Welcome back to the Lumida Ledger. Here’s a preview of what we cover this week:

• Macro: Fed, Unemployment, CPI

• Markets: Semiconductors, Unprofitable Tech

• Company Earnings: Bank Funding Costs, Disney, Apple

• AI: Competitive Landscape, Google, Softbank

• Digital Assets: Banking-as-a-Service, Coinbase Bonds

We believe we are on the precipice of a changing world. We’ll be a keynote speaker this week at the 1640 Investor Forum in Southampton. We look forward to sharing our non-consensus investing views on AI, digital assets and longevity for UHNW investors. Reach out to Ram or Dimitri if you’re around to connect.

_Macro

It’s been over a year since the Fed started raising rates.

Where are we now? Unemployment is lower, GDP is higher, and the consumer is beating expectations.

The Fed has more work to do.

Sometimes in life you get exactly what you expect. The CPI print came in meeting expectations.

We see a lot of folks commenting on how ‘CPI ex-shelter’ trend shows the Fed mission is nearly done.

Core CPI Ex-Shelter is like Adjusted EBITDA.

It looks pretty, and shows trend - but that’s it.

Don’t get distracted by Core CPI ex-shelter. This metric excludes three “pocketbook” categories: housing, food, and energy. The Fed can’t ignore that.

Yes, inflation is coming down.

But the last leg will be slow and sticky with a resilient consumer.

We see that in record YTD oil prices, labor strikes at UPS and in Hollywood, and bulk dry freight - a leading indicator for goods and economic activity.

tl;dr Don’t expect rate cuts in Q1 as markets expect.

Also, we expect a hot CPI print in August.

On the jobs front, jobless claims came in higher than expectations. This is mostly noise - there’s no breakout - the consumer is hanging in there and it shows in the discretionary spend across Travel & Leisure.

We continue to look at this chart to gauge risks to the ‘soft landing’ narrative.

_Markets

Two weeks ago we made our underweight equities tactical call on Aug 1st. Since then markets are on pace for 2 down weeks in a row.

Big Tech has rallied due to PE expansion. Next quarter earnings need to show up.

We saw last quarter that end-user demand for AI at the Big Cloud Providers has not materialized.

Markets are giving advance credit. We believe certain players (like Google) have a better risk reward in Big Tech than other players (like Meta).

What about our tactical call now? We still expect weakness in the weeks ahead, but we’re in a bull market when you look out 6 to 12 months. A lot will turn on how Nvidia reports on August 24th.

Take a look at semiconductors. Semis are a leading indicator.

Whether its CHIPS Act, Tesla, Big Tech, or AI - semiconductors are the market tell to focus on.

And here’s where the Van Eck Semiconductor ETF (SMH) sits today.

We also noted that the climate is set for a ‘new narrative’ to emerge. There is dueling over what that narrative should be. We believe it will be ‘hot landing’ (e.g., slowing growth combined with sticky inflation).

Lastly, markets are punishing unprofitable IPOs that use Adjusted EBITDA. We continue to advise sticking to quality. Nvidia - a real company growing earnings and revenue (albeit at high valuations) is down only 5%.

Meanwhile Upstart, Affirm and SoFi are down 20 to 40%.

JPM’s equity strategy team has a new narrative - and it is decidedly bearish. Take a look here for more:

Here’s a statistic that supports our tactical view: after the Nasdaq 100 ends 100+ day streaks of closes above its 50 day moving average, there has been 10 such streaks of closes above the 50-day prior to this one.

In the week following the end of those streaks, the Nasdaq 100 was lower nine times for an average drop of 2.04%.

Over the next month, the average move has been - 0.65%.

tl;dr markets are due for a breather

_{Company Earnings}

Moody’s cuts ratings on 10 banks citing higher funding costs and CRE risks. This is called ‘rear view mirror’ driving. The ratings agencies dump this kind of news after markets have recovered somewhat to avoid adding to risks.

We’d like to thank Moody’s for allowing us to add to banking sector positions at attractive valuations.

Fun Fact: JPM, MS, and UBS have all out-performed Apple who we put in the penalty box due to low earnings growth since the lows - by double digits.

We continue to like tilts to financials. Our conviction has only grown now that we have the benefit of earnings.

Also, Energy has outperformed Tech over the last 3 months as well. In fact, the energy sector is the cheapest globally. With energy prices on the rise and the demand for energy increasing - we continue to like the sector’s prospects over a multi-year horizon.

One area where we are not seeing the consumer spend is Disney - whose stock price has gone nowhere in 9 years and is flat YTD.

Disney is losing subscribers in its streaming service. We don’t like Disney for the same reason we don’t like Netflix - competition is fierce and it’s a market share battle.

Disney has also missed the fact that kids live their lives now in the Digital Realm: Roblox, TikTok, and Youtube Kids.

Check out this thread for more on how to fix Disney. We have a TikTok walkthrough here with our backyard version of Disneyland :)

Big Tech Earnings

We’re big fans of technology to improve quality of life and also the ability of banks to earn at scale.

We recommend looking at this post if you want to see which Big Tech firms we like based on valuation and earnings potential.

Recall in this newsletter back in July we called several Big Tech names ‘geriatrics’. The most geriatric of all is Apple. By that we mean the earnings and revenue growth is sub-par – or in decline.

We made this comment in our July 9th newsletter re: Apple: “The PE ratio for Apple is 32 with a 6% earnings growth expectation. Meanwhile, Taiwan Semiconductor has a PE ratio of 15 and over twice the earnings growth rate expectation of ~10% over the next 5 years”.

Take a look at Apple’s performance since July.

Apple is a great business. The buybacks are great. It is a consumer staple. Our point is that without double-digit earnings growth Apple’s stock will lag other Big Tech firms and the valuation does not reflect that.

This was a deep out-of-consensus call on the heels of Apple’s Vision Pro. We feel very good about this one.

Also, here’s a twitter thread showing how the Big Tech firms, including Apple, can jumpstart earnings by getting into the banking sector.

_AI

There’s a lot happening on the AI front. We recommend reading this thread which is how we see how competition playing out for 3 core customer segments: Consumer, Enterprise, Government / Defense.

Headline: We believe Google has a real shot of winning the battle for the digital personal assistant. Google can level-up the browser, gmail client, and search in a unified AI-first experience.

We also like Google from a valuation and growth perspective. But Microsoft with their acquisition of GitHub and the developer tools on OpenAI may win the developer market.

The good news? Softbank announced they are entering AI. Good for them. WeWork is on the verge of issuing ‘going concern’ risk. We need more venture funding to take our semiconductor positions into the stratosphere.

At the 1640 Society, we will share our non-consensus approach to investing in AI. One tactic? We like specific names in the Silicone Layer. There is no ‘build it and they will come’ bet - the CapEx spend is there now.

_{Digital Assets}

The bank regulators updated their non-objection requirements. What that means is if a Bank wants to offer crypto services or banking-as-a-service offerings, they need ‘non-objection’.

This requirement on crypto has been in place already - the expansion to banking-as-a-service is new. That regulation will slow down the growth of FinTech and Crypto firms that seek to access fiat ramps.

Exchanges like Coinbase, Prime Trust, and Kraken rely on Fiat Ramps to accept and move customer funds. The rule creates a barrier to entry and advantages incumbents.

Coinbase offered to buy its bonds for 65 cents on the dollar. Check our thread here. After we published this the offers on the bonds increase to 71 cents on the dollar.

Content update: We’ve been testing content on new channels like TikTok. Here is us diagnosing the issues with Disney and how to fix them.

Work with us: we are are looking for a junior offshore analyst to help us build more analytically-informed content. Send referrals here.

Meme of the Week

The service and experience from the current medical system is lacking. We talk to clients about strategies to stay healthier for longer to avoid doctors visits. Stay tuned for future content from us on the topics of longevity and legacy.

Quote of the Week

“The secret to so many artists living so long is that every painting is a new adventure. So, you see, they’re always looking ahead to something new and exciting. The secret is to not look back.” - Norman Rockwell

If you enjoy the Lumida Ledger, please forward share with a friend or subscribe.

If you’re interested in learning more about Lumida’s wealth management services, please join our waitlist.

Disclaimer: Lumida Wealth Management LLC (‘Lumida”) is located in New York, NY, and is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Lumida only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Any direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

The information in this material has been obtained from sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated in this material are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Lumida, Inc. and Lumida Wealth Management LLC (collectively Lumida) make no representations or warranties whatsoever the completeness or accuracy of the material provided, except with respect to any disclosures relative to Lumida. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this material. Any data discrepancies in this material could be the result of different calculations and/or adjustments. Lumida accepts no liability whatsoever for any loss arising from any use of this material or its contents, and neither Lumida nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof, apart from the liabilities and responsibilities that may be imposed on them by the relevant regulatory authority in the jurisdiction in question, or the regulatory regime thereunder. Opinions,forecasts or projections contained in this material represent Lumida’s current opinions or judgment as of the day of the material only and are therefore subject to change without notice. Periodic updates may be provided on companies/industries based on company-specific developments or announcements, market conditions or any other publicly available information. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections, which represent only one possible outcome. Furthermore, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified, and future actual results or events could differ materially. The value of, or income from, any investments referred to in this material may fluctuate and/orbe affected by changes in exchange rates. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Past performance is not indicative of future results. Accordingly, investors may receive back less than originally invested. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipients of this material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek advice from such independent financial, legal, tax or other adviser as they deem necessary. Lumida may trade as a principal on the basis of its views and research, and it may also engage in transactions for its own account or for its clients’ accounts in a manner inconsistent with the views taken in this material, and Lumida is under no obligation to ensure that such other communication is brought to the attention of any recipient of this material. Others within Lumida may take views that are inconsistent with those taken in this material. Employees of Lumida not involved in the preparation of this material may have investments in the financial instruments or securities (or derivatives of such financial instruments or securities) mentioned in this material and may trade them in ways different from those discussed in this material. This material is not an advertisement for or marketing of any issuer, its products or services, or its securities in any