News Review: Posterity Won’t Care, But I Do

We live in a world of ceaseless activity. Some of that activity is meaningful, conveying profound significance, while some of it is frivolous, consisting of fleeting distractions that provide amusement, entertainment, and the occasional pretexts for real or feigned outrage.

Stuff happens all the time, but very little of will leave anything approximating a permanent imprint in posterity’s ledger.  So, what follows is a survey of events in the last couple days that nobody will remember, much less care about, a decade from now – and perhaps much sooner than that. 

Super Micro Sends a Signal 

In the wake of Super Micro Computer’s decision to delay its annual filing while reviewing its accounting controls, MarketWatch reports that JPMorgan analyst Samik Chatterjee, among the Wall Street cognoscenti who were previously bullish on Super Micro’s AI-related prospects, has moved “to the sidelines” by downgrading the stock to neutral from overweight. At least one another market analyst had seen enough to claim a prime spot on the sidelines before Chatterjee made his move. 

I have lived a few years, dear reader, and, frankly, the accrual and obtrusions of time lived come with both pros and cons. Still, experience has taught me a few practical lessons, one of which is that you might want to tense up and brace for impact when you learn that a publicly listed company is “working diligently to be in compliance with regulatory requirements.”

For its part, Super Micro has advised that it doesn’t expect the review of its financial controls to result in materially different results from those it has previously reported. 

I have two concerns with the preceding sentence: first, the use of the qualifying clause “doesn’t expect” and second, the potential ambiguity in how Super Micro might define “materially different results.” 

Perhaps the restatements will be relatively inconsequential, but there’s a troubling possibility that the restatements might cascade into a cumulative mass of considerable grief. I’m not going to cite the names of technology-industry brigands who suffered a gory fate in the market’s bullring, but I can assure you that the carnage has occurred on more than a few occasions. 

In no way am I alleging any improprieties at Super Micro or anywhere else, but when a company delays its earnings reports to conduct a review of financial controls, investors need to rouse themselves from their slumber and pay attention. Perhaps the klaxon need not sound at full fury, but it should be going off. 

Some analysts and investors who follow or invest in Super Micro are taking no chances. From the MarketWatch article:

The stock has been under pressure following the filing delay, a negative short-seller report from Hindenburg Research that raised accounting concerns and weakening margins as evidenced by the latest earnings report. 

In all, Super Micro shares are off 67% from their $1,188.07 closing high achieved in March. The stock is down about 5% in Friday action alone.

A decline of 67% suggests strongly that some investors not only have moved to the sidelines, but that they have proceeded hurriedly to the exits, sprinted hastily to the parking lot, jumped into their cars and burned rubber while speeding to the next county.

Are They Punking Us? 

I unashamedly confess that I’ve never understood exactly why one would invest in cryptocurrencies. I’ve read extensively on the topic, tried hard to see whether I was missing something that others with greater acuity could see, but I just don’t get it. The term itself is a misnomer, since hardly anybody actually uses these things are currencies. They are, for the most part, vehicles for speculative investment. Perhaps Ethereum is on a meandering path to becoming something useful, but the rest have the malodorous whiff of a downmarket casino well off the Vegas strip, where the house always wins and some of the dispossessed punters find themselves shoeless at the slot machine.  

Earlier today, I read a different article on MarketWatch – written not by a human, I might add, but by the friendly bots at Automated Insights (“creator of Wordsmith, a self-service natural language generation platform”) – providing a “crypto update” that amounted to moderately bad news. 

The flesh wounds to the valuations of allegedly major cryptocurrencies weren’t what got my attention, though. Instead, what I found interesting were the names of cryptocurrencies that Automated Insights adjudged to be “big.” Some of the names suggest that their progenitors are pulling our legs, among other body parts. Dogecoin, with respect and apologies to Elon Musk, was bad enough, but now we have allegedly “big” cryptocurrencies called Polkadot (seriously?) and Avalanche. (I must admit that I like the irony of that last one.) 

May I offer some advice to the crypto kingpins? You need to go further, reach for greater heights of absurdity in naming these things. The next batch should be called “Trapdoor,” “Mine Disaster,” Chimera,” and “Evanescence.” If you’re going to go big, you have to let your imaginations run wild. 

What Does Broadcom Stand For? 

Broadcom released its latest set of quarterly financial results yesterday, and the market reacted with ambivalence. Broadcom’s quarterly revenue and earnings surpassed consensus expectations, but the company’s guidance, though robust, fell short of the sunny forecasts of Wall Street analysts. 

Partly through Broadcom’s agency and partly because the market makers are desperate for companies to use as barometers of genAI traction, Broadcom is now uncomfortably cast in the role of AI bellwether. That doesn’t make sense to me. Yes, there’s a part of Broadcom’s custom business that one could associate and correlate with genAI adoption, but there’s a lot of what Broadcom does that is, at best, adjacent or orthogonal to AI, while the rest of what Broadcom does is almost completely unrelated to AI. For example, the VMware business had a strong quarter for Broadcom. You’d be hard pressed to make a persuasive argument that VMware provides an accurate, reliable gauge of AI adoption. Whatever else Broadcom might be, it’s probably not the best flagbearer for genAI. 

Can’t Get No Payroll Satisfaction 

The markets were also casting an anxious eye toward August U.S. payrolls data, which was released at 8:30 am ET this morning. When the data made its appearance, the market’s concerns were neither ameliorated nor resolved. A Reuters report notes that “U.S. employment increased less than expected in August, but a drop in the jobless rate to 4.2% suggested an orderly labor market slowdown continued and probably did not warrant a big interest rate cut from the Federal Reserve this month.” 

In the Reuters article, market anxiety, irresolution, and ambivalence are captured in fraught commentary from Gennadiy Goldberg, head of US rates strategy at TD Security:

“I think the market's really struggling with this one because it's really in the middle of what could be used as a justification for either a 25 or 50 basis point rate cut.”

"It is consistent with a cut in September. The big question right now is just what's the size? I think that's what the markets are struggling with right now. Is this number weak enough for a 50 basis point rate cut in September? If you ascribe a more activist role to the Fed, then yes. If you think they are looking to be a little bit more measured, then no. But either way, I think the markets are going to be really balanced on a knife's edge until the Fed shows support for either a 25 or a 50 one way or the other, and it's really a tough decision.

“If you look at the payroll report net of revisions, it's not great, especially net of the 86K revisions we saw for the last two months. So I do think that the unemployment rate is the key, but it's not indicative of a very strong labor market. We do see the labor market really not just coming into balance, but really starting to cool off quite significantly, which could make the Fed quite nervous.”

The Fed is nervous, job seekers are nervous, employers are nervous, and, yes, investors are nervous. The market and its agitated actors are caught in a narrative that resembles a protracted cliffhanger, but they’re not entertained by the spectacle. Instead, the unabated suspense is making everybody irritable.

Brian Jacobsen, chief economist at Annex Wealth Management, offered that “this labor market is held together by duct tape and string.” I suppose it could be worse, if the binding agents were chewing gum and dental floss, but that’s not much consolation. Situations can always get worse, and sometimes they can get better.  In the short haul, however, giddy optimists and glowering doomsayers are hard to find, while handwringing neurotics lurk around every corner. We are gripped by an economic malaise that enervates but doesn’t obliterate. 

Fortunately, humans are incorrigible optimists; they get dispirited occasionally, but they always bounce back. The same goes for the markets, though some need occasional corrections and disciplinary restraint when, in their irrational hubris, they overstep their bounds. But that’s all part of the show: some song, some dance, and the occasional morality tale. What more could you want? 

There’s always something to see here, folks – the show, one hopes, never ends – but there’s no reason to panic (yet).