The Wednesday Letter #241 - 10/9/2024

THIS WEEK: The Monster Milton; Nvidia Blackwell Insanity; China Stocks Yes or No?; Markets and the Election; Investment Themes to Watch.

---

THE MONSTER MILTON

Milton is a rare type of hurricane, and not only because it is a monster category 5 storm.

First, Milton formed over the Atlantic but it was only a tropical storm until it reached the Caribbean Sea where it became a hurricane. Most other hurricanes reach hurricane status in the Atlantic before entering the Caribbean Sea. Other storms that became hurricanes in the Caribbean Sea are Mitch (1998), Ivan (2004), Dean (2007), Wilma (2005), Karl (2010), Otto (2016) and most recently Helene (2024).

Second, Milton is moving eastward before making landfall. Most hurricanes move westward from the Atlantic until they hit the US mainland or the Bahamas, Caribbean or Mexico. Some rare hurricanes veer north and then northeast like Milton now and Wilma in 2005.

The closest to Milton in terms of evolution and path is hurricane Wilma, but Wilma weakened when it entered the Gulf of Mexico, whereas Milton has strengthened so far. Wilma made landfall as a category 3. Milton is now a category 5 but it may weaken to a 4 before it makes landfall tonight.

Milton also resembles Helene which made landfall as a category 4 two weeks ago. Helene formed as a hurricane in the Caribbean Sea and then moved north-northeast toward the Florida panhandle.

Milton’s path shows that it is headed for the Tampa Bay Area, which is home to 5 million people and includes Tampa, St. Petersburg and Clearwater. This part of Florida has not been in the direct path of a hurricane’s eye since 1921. Wilma had made landfall 150 miles south of Tampa.

The storm surge is expected at 15 feet (two-storey high), and the damage will likely be extensive enough to make it into this table from VisualCapitalist. It shows the costliest storms in US history. Damage from Helene is estimated at between $30 and $50 billion, a third of it from high winds and two thirds from flooding.

---

NVIDIA BLACKWELL INSANITY

After falling toward $90 in August and again toward $100 in September, Nvidia stock has made a comeback and is now within 6% of making an all-time high. If the end of the year sees a market rally as many expect, conditional on a relatively smooth US election (see below), it is a foregone conclusion that Nvidia will exceed its June high of $141.

Nvidia will not report results until mid-August. Of the Magnificent Seven companies, it is the last one to report because its fiscal year ends on January 31st, not December. The sales momentum and news flow remain positive. There are multiple reports that orders for its new Blackwell GPU are extremely strong. Nvidia’s CEO has qualified them as ‘insane’, and Hon Hai/Foxconn, a major manufacturing partner of Nvidia, has boosted capacity to meet ‘crazy’ demand.

Blackwell offers a three to five-fold performance improvement from Nvidia’s Hopper GPU architecture. It is also more energy efficient and consumes 25% less electricity at similar performance.