensus rally. A lot of risks have been discounted and priced in.

There's a lot of, uh, cash on the sidelines. Uh, people need to get back in and, uh, the bottom is in, the lows are in. That doesn't mean that you don't get a bit of a tracement. In fact, it's quite often the case that after monthly options expiration on Friday, which is what we just had, you get a small pullback.

In fact, I made that point a few days ago, uh, here, uh, in this post. So, but overall, the bias should be to be bullish. I'll be very brief on the recap around that. You can take a look at the Lumida Ledger newsletter. You can look at my last, uh, podcast, but, uh, in short, uh, forward valuations dropped 20%, which is pretty [00:07:00] consistent with a significant correction.

Even though the S&P dropped nine points, earnings estimates kept marching higher, in part driven by the AI trade and continued CapEx spending. We've now got governments involved with AI, uh, and we're seeing real productivity impact. So look, it's a, it's a bull market. That should be the bias. Uh, it's important for people to update their state of the world and be mentally flexible.

Um, the, the way I would look at this, you know, I wrote this post called Zoom out. Let me kind of walk you through it here. Look, markets move in cycles, and there's certain parts of the market that move faster than other parts of the market. I call those, like, marginal liquidity markets. It's faster money, they discount information quickly.

Things like Bitcoin and crypto assets are part of that, more speculative parts of the market. So back in October 10th of this past year, we saw essentially a simultaneous top in things like crypto in [00:08:00] unprofitable tech, in quantum stocks, in story stocks were all about the future, uh, the AI data center trade, uh, and then we start to see them roll over.

Uh, end of October, we saw Sam Altman see of OpenAI give a pretty awful interview with Brad Gersen on the BG2 podcast where he's getting very defensive around, uh, the traction on OpenAI and their capital funding needs and how much money they're spending and how much money they're losing. Uh, and then in, uh, November, December, we saw more weakness permeate data center names like Oracle.

Their senior executives started selling their stock in mass. We talked about it at the time and the data center name came under pressure as people started asking questions on the sustainability of CapEx spend. Then in January, you had the Armada buildup around the Strait of Hermus. Uh, you also had peak Goldilocks as the S&P hit all- time highs, even as there was [00:09:00] weakness brewing and under the surface, you know, we wrote about our newsletter that we thought it made sense to take chips and risk off the table.

Uh, and then of course you had the Iran conflict coupled with the Iran conflict, you also had private credit fears that was hitting private equity stocks, uh, and you had death by Claude. Claude was cranking out new product releases seemingly every other day and every time they had a released, it created devastation in a different part of the market, uh, including things like software and SaaS and names like Microsoft and other pockets too, including financial services.

There was, there was hysteria around Claude. So that's where we've been. You know, by March 31st, we had a very interesting set of events. We had Berkshire Hathaway trading at multi-year lows on price of tangible book value. We had Meta trading at 17 and a half times earnings. [00:10:00] We had Microsoft trading at 20 times earning.

We had legitimate value start to present in the market. Uh, and we started to see that bad news was no longer sinking stocks. That's a crucial thing. We saw excessive hedging, we saw excessive short interest, uh, and when everyone's seeing the risk and the risk is in the headlines every day for three weeks in a row, that risk is usually priced.

Whoever's wanting to sell, they sold. Uh, so no, where we are is we believe that this is a non-consensus rally. It rhymes a lot with last year. It rhymes a lot with last year almost to the day. And, uh, you know, that's a, that's a shift, that's a shift. It's important to be attuned and recognized and be aware of these shifts, you know?

Crypto's been off the low for a few weeks now. You're seeing a reversal in those dominoes that were falling from October through February, which I just outlined. Those dominoes are now getting rebuilt. Software has been rallying off the lows. [00:11:00] You've seen retailers, which are impacted by tariffs. They bottomed on March 20th, well ahead of March 30th, actually leading the market.

So you're starting to see these dominoes rebuild. Financial services, which dip below the 200-day moving average. They're now over the 200-day moving average. Tech stocks are rebuilding. The data center AI link names are moving up now. So we're seeing those dominoes rebuild. That's what we're looking at.

And even though the S&P is around all time highs, there are so many names that are down 10, 20, 30%. We believe those are where the opportunities are. Even though the overall broad market indices have recovered, there are a broad range of opportunities that are out there in the market. Uh, and what makes this correction unique is that many names also have quality.

They have economic resilience. They're businesses you're supposed to own. The businesses that when they go on sale, they got great [00:12:00] customers, they got earnings growth, they've got good valuation, they've got a moat, they've got a dominant leadership competitive advantage. We think you're supposed to buy them.

So I like that. I like that characteristic about the market. You know, no one's at a crystal ball about what the future holds, but if you can buy a quality business when it's on sale, then when the cloud parts, when those clouds part, those names will revalue. Uh, a lot of names are trading low because they're discounting a lot of risks.

When you get to normalized earnings environment, those names will trade at higher prices. So you should be contrarian, you know, you should be contrarian, you should be constructive. That's our view. I'll walk through some names. We can easily walk through 15 to 20 to 25 names, by the way. I can only call out a few names here, but we will seek to do that.

Um, so I, I titled this the Claude versus Uno card because what's happening now is, uh, we can stop screen sharing this now, but what's happening [00:13:00] now is that, uh, you know, Claude went from wrecking ball for the economy ... How do you stop sharing that, Paul? Is there anything stop? There you go. Claude went from wrecking ball for different sectors of the market to now single-handedly reviving the AI trade.

You can see that in semiconductors, in industrials, uh, data center providers, names that were beaten down like Oracle, um, uh, other data center providers have, have rallied as well, like the quarrees of the world, software names like Microsoft are backup. So Claud went from wrecking ball to, uh, rejuvenation and people believe in the productivity story.

Uh, I think the demand for AI is real. You're still seeing sovereigns get on board with this. The Department of Defense or Department of War is still trying to sort out their approach to AI. Uh, you're seeing the importance of autonomous drones. Lumida, we made a private investment in ShieldAI about three months ago.

They do FSD, [00:14:00] autonomous drone guidance. Uh, we think the world's moving towards drone and defense tech, uh, refactoring. People are seeing the power of all of that. Uh, we think, uh, we think it's real. It's got legs. The spending will be there. The productivity gains are there. Uh, I think all of us in our own private lives are seeing that impact.

I'll share a funny anecdote with you. I was at a coffee shop two weekends ago. I was reading a wonderful book by the legendary investor, John Templeton. And, uh, acr- across from where I was seated, there was an elderly couple, easily 75 plus. There was also, uh, a younger individual, uh, maybe their niece in their 20s, and they were all talking about AI.

But more importantly, they were all familiar with AI. They were talking about specific tools in AI. They were using AI. They're talking about their use cases, and they were sharing with each other the joy of AI. That's called [00:15:00] high net promoter score. That's called natural adoption. It wasn't driven by a marketing process.

It was driven by value, legitimate, tangible value. Uh, I know at Lumida, we've incorporated AI substantially, top of the front, left to right, you name it, around our organization. We built an AI investing app called Luminate Invest. You should check it out at Luminatevest.com. But even our internal workflows, we're getting more and more productive with, with AI.

Uh, if you're an early adopter in AI, you're gonna benefit. Uh, and that's true for these Fortune 1000 companies that recognize that. You know, these CEOs aren't knuckleheads. They're gonna invest in the future. They know that if you can be more productive, you can get more impact created per unit of time, labor, or capital, then you gotta do that.

So they're gonna invest heavily in AI. Um, so I think that's the big justult shift that's happened here. That's something to consider. [00:16:00] Let's shift gears here. We'll move to bank lending. If you have any questions, keep them coming. Uh, so I'm gonna shift over to the Illumia ledger here. And we've got Brian Moynihan.

Uh, I used to work for Brian Moynihan back in the day when I was a senior vice president at Bank of America, Merrill Lynch. Bank of America bought Merrill Lynch. Uh, I was relocated down to Charlotte. I joined the management team in the cards and deposits unit. It was quite an experience. And, you know, the Bank of America is almost as big as the defense department.

I mean, they have so much data, loans, people, you get a real-time view in the economy. And some of that experience has shaped my, uh, view on how I look at things. Uh, so I think, I think Bank of America has got more data than the Federal Reserve, right? So let's take a look. So one of the things Moynihan said, the CEO of Bank of America, is that the consumer [00:17:00] balances and consumer spend is healthy and growing.

So that's a key takeaway. I, I, I wanna know that number. Our consumer spending. Consumer spending is up 6% year over year. That's at a rate that's faster than nominal GDP growth. That's a very good sign. Okay? So consumer is fine. 60%, 65% of spending in the economy is driven by the consumer. The consumer spending and household balance sheets are strong.

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