• Chakkani's Newsletter
  • Posts
  • Wall Street Whispers: Your Weekly Financial Briefing & Part 6 of "Credit Alchemy" Series

Wall Street Whispers: Your Weekly Financial Briefing & Part 6 of "Credit Alchemy" Series

Author

Chakkani Newsletter
May 25, 2024

Hey Chakkani Fam! Welcome to Your Weekly Financial Briefing! We've got bite sized market moves, big tech bets, and whispers of change from all over the world. Grab a cup of joe (or your preferred drink) and let's dive:

Bears & Bulls: Markets Notes & Numbers

  • S&P 500: 5,304.72 +36.88 (+0.70%)

  • NASDAQ: 16,920.79 +184.76 (+1.10%)

  • Dow Jones: 39,069.59 +4.33 (+0.01%)

  • 10-Year Treasury Yield: 4.467 (-0.008)

  • Bitcoin: $68,927.17 +1,616.93 (+2.4%)

    All data as of last trading day's market close time read more…

Market Bites::

1. This Week in Bidenomics: 4 More Years… of Inflation?: In 2022, an inflation shock rattled consumers and negatively impacted President Biden’s approval rating. Although inflation is now receding, Biden faces another challenge: Some voters believe that re-electing him would lead to even more inflation. Swing-state voters, surveyed by the Cook Political Report, express rising living costs as a top concern for 2024. Interestingly, some voters associate Biden with high prices, while viewing his likely Republican opponent, Donald Trump, as someone who delivers low prices. For these voters, supporting Biden feels like endorsing four more years of unnecessarily high living costs.

The Cook pollsters collaborated with Democratic and Republican polling firms to survey approximately 4,000 voters in key swing states—Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. These states significantly influenced the 2020 election, with Biden winning six of them and securing the electoral vote. The survey focused on economic matters, asking respondents to identify the best measure of economic well-being. The cost of living emerged as the clear winner, with 54% of respondents selecting it. In contrast, only 13% cited the unemployment rate, 9% mentioned household income, 8% considered interest rates, and 6% referenced the stock market. The remaining respondents were either unsure or provided alternative answers.

Interestingly, despite solid economic output, robust job growth, and rising stock markets, people remain disheartened—a phenomenon dubbed the “vibecession.” When asked about the strongest aspect of the economy, voters were divided. This poses a challenge for Biden as he seeks a singular winning economic message. The Cook poll found that responses related to unemployment, stocks, the cost of living, and uncertainty were nearly evenly split, although “not sure” and low unemployment held a slight edge.

Furthermore, the pollsters inquired about people’s perception of Biden’s control over inflation. Fifty-nine percent believe he has some or a lot of control, while 41% think he has little or no control. This suggests that many voters perceive Biden as intentionally maintaining high inflation, even if it jeopardizes his chances of re-election.

2. Nvidia’s Stock Split: A Closer Look at the Numbers: Nvidia (NVDA) recently closed at a record high of $1,038 per share, but in less than a month, that closing price will be closer to $104. Why? Because alongside its blockbuster earnings report, Nvidia announced plans to split its stock 10-for-1. This means that existing shareholders will receive 10 shares of Nvidia for every 1 they currently own, at a price that is 10% of the market value.

On the surface, this move seems straightforward: the number of outstanding Nvidia shares increases, and the per-share price decreases. However, market history suggests that stock splits have more nuanced implications. Data from Bank of America reveals that, on average, stocks experience a 25.4% return over the 12 months following a split—more than double the average annual return for the overall market.

Interestingly, companies tend to split their stock during favorable times. Nvidia’s decision to split its stock coincided with a 150% increase in its dividend. While CEO Jensen Huang’s commentary indicates robust chip demand and impressive profit and sales growth, business cycles can be unpredictable. Companies adjust their shareholder rewards at varying rates, and the stock market responds accordingly.

Nvidia’s new dividend commitment will boost annual payments to shareholders from $395 million to nearly $1 billion. Considering Nvidia’s remarkable stock performance—up over 2,600% in the last five years compared to a 120% gain for the Nasdaq—the company continues to attract investors. However, even in good times, shareholder returns remain under scrutiny. This dividend hike signals Nvidia’s confidence in its position, moving away from any potential downsides in the current AI boom.

3. Nvidia’s Remarkable Rise: A Closer Look at the Numbers: Nvidia, once a niche chip supplier to the video game industry, has undergone a remarkable transformation. It is now the single largest provider of cutting-edge accelerators that drive artificial intelligence applications. Let’s delve into five key charts that illustrate Nvidia’s meteoric growth:

  1. Price Return:

    • If you had invested $1,000 in Nvidia when it went public in January 1999, your investment would now be worth about $4 million. Among stocks valued at over $1 billion in market capitalization, Nvidia boasts one of the strongest lifetime returns.

  2. Revenue:

    • Nvidia’s revenue has more than tripled to $26 billion during the first fiscal quarter. This impressive figure surpasses the revenue growth of nearly three-fourths of companies in the S&P 500, including giants like McDonald’s Corp., Mastercard Inc., and Charles Schwab Corp.

  3. Market Capitalization:

    • Shares of the Santa Clara, California-based company have more than doubled this year, contributing approximately $1.1 trillion to its market capitalization. This rapid increase makes Nvidia one of the fastest-growing companies in US stock market history, surpassing even Alphabet Inc., Microsoft Corp., and Amazon.com Inc. combined.

  4. Net Income:

    • Nvidia’s profitability has soared. Net income surged over 2,000% in the past two years, reaching nearly $15 billion in the most recent quarter. Only Alphabet, Apple Inc., and Microsoft generated larger profits during the same period, according to Bloomberg data.

  5. Wealth:

    • The surge in Nvidia’s stock price has significantly boosted CEO Jensen Huang’s net worth. As of Wednesday’s close, his net worth increased by about $40 billion. Huang, the 20th richest person listed in the Bloomberg Billionaires Index, was previously worth around $84 billion. As Nvidia’s shares continue to rise, his wealth is poised for further growth.

In summary, Nvidia’s journey from a niche player to a dominant force in AI-driven technology has been nothing short of extraordinary, and its financial performance reflects this remarkable ascent.

4. The Growing US Debt Burden: Implications and Challenges: The mounting U.S. government debt has caught the attention of bond investors, who anticipate a surge in debt issuance that could overshadow any bond market rally. While much of this year’s bond market activity has centered around Federal Reserve interest rate cuts, fiscal concerns are expected to take center stage as the November 5 election approaches. President Joe Biden and Republican challenger Donald Trump have differing views on deficit spending, but both candidates’ teams acknowledge the issue.

Here are some key points to consider:

  1. Supply and Demand Imbalances:

    • Some investors are adjusting their portfolios to mitigate potential losses if Treasury yields rise due to supply and demand imbalances.

    • The uncertainty surrounding the necessary debt levels for deficit spending raises concerns about stability in the $27 trillion Treasury market, a critical component of the global financial system.

  2. Long-Term Yield Outlook:

    • Benchmark 10-year Treasury yields, currently around 4.4%, could potentially reach 8%-10% over the next several years.

    • However, sustaining such high yields in the long term may prove challenging.

  3. Bond Vigilantes and Past Trends:

    • Bond vigilantes, who punish governments with excessive spending by selling their bonds, reappeared last year, briefly pushing 10-year Treasury yields to 5%.

    • The Treasury Department’s slowdown in debt issuance helped alleviate concerns, but the issue remains relevant.

  4. Future Debt Auctions:

    • The Treasury Department plans to maintain steady auction sizes in the coming quarters.

    • Nevertheless, larger auctions for long-dated debt are anticipated next year.

  5. Growing Federal Debt:

    • Publicly held federal debt could expand from $21 trillion to $48 trillion by 2034, according to the Congressional Budget Office.

    • Traditional demand sources for U.S. government bonds are lagging, and foreign ownership is not keeping pace with market growth.

  6. Demand and Term Premium:

    • Investors are closely monitoring both supply and demand dynamics.

    • Reduced buyer bases and increased supply may lead to higher term premiums—additional compensation investors seek for lending to the government over the long term.

  7. Political Commitments:

    • Both Democrats and Republicans have pledged to address deficit spending and debt levels.

    • President Biden has already signed $1 trillion of deficit reduction into law and aims to lower the deficit by an additional $3 trillion.

In summary, the U.S. debt situation warrants careful attention, and its impact on financial markets remains a critical consideration as the election approaches.

5. US Moves Towards Faster Stock Settlement: What to Expect: The U.S. markets are poised for a significant change on Tuesday, May 28, as the settlement time for U.S. equities, corporate municipal bonds, and other securities is halved to one day (T+1). This shift follows the adoption of a new Securities and Exchange Commission (SEC) rule in February 2023. Let’s explore what this transition means:

  1. Settlement Basics:

    • Trade settlement occurs when the buyer receives the security, and the seller is paid. The Depository Trust Company (DTC), a subsidiary of the Depository Trust and Clearing Corporation, handles this final stage.

  2. Impact on Markets:

    • Regulators anticipate that faster settlement will reduce risk and enhance efficiency in the world’s largest markets. Investors will receive their money and securities more promptly.

    • Currently, trades take two days to settle, leading to potential hiccups before investors receive their funds or securities.

    • Notably, the trading frenzy around the “meme stock” GameStop in 2021 underscored the need to reduce counterparty risk and improve capital efficiency and liquidity in securities transactions. SEC Chair Gary Gensler supports this change to enhance market resilience.

  3. Implementation Details:

    • Market participants have been testing faster settlement since at least August 2023.

    • A virtual command center has been established to monitor implementation and address potential issues. Over 1,000 people will participate in multiple daily calls.

    • The conversion of the Depositary Trust and Clearing Corporation (DTCC) to T+1 is central to this shift. All market participants, including banks, asset managers, and custodians, will need to adjust.

  4. Global Trends:

    • India already settled trades one day after the trade following its phased-in transition in January 2023. India now aims for same-day settlement, aligning with China’s T+0 and T+1 stock settlement for cash settlement.

    • Canada, Mexico, and Argentina will also shift to one-day settlement on May 27, preceding the U.S.

    • Britain’s stock markets plan to transition to T+1 by the end of 2027, and the European Union is considering a similar move.

  5. Challenges Ahead:

    • Financial firms will have less time to arrange dollars for stock purchases, recall loaned shares, or correct transaction errors. This could increase the risk of settlement failures and raise transaction costs.

    • The foreign exchange market still settles in two days, highlighting the challenges of faster settlements.

  6. Potential Trade Fails:

    • As market participants adapt, there may be a temporary increase in trade fails. Similar challenges occurred in September 2017 when the settlement period was reduced from three to two days.

In summary, the move to faster stock settlement aims to enhance market efficiency and reduce risk, but it also presents practical challenges that market participants must navigate.

6. Hong Kong Regulator Directs Worldcoin to Cease Operations Due to Privacy Concerns: The Hong Kong regulator has issued an enforcement notice to the Worldcoin Foundation, instructing it to halt all operations related to its cryptocurrency project within the country. The primary reason cited is the risk posed to privacy and personal data. Specifically, the Office of the Privacy Commissioner for Personal Data (PCPD) has raised concerns about Worldcoin’s practice of scanning and collecting iris and face images from the public using its “orb” devices. The PCPD deems this data collection as “unnecessary and excessive.”

Worldcoin, which encourages people to have their irises scanned in exchange for a digital ID and free cryptocurrency, has garnered over 5 million sign-ups across 160 countries. However, the project has faced criticism regarding the handling of personal data. In response, the Worldcoin Foundation asserts that it operates lawfully and complies with data collection and usage regulations, including Hong Kong’s Personal Data (Privacy) Ordinance.

Co-founded by OpenAI CEO Sam Altman, Worldcoin aims to establish a global identity and financial network akin to India’s Aadhaar biometric ID system. The project envisions ambitious use cases, including distinguishing individuals from artificial intelligence bots.

7. U.S. House Passes Crypto Bill Despite SEC Warnings: The U.S. House of Representatives has approved the Financial Innovation and Technology for the 21st Century Act, a bill aimed at establishing a new legal framework for digital currencies. The bill, sponsored by Republicans, passed with a bipartisan vote of 279-136. However, it remains uncertain whether the Senate will take up the measure.

Supporters of the bill argue that it will provide regulatory clarity and foster industry growth. Meanwhile, the U.S. Securities and Exchange Commission (SEC) has signaled its likely approval of applications for spot ether exchange-traded funds (ETFs), which could boost the crypto industry.

SEC Chair Gary Gensler, however, issued a warning, stating that the bill would create new regulatory gaps and undermine decades of precedent related to investment contract oversight. He expressed concern about the potential risks to investors and capital markets.

Critics of the SEC have long viewed it as an obstacle to broader adoption of digital assets. Gensler has consistently maintained that cryptocurrencies should be subject to the same legal standards as other assets. Under the bill, investment contracts recorded on a blockchain would no longer be considered securities, potentially leaving investors without the protections afforded by securities laws.

In addition, Gensler highlighted that the bill would allow issuers of crypto investment contracts to self-certify their products as digital commodities exempt from SEC oversight, giving the agency only a 60-day window to challenge such certifications.

8. Bitcoin Surges to $70,206 Amid Growing Interest and ETF Launch: Bitcoin, the world’s largest and most well-known cryptocurrency, reached a price of $70,206 at 20:03 GMT on Monday May 20th, marking a gain of $3,931 from its previous close. Notably, Bitcoin has surged by 82.3% from its year-low of $38,505 recorded on January 23.

In addition, Ether—the coin associated with the Ethereum blockchain network—experienced a 13.3% increase on Monday, reaching a value of $3,500.

The recent approval and launch of spot bitcoin exchange-traded funds (ETFs) in the United States have played a significant role in attracting new investors and reigniting enthusiasm for the crypto market. This development comes after a period of waning interest during the “crypto winter” of 2022.

  1. Mortgage Rates and Market Trends:

    • Mortgage rates have recently eased, falling below 7% for the first time in a month.

    • Melissa Cohn, the Regional Vice President of William Raveis Mortgage, emphasizes that as rates continue to decline, more buyers will enter the marketplace.

    • Her advice? If you’re considering purchasing a home, now is a favorable time. Lower rates make homes more affordable, and waiting may result in higher prices.

  2. Home Sellers and Finding the “Happy Medium”:

    • Cohn also highlights an essential consideration for home sellers.

    • While selling your property, remember that you’ll likely be in the market to buy as well.

    • Striking a balance between selling at a good price and buying in a competitive market is crucial.

  3. Hotspots and Buyer Activity:

    • In terms of hotspots, the over-a-million-dollar price point has seen significant activity.

    • Buyers with higher income are willing to pay the current higher mortgage rates to take advantage of perceived lower real estate prices.

    • Additionally, people are relocating due to work or life changes, contributing to overall market movement.

  4. New Home Inventory and Pricing Pressure:

    • Despite a decline in existing home sales, total inventory (including new and existing homes) has increased.

    • New homes, in particular, play a significant role in the market.

    • Builders are offering innovative options, which may alleviate some pricing pressure.

Remember, real estate decisions involve a mix of financial considerations, personal circumstances, and market dynamics. Whether you’re a buyer or seller, staying informed and seeking professional advice is essential. 🏡

10. 401(k) Millionaires Surge, but It Took Years of Steady Contributions: The number of 401(k) millionaires increased by 43% in the past year due to market gains and consistent contributions.

  • However, these millionaire success stories were not overnight; on average, it took 26 years for account holders to reach this milestone.

  • In the first quarter, there were 485,000 newly minted 401(k)-created millionaires, a 15% increase from the previous quarter and a 43% increase from a year ago.

  • The average first-quarter balance for 401(k) accounts reached $125,900, up 16% from the same period last year.

  • Median 401(k) balance was $28,900, while 403(b) accounts (for government and nonprofit workers) had an average balance of $113,000, up 15% from a year ago.

  • IRAs (individual retirement accounts) also saw growth, with an average balance of $127,745, up 13% from the previous year.

  • Fidelity noted that continuous savings played a significant role, with those saving for 15 years experiencing a 7% increase in account balances.

  • Interestingly, Generation X participants (born between 1965 and 1980) now have a higher 15-year continuous balance ($543,400) than baby boomers ($543,200).

  • Despite the robust savings rate, some workers continued to borrow from their 401(k) accounts, with 17.8% having such loans in the first quarter.

Phew, that's a lot to unpack! Remember, this is just a snapshot of the complex and ever-evolving financial landscape. So, stay informed, diversify your investments, and don't forget to have a little fun along the way!

Bonus Tip: Want to dig deeper into any of these stories? Let me know in the comments below, and I'll be happy to share some additional resources!

And there you have it, folks! Remember, folks, the financial world is like a game of Monopoly—sometimes you’re the banker, sometimes you’re stuck in jail, and occasionally you land on Boardwalk and buy a hotel. Happy investing! 📈💰

 P.S. Did we miss anything major? Hit us up via an email with your hot takes and financial insights!

Debt Dilemmas: Balancing Act

Introduction

Welcome to the sixth chapter of our credit chronicles! Today, we’re unraveling the intricate dance between good debt and bad debt. Picture a tightrope—balance is key! Let’s explore how to walk it gracefully. 🎪

Good Debt: The Wise Investments

1. Mortgages

  • The Deal: Borrowing to buy a home.

  • Why It’s Good: Homes appreciate over time. Plus, tax benefits!

  • Caution: Don’t overextend—house poor isn’t a good look.

2. Student Loans

  • The Deal: Investing in education.

  • Why It’s Good: Education pays dividends (literally).

  • Caution: Borrow wisely. No need for a Ph.D. in debt.

3. Business Loans

  • The Deal: Fueling your entrepreneurial dreams.

  • Why It’s Good: Businesses need capital to grow.

  • Caution: Calculate risks. Not all ventures pan out.

Bad Debt: The Sneaky Saboteurs

4. Credit Card Debt

  • The Culprit: High-interest credit cards.

  • Why It’s Bad: Interest eats your soul (and wallet).

  • Escape Plan: Pay off those balances!

5. Payday Loans

  • The Culprit: Short-term, high-fee loans.

  • Why It’s Bad: Trap! Interest rates can hit triple digits.

  • Escape Plan: Avoid them like the plague.

The Balancing Act

  • Golden Rule: Good debt builds wealth; bad debt drains it.

  • Review Your Mix: Keep good-to-bad debt ratio in check.

  • Emergency Fund: Buffer against bad debt surprises.

—

Conclusion

Congratulations! You’ve mastered the debt tightrope. Remember, debt isn’t inherently evil—it’s how you wield it that matters. Stay tuned for our next episode: “Credit Utilization: The Goldilocks Principle.” 🌟

—

So, there you have it! With a little guidance and the right tools, you'll be a master in understanding (and hopefully master it) financial concepts in no time. Go forth, plant your seeds, and watch your wealth garden flourish!

This is the next part in this comprehensive series on “Credit Alchemy: Transforming Your Worth into Wealth” ( we want to get you ready for the next step in your life, whatever it may be).

If you liked this, check out other series including, a 9 part extensive series on “All Things Tax Related” and 5 Part series on Investing and all our previous articles here.

So, whether you are crawling and sprinting, let's do this together!

Until next time, wishing you happy wealthness (you see what we did there:)) to you!

📚 Bonus Resources:

  1. Investopedia: Investopedia provides comprehensive information on creditworthiness, including factors that impact it, how to check your credit report, and steps to enhance your creditworthiness. Remember that your creditworthiness affects loan approvals, interest rates, and more.

  2. The Balance: The Balance explains creditworthiness and emphasizes the importance of monitoring your credit score. You can access your credit score for free through services like Credit Karma, Credit Sesame, or WalletHub.

  3. SuperMoney: SuperMoney offers practical steps for managing creditworthiness. You can obtain a free annual credit report from AnnualCreditReport.com or use free credit monitoring services like Credit Karma or Credit Sesame.

Remember to stay informed, check your credit score regularly, and make timely payments to maintain a strong credit profile. 🌟📊💳

Your Wealth Journey Awaits!

Call-to-Action and Community Engagement

📧 Subscribe for Exclusive Insights:

If you have not yet done, please ensure you don't miss out on all things wealth related insights. Subscribe Now & Share with others that you care (just forward this email - it is good karma).

🤝 Join the Conversation:

Have questions or insights to share? Join our community forum (coming soon!)and connect with fellow wealth enthusiasts. Your financial journey is unique, and we're here to support and learn from each other.

Feedback and Sponsorship

😎 Your Feedback Matters

Love what you read? Have suggestions for future topics? Share your thoughts by replying to this email. Your feedback shapes our content and ensures we're delivering exactly what you need.

 🚀WANT TO SPONSOR THIS NEWSLETTER?

Are you a brand looking to connect with our financially savvy community? Explore sponsorship opportunities to showcase your products or services to our engaged audience.

Your Brand + Our Community = Unlimited Opportunities. Boost My Brand!

📌 Disclaimer: The information provided is for general informational purposes only and should not be considered as personalized investment advice. Please consult with a qualified financial advisor before making any investment decisions.