💲 Why Price Controls are a Bad Idea

What’s on the Menu 🍴

Are we headed for a “bloody September”?

Well, the data suggests that markets can struggle going into the fall, but it’s not a guarantee.

Let’s dive into the data!

• Stocks & Bitcoin Are On The Edge ₿

• Why Price Controls are a Bad Idea 💲 

• Nvidia’s Impossibly High Bar 🤸‍♀️

Today’s newsletter is a 5 minute read.

Stocks & Bitcoin Are On The Edge ₿

Yesterday wasn’t a great day for tech stocks—let’s just say it was a red sea on Wall Street. The NASDAQ and S&P 500 are testing key support levels, and Bitcoin is holding on by a thread around the $58K mark.

So, what’s rattling investors’ nerves?

For one, Nvidia is getting squeezed by the DOJ, with a fresh subpoena in an antitrust probe that’s spooking tech investors.

Meanwhile, US manufacturing activity contracted for the fifth straight month, painting a not-so-pretty picture of the economy’s pulse.

Also, companies rushed into the bond market, making it on of the busiest day on record.

Everyone’s chasing yields while they can, anticipating that Fed rate cuts might be just around the corner—potentially pushing bond yields lower and sparking a frenzy to lock in current rates.

Then there’s Bitcoin.

Even though the long-term bull thesis is still in play, traders’ market sentiment are split:

Some think Bitcoin could drop 20% after Fed rate cuts if the broader market slumps.

But for the crypto bulls, a weak September might be the perfect buying opportunity. With Bitcoin flirting with its 200-day moving average, it’s make or break time.

At the end of the day, it’s all about the fear of what’s next.

Will the support levels hold, or are we heading for a deeper dive?

Why Price Controls are a Bad Idea 💲 

Price controls—the classic political “solution” that never seems to die, no matter how often it fails.

If you’ve ever wondered why some economic policies feel like hitting the gas and the brakes at the same time, you’re in the right place.

Let’s rewind to 1971 when President Nixon, in a grand gesture of economic wizardry, decided to freeze all prices and wages across the United States.

Sounds bold, right?

Friedman compared this move to putting a brick on a boiling kettle while cranking up the heat—it’s a recipe for disaster.

Essentially, price controls don’t stop the underlying inflation; they just hide it until it explodes.

And explode it did—right into double-digit inflation rates soon after.

This wasn’t a new trick either.

Governments have tried to “fix” inflation with price controls for centuries, even going back 2,000 years to Roman Emperor Diocletian, who also thought he could control the economy with a decree.

Spoiler alert: It didn’t work then, and it doesn’t work now.

The basic problem?

Price controls are like band-aids on bullet wounds—they don’t address the real issues causing inflation, such as excessive government spending or misguided monetary policies.

Our key takeaway?

Instead of meddling with prices, the sensible move is to tackle the root cause of inflation directly—by, say, reducing the money supply or cutting back on government intervention.

But let’s be real: expecting politicians to learn from history is like expecting a cat to fetch your slippers.

Let’s be clear: the government’s role should be to serve, not to strangle, the economy.

The less it tries to control, the better off we all are.

Nvidia’s Impossibly High Bar 🤸‍♀️

Nvidia stock is down almost 15% in the past week, crushing the pre-earnings speculators and leaving a trail of confused investors.

After all, Nvidia reported strong Q2 earnings last week, with revenue growth clocking in at 122% year-over-year and massive earnings growth of 152%.

The problem of course is sky high expectations…

We’ve talked before about how stocks move based on financial fundamentals AND also based on how those fundamentals are trending relative to investor expectations.

Even after the recent drop, NVDA stock is still up over 130% over the past year.

In the prior several quarters, NVDA’s stock gapped up after the company beat analyst expectations for earnings growth massively.

As analysts have adjusted to this “new normal” of hyper growth for Nvidia, their earnings growth estimates have also soared.

This means that surprising the market with higher than expected growth is getting harder for NVDA each quarter.

This past quarter NVDA did actually beat official analyst estimates, with actual earnings per share (EPS) of $0.68 versus the average expectation of $0.64.

Given the stock price reaction however, it’s clear that many investors were predicting an even bigger positive surprise.

Despite all this, there’s good news for longer term investors who don’t play these quarterly guessing games.

NVDA’s stock is at a cheaper valuation and those who want to accumulate more may be able to do so at cheaper prices as momentum investors abandon ship.

On Tuesday news also came out that the US Department of Justice may be probing Nvidia over antitrust concerns.

While it seems unlikely the US will ultimately try to dismantle such an important domestic company, the uncertainty could cause more short term selling.

Currently NVDA trades for 32X this year’s earnings estimates.

It has traded as low as 23X earnings in the past several years, so we wouldn’t be surprised if the current correction has a little further to go yet!

Food For Thought 🧠

"The government solution to a problem is usually as bad as the problem.”
- Milton Friedman

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.