Happy Sunday Traders and Investors and thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #34 is entitled “The MEGA4 Are Reserve Assets Now”
Quick Disclaimer: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
Let’s just start things off with the settlement sheet for trade date Friday February 9th. The US Bond markets swallowed down the new auctions pretty well as the 10Y and 30Y both were well bid and as we explained last week, saw solid demand. Despite the new supply in the longer end the US Bond markets were flatter on Friday with once again the short end seeming to be the focus of the selling. Here is a look at the US Bond curve from Friday:
As far as the equities the Nasdaq continues to lead and is now above 18000 in the March futures, closing the week at 18039.25 +171 points and the SP futures above 5000 closing at 5044 +26.25. The R2k was bid on Friday with the Dow the weak link on the day. Bitcoin continues its second attempt at $48k resistance closing back above 47k for our mark on Friday. The US dollar saw a weaker day slightly but markets were pretty muted. Crude and RBOB continue to rise here and expected to test $78 in the April futures which should be short term resistance for now and Nat Gas continues to leak lower and metals were all weaker across the board:
So all in all equities continue to be the main alpha generating mechanism and all accounts continue to chase here. As far as next week we get the CPI numbers on Tuesday so that will be our focus early on in the week:
As far as our Futures Model Tracker as we discussed it has moved to a more bullish stance on the equities here for now with a weaker stance on FX and Metals:
When we look at our MEGA8s Friday all the names were higher except META and now the group is well over $14T in market cap with Nvidia leading the way +3.58%. It is impressive to note that our basket here is +11.8% on the year and even the hedged version is +1.64%:
Alright so let’s get into a couple of things here, we had a good back and forth on X with a reputable name after she shared the buy back data for the MEGA4:
To which I replied:
I used the term “reserve assets” to describe these big names, because for us, this is the best description we believe that designates exactly how their equity is perceived by the controlling parties of the stock. By controlling parties we mean the ultra high net worth and major financial institutions.
Now what do we mean by the term “Reserve Asset” we like to define this term as any source of highly liquid, stable asset that acts as a store of value and can provide liquidity. Now many believe that US Government bonds are the top reserve asset (outside of cash of course) but in reality, we believe the post QE and ZIRP world has discounted for all intents and purposes, US bonds safe haven status due to the fact that the US debt problem will and is getting increasingly worse.
For us, this explanation and thesis that the MEGA4 are now consider highly sought after risk assets and protection of value that many HNW and institutions are coveting and it explains the massive out performance and insatiable demand to own the equities of these companies.
These companies have:
Large cash reserves and low borrowing costs: Provide financial resilience and independence. This financial strength makes them less susceptible to economic downturns compared to smaller companies reliant on external funding. These companies can borrow money at cheaper rates than most governments due to their creditworthiness and market perception. This further strengthens their resilience and ability to weather economic storms.
Relative stability and lower volatility: Compared to individual equities with higher volatility, these mega-cap stocks tend to exhibit lower volatility due to their size, diversification, and established market positions. This can attract investors seeking a haven from market turmoil.
Potential inflation hedge: Growing nominal stock prices might offset inflation's impact. While not a perfect hedge, the potential for nominal price growth driven by inflation and company performance could be attractive to investors seeking protection against purchasing power erosion.
The latter point being very important, because in an environment and future that will require the US government to continue to inflate away its debt, we believe generative AI will continue to discount the risk free status of US Debt and value the MEGA4 more valuably and this indeed has been the case we believe.
So we could go on and back up this thesis we have, but its safe to say that these companies wield a tremendous amount of power, influence and in actuality, are wealthier than some nations! Furthermore, its no secret that Federal Spending will continue to balloon and their yearly deficits will continue to hinder the already shaken US debt profile. Yes we know debt never goes down, but the US is past the singularity of any natural organic economic utility and we believe the rest of the world is catching on to this:
We also know that in a financial investment digital world by which systematic AI algorithmic Mechanical Investors (SAMIs) dominate and will continue to play a massive role in capital allocation, it only makes sense that the wealth concentration becomes more acute and it is merely a self fulfilling prophecy by design because capital chases alpha and capital flees negative attributes no matter what! A key demonstration of this phenomenon is non other than this chart from SoberLook on X showing how 2023 was a record year for the share of underperforming stocks in the SP500. We believe this will continue:
The real problem the investment world needs to quantify is exactly what constitutes value? What preserves value? What generates, creates and even what destroys value? We live in a debt based world for now, and debt destroys value in the long run. So the more the US govt prints, the more it goes into debt, the more diversification into real assets like the MEGA4 will continue. The real value is owning these shares which are a claim on the future profits, dividends and nominal price appreciation. This is where we see value but if you look at it in another way, the nominal prices are merely a function of an inflated currency that is being debased by these public enterprises.
So it should be no wonder that over 2023 the top 20 wealthiest individuals nominal change in worth grew by $694 Billion in one year! The top 20 are worth a collective $2.05T:
If this isn’t a testament of how worthless money is becoming well you just aint lookin! So all in all and to sum up what we are saying, is that you will continue to hear claims that this is a massive bubble, that its the same as 1929 or 1999 or even 2008. Well its not, the nominal prices are not being driven by over reaching retail and mom and pop players going all in. The nominal prices are being driven by Non Zero Sum players, the never have to sell type, the type that are not affected by business cycles and short term aberrations in the markets. Remember the market is controlled by a very small cohort of firms and the rest of retail are merely consistent base money providers twice a month in the forms of labor wage reallocation to their 401ks and or IRA contributions. The real evidence is there for you to see that money, cash, does not offer value protection in the longer run, its debased, and owning real assets, the true reserves lies within owning the big names and for now and the foreseeable future, this will continue to be the case!
Alright its Super Bowl time, will you watch, will you bother, is it Taylor Swift vs the world? Its entertainment at its finest and its not the game so much that we are interested in but rather the spectacle of what has become the biggest hyped relationship of the year and how it is spun, but for us honestly the half time show and the commercials are always something to see. Let’s see who spent the money well and who didn’t! Entertainment sports is huge, huge business and its also a reflection of exactly how worthless money is becoming!
Till next time and as always, thank you to our subscribers we are growing at about 10% a month, excellent indeed but we can do better. Remember, our goal is simple, to make Magnelibra Markets subscribers the most informed, well educated and financially savvy individuals out there, You owe it to yourself, so sign up and spread the word! Till next time, cheers.
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