Hey everybody, welcome back to the channel. We are back on another episode of the daily recap. We've got a lot to talk about today. Nvidia officially response to Google.

There was a big story that came out last night that Google and their TPUs were now going to essentially the way the market priced that Nvidia was down 8% on the day be the death of Nvidia. That might not be happening. So, we're going to talk about that.

Rate cut probabilities for December. We spent a lot of time yesterday talking about how the market is reperricing the idea of rate cuts have gone up to about 85%. We got some macro data this morning that is leaning in the favor of getting that rate cut.

And then overall S&P 500 was up 1% today. It was up 1.5% yesterday. We were down about 5% for the month. So we've recovered 2 and a half% 50% of what we were down.

We are not that far away from alltime highs. Maybe there's a shot to get there and this Santa Claus rally still is possible. So we'll discuss what's going on in the macro and see if there's a chance to make that happen.

Thank you everybody for being here. Let's get into it.

All right. So, let's start with the biggest story of the day, which obviously was Nvidia and Google. First of all, what happened yesterday?

Google in some discussions potentially, we still don't have any confirmation on this from Google or Meta to sell billions of dollars worth of TPUs, their tensor processing units to Meta.

Obviously, the street took that seriously and said, "Wait a second. If if if Google is going to be selling their chips to Meta and Meta's not buying their chips from Nvidia, could that be bearish for Nvidia?"

Well, Nvidia decided that it's time to respond to some of the claims that came out today. So, here is what Nvidia said.

As you can see right here on the screen, we're delighted by Google's success. They've made great advances in AI and we continue to supply to Google. Nvidia is a generation ahead of the industry. It's the only platform that runs every AI model and does it everywhere computing is done. Nvidia offers greater performance, versatility, and fungeibility than A6, which are designed for specific AI frameworks or functions.

Now, you definitely had some people today that were not the happiest with this response. I was not one of them. I think it was a good thing that Nvidia responded.

At the end of the day, I do think that uh Nvidia should be responding to these types of claims. However, I can understand the the the counter perspective.

So, what's that counter perspective? The first argument is that Nvidia already responded to Michael Bur yesterday. They sent a memo out to the sellside analysts about why Nvidia is not the next Enron and why the depreciation claims don't make any sense.

So, a lot of people already were saying, well, why is Nvidia, you know, $4 trillion company? Why are they spending their time responding to this Michael Bur guy?

And then today, you know, Google didn't come out and say anything. Google's not saying, you know, we're going to kill Nvidia. Google's just potentially going to sell their TPUs.

And once again, Nvidia is putting out a public statement to respond to the fact that investors are starting to get a little bit more nervous and worried about what's going on with this AI trade.

Here's my perspective on it. Number one, I think it's okay for Jensen to defend his company. I mean, at the end of the day, Jensen is a company of a multi- he's a CEO of a multi- trillion dollar company.

He understands, as for the leaked memo that came out last week, that he's in a catch 22, which is that if they continue to do well, they're in an AI bubble that's being fueled by Nvidia. If they don't do well, then the AI bubble pops.

So, I think from his perspective, it's like, we're in a lose-lose situation. We might as well just respond.

like the public PR hit or backlash that we're going to get of actually issuing a response is minuscule compared to not responding because at the end of the day it's better to keep the party going and to keep the party going. The world has to believe that Nvidia is going to win and so we might as well respond to the people that are out there that are saying that we won't win or that have more aggressive concerns.

To me this morning when Nvidia fell to 169 which I did not buy the dip at 169 I got it at 170.8. I bought a live and market open when Jose came on the show who his opinion was also that the the TPU thing is kind of a nothing broker for Nvidia.

Um that's when it dipped to 169. I know a lot of people in the chat bought it. Let me know in the comments if if you bought Nvidia or you are you know starting to get a little bit more scared of Nvidia's boat.

That felt like a Deepseek moment. Now it wasn't 40% downside like Deepseek but it stayed at 169 for a couple minutes. Stayed at 170 172 for like maybe 30 minutes to an hour and then it began rebounding.

And I think it's not just because the macro argument started lining up, but rather people just started asking themselves, "Wait a second, I'm going to discount everything for Nvidia, because Google might start selling more of their TPUs, which is just an integrated chip architecture inside of their ecosystem."

I mean, there's a couple reasons why that's not going to be the death of Nvidia. Number one, worst case scenario, let's say it is, and that's 10% of Nvidia's revenue that goes away because Google is going to stop spending as much on Nvidia chips.

remember they still have to buy some of those chips for their data centers because they have workloads in GCP that they give to other their to their other clients that you you know pay for that AI ecosystem and so they still have to keep buying Nvidia GPUs

but let's say 10% of Nvidia sales go down because Google starts using more of their TPUs versus buying their GPUs.

Okay, that's 90% of uh a lot of money that's probably going to have to be allocated or a lot of market share that's going to eventually be allocated to Nvidia. And so it's hard to imagine that even if at the worst case scenario, Nvidia's losing 10% of their business because Google magically stops buying all these GPUs and the TPU takes over or that they start selling TPUs to Nvidia's customers that Nvidia is screwed.

This debate essentially around A6 has been had many times. Jensen has public commented on it many times. Jensen has praised the companies working on AS6.

But the comments that we saw in that tweet are very similar to what Jensen has said, which is that AS6 are cool, but they do not solve the actual problem. they could solve a specific type of problem. That's why they're A6. They're specialized. But in terms of general purpose computing, that's where Nvidia becomes very important.

So, um I think that's the first thing. Even if you assumed that Google was going to stop spending on Nvidia, there would still be a massive amount of market for Nvidia to still go after.

Number two is that a lot of customers don't like the lockin effect that comes in with Google. Google TPUs are integrated across GCP. If a customer doesn't use GCP, they're not easily going to be able to access the TPU architecture to then be able to integrate with all their workloads and cloud services.

Nvidia with CUDA developer ecosystem, it being vendor agnostic or I should say cloud computing vendor agnostic because you can hook up any of these Nvidia chips to any of these cloud providers. That is a big plus.

Same thing for AMD. AMD was down 9% on the day before it recovered because the same sort of argument around Google stealing the chip market started affecting Nvidia and AMD.

I mean, at the end of the day, these concerns seem so unbelievably, in my opinion, intellectually mediocre, which is a politically correct way to say stupid that I think the dip was a gift today.

Maybe that dip gets worse and, you know, maybe the concerns continue to get bad, but it doesn't seem like those concerns are rooted in reality.

This is what Amir Yazdan, who is a research scientist at Google DeepMind, who works on TPU design, said about the Nvidia sell-off today. The sell-off shows how clueless the market is about hardware and the demand.

I mean, you literally have a Google DeepMind research scientist who works on TPUs coming out and saying this is stupid.

And you had, you know, a lot of other people on the timeline today. I mean, you had some people saying that this is the death of Nvidia. You had a lot of other people saying, dude, Google has had TPUs since 2016. like the market is just deciding to discover it and figure it out and they're going to sell off one of the most one of the world's most important companies that's growing the fastest because they think TPUs are taking over.

I am going to take the under on that. So, I bought more. I have a full Nvidia position. Haven't added in a while. Added more today at 170.

If it really does get below that 170 level, I'll add more. But it doesn't seem like this is the biggest concern.

I understand why people are annoyed at Jensen responding. At the end of the day, I think he wants to defend his company and he's going to issue a response.

And when you really look at it, yes, there are some ways that this can affect a video. There's definitely a bare case here. Is it a meaningful enough bare case for this stock that is now trading at 24 times next year's earnings to go down to like 15 times that?

I don't think so. And as a result, I bought more Nvidia today.

All right. Next up, we've got some macro data. So, the probability for a rate cut has gone higher. It reached 85% today. Yesterday was 75%.

Uh it was a low at 30% back on Friday and or on Thursday. On Friday it jumped up because you had some Fed presidents get bullish. Yesterday you had some more Fed presidents get bullish.

Well, we got some macro data today that continue to kind of indicate bad news could theoretically be good news and that's enough to get this rate cut.

So what's the first piece of data we got today? Jobless claims from the ADP. So last week ADP reported we were having negative 2500 jobs per week.

This week they came out and said private payrolls fell by an average of 13,500. So about a 6x increase in terms of the amount of jobs that we are losing per week.

Again this is not a massive massive increase but nonetheless it is indeed an increase. And this is another reason why the labor market continues to weaken not deteriorate but weaken.

And that is what got the Fed probabilities to give us a higher chance of getting a rate cut, which was very important to see.

On top of that, you got some of the PPI data. Now, that PPI data was actually better than expected.

So, if you take a look at this right here, US September producer prices were up.3%. Street expected that. Um, producer prices year-over-year were up 2.7. Street expected that.

Core was up.1 Street expected.3. And then core on the yearly was 2.6. 6 Street expected 2.7.

So you actually had weaker inflation prints than what the street expected, which was good because the whole concern about not getting a rate cut is that inflation is going up too much.

And you had worse labor market conditions, which again is the nuance. You can't have a horrible labor market because then it doesn't matter if we're going to cut rates because earnings are going to suffer anyway.

If people don't have jobs, they don't have money. So earnings are going to, you know, deteriorate. But if you have a weakening labor market and that's enough signal for the Fed to cut rates, which is really good for all of us that own assets because lower cost of capital is very important.

U by the way, I published a Substack article, the bifurcation of the economy. I'll put that in the description as well. Really goes deeper into why the cost of capital is so important for people that are living uh paycheck to paycheck.

So again, [snorts] for the delinquencies that we've seen at the highest levels in 14 years on subprime auto, student loans, and um credit cards, like we need these lower rates that will help the economy.

Now, if the labor market is officially deteriorated, lower rates are not going to matter because it takes about a year for the 25 basis points or at least every incremental 25 basis points to actually make an impact on the economy.

Takes about 12 months to work in the system. So, we got to start cutting now. If the labor market's weakening, we can potentially save it from deteriorating.

If it's deteriorating, we're too late. And the Fed has been late many times. So, that is the nuance of trying to navigate what's going on in the labor market.

And if we can meaningfully do that, then hopefully we'll get a rate cut.

And then we got one more piece of macro data right here. Uh US October budget deficit was 284 billion versus 257 last year. This is for the month of October.

That's an increase of about 30 billion. Uh even though our net custom receipts were 31 billion versus 7 billion in October of 2024.

So you had more than a 400% increase in the amount of tariff revenues that we collected. Yet, we increased the deficit by another 287 billion, 30 billion more than expected from last year because our spending continues to outpace our savings.

Uh, even with the tariff revenue coming in, I don't know how we're going to give everyone a $2,000 dividend if we're not even able to manage the budget after collecting 4x more the amount of tariffs that we've ever collected in a very long time.

But, nonetheless, ironically, this is the bull case for Bitcoin, even though Bitcoin's not acting like it. But, this government's going to continue to spend.

Our job as investors is to allocate capital to the companies that are going to benefit from all that spending and the interest rate environment regardless of if the government has their uh books in order which is you know very hard to trust any administration is going to be able to do that

but if we're going to keep spending we might as well get a lower cost of capital of doing the spending so hopefully we continue to cut rates.

All right last thing we're going to discuss is just a couple piece of macro data that I thought were important based on some of the stuff that I've been uh compiling today.

So, first thing is this study right here from Anthropic I thought was very interesting. Uh, basically they did a study that's estimating labor productivity growth in the United States could increase to 1.8% in the age of AI.

This would be doubling the average rate since 2019. Now, how did they do this? The study published by the AI safety company analyzed 100,000 real conversations with Claude, which is their chatbot to calculate potential economic impacts as the technology achieves widespread adoption.

The research found that AI reduces task completion time by 80%. On average with healthcare assistant tasks seeing time savings of up to 90%. I I mean that stuff is is is just quite incredible to see.

Um it would take someone 1.4 hours to complete and cost $55 in human labor in order to make this a real thing.

I think one of the most interesting things about this type of study today is that this is the hope of AI. This is the hope of productivity.

I mean, everyone that's asking what's the ROI on AI, when is it going to come? It's going to come in overall GDP, productivity, and the labor um margin efficiency that companies see.

Now, it might lead to a lot of layoffs as well, which is a whole different question. But if and that's just 100,000 conversations that Claude is analyzing.

I mean, these chat bots are having hundreds of millions of conversations every month. I would imagine you're going to start to be able to get a lot of aggregate statistical data on how and where the confluence of productivity can happen within these chatbots whether it's Grock, Gemini, GPT, Claude, etc.

And that's just going to lead to a lot more uh I guess you can say datadriven approaches to productivity way better than what a McKenzie or a KPMG or a Deote or an Accenture could produce in terms of their consulting for how we can become more productive.

I mean, it seems like these AI bots are very real and the conversations they're having are very real, which obviously could be a major impact for the whole AI trade.

IBKR, another piece of data I thought was important today. These were the top traded stocks on IBKR, Nvidia, Tesla, AMD, Pounder, Metagle, TQQQ, which is triple leverage, QQQ, Google, QQQ, and then Amazon.

Retail's loading up in tech. Very simple. Retail is loading up in tech.

The AI sentiment is I don't want to say coming back, but at least it's not I know Nvidia's still down substantially from earnings, but it's not as bad as it was a couple weeks ago.

I mean, a couple weeks ago, people just thought AI was dead. And I think Gemini 3 kind of came in and said, "No, we're very much alive."

And as a result, you're getting some of those people to start piling up in tech. And last week, take a look at this chart right here. Um, the average daily notional trading volume in the S&P 500 hit a record 3.5 trillion.

Yes, it's very likely that people bought the dip last week. Again, this was last week when it felt like the sky was falling and markets were down like 4% for the week.

Um, and they probably bought calls. I mean, if you're looking at the S&P 500 notional option volume versus the historical average of it, this is on top of the Russell 2000 market cap in the red and the S&P daily option notional volume in in blue.

You're seeing a record high. And what's also really really incredible about this is that 95 million contracts were traded last week. It was one of the highest in history as per Goldman Sachs.

The dollar value of all the options traded each day has doubled over the last year and has surged over 8x since 2020.

Now, what's also really important about this is that it goes to potentially say the sort of buy the dip mentality is back. I'm I don't want to say it's, you know, we're completely out of the woods and then every dip you immediately buy and you get rewarded.

Obviously, there is some logic to that given the earnings growth is so good and it's this secular bull market. There's all these trends, quantitative easing is coming up, etc., etc. for why buying the dip should be rewarded.

But nonetheless, over the past month, it almost felt like every time you bought the dip, you bought a falling knife. If that changes and buying the dip is back and that becomes something that's very exciting to people and we kind of saw it last week in regards to the amount of options that were traded, maybe that also is going to be something bullish going into the end of the year.

Final chart I want to share with everybody going back to this bifurcation of the economy argument. The percentage of US households with a total income greater than 150,000 has increased as the middle class has been shrinking.

So I thought this analysis was really important. US households with incomes greater than 150,000 adjusted for inflation now make up a record 34% of all households.

This is up 29 percentage points since 1965. At the same time, the middle class has shrunk 11 percentage points to 45%, the lowest on record.

living costs for a basic family of four budget are now between 130,000 and 150,000. Once again, it goes to prove the argument that the wealth gap is continuing to broaden.

And kind of my solution to this outside of the political structure of institutions or politicians that could save us is joining the ownership class.

Now, one thing I will say to kind of push back against what I'm saying today around this whole bifurcation of the economy argument. XRT, which is the uh retailer uh um ETF, had its best day since May.

Best Buy, Burlington, Coofactory, Atrombi was up 40% on the day. Kohl's was up 40%. Um and then after I was Urban Outfitters was up 20%.

I don't know if this is like a pulling forward of demand going into the end of the year. And everyone thinks that like people are just going to keep spending on clothes or stuff, but like I thought the consumer was weakening and we have plenty of data to say the consumer is weakening.

but if they're spending at Urban Outfitters or buying $75 jeans from Abberrombi, even Best Buy had decent earnings today. You had all these stocks just really get some love.

Chipotle was up 7%.

I mean, maybe we're seeing some counter trends in the data that the consumer is not weakening. And if we get rate cuts, the labor market's not that bad, and the consumer is not weakening, and this AI trade is well and alive, I think we continue this bull market into next year, potentially towards the end of the year as well, and maybe that's how the year could end up playing out.

All right, that's it for me. Thank you everybody for listening and watching. We will have the final daily recap of the week tomorrow.

Uh Thursday, we'll have Thanksgiving in the States, and so I hope everyone enjoys their time with their family. Uh but we will have one more daily recap for the week and probably gonna have a lot of light volume for the week just given people are starting to travel.

But so far past two days have been good. If we can have a little bit more of a green tomorrow, maybe even stabilize at these levels, we can start to recoup some of the losses that we had over the past couple weeks.

Thank you everybody for listening and watching. I'll see you guys in the next one.