Issue 5: October 16th, 2024

Welcome to another issue of Volunteer Capital Insights! We're always happy to have you hear our takes on the world. Some exciting headlines have come up in the past week, including Three Mile Island powering back up, Musk pulling off some incredible feats, convoluted economic data, election news, and Rio Tinto's big M&A deal. We thank you all for joining us and would greatly appreciate it if you share our newsletter with your friends, family, and colleagues.

A special thanks to Peter Costa from Costa’s Corner for his help in editing and guiding us through this week’s issue. Don’t forget to check out his Substack for more great content!

Let’s break it down!

Equities

Reviving Three Mile Island: Microsoft's Bet on Nuclear Energy

On March 28th, 1979, the United States experienced its most catastrophic nuclear meltdown at Three Mile Island, a nuclear power plant on the Susquehanna River near Harrisburg, Pennsylvania. Despite the meltdown, the plant continued to run for 40 years, until 2019, when it was shut down due to the lack of financial aid from the state. You may be wondering what this has to do with the capital markets. Well, Microsoft has recently announced that they have signed a power deal with Constellation Energy to help bring the Three Mile Island back to life.

Why does Microsoft need energy from a nuclear power plant? A sudden and massive increase in the need for electricity to power data centers can answer that question. Microsoft has decided to use nuclear energy, which is much more reliable than solar or wind, in order to attempt to stay ahead of the AI wave that has swept across the world. Constellation will have to invest $1.6 Billion in order to restart the power plant, which will be able to produce 835 megawatts of electricity for Microsoft (Enough to power 700,000 homes). Many analysts believe that this will start a trend of big tech companies restarting plants. But given the relative rarity of opportunities to snag power from recently closed or closing plants, the biggest question for the industry is whether this wave of interest will translate into building new reactors as well.

Although Microsoft stock has remained relatively stable over the past month, Constellation Energy stock has jumped nearly 30%. This partnership highlights nuclear energy's growing role in meeting the energy needs of data centers and other industrial operations. Investors might expect increased interest in nuclear stocks, particularly as nuclear becomes more central to decarbonization efforts, which aligns with the energy transition goals of large tech firms . An important thing to remember is that this development strictly aids Microsoft's 'green transition.' It does not address the underlying energy needs across the country or the rapidly declining strength of the energy grid. While nuclear energy is a growing form of 'green' energy, spent fuel rods remain an important limitation to its widespread adoption. 

By: Lucas Heifner

Tech

What a Week for Musk 

Over the past week, Elon Musk has had several notable accomplishments that are starting to separate him as one of the greatest innovators ever. Tesla's Robotaxi Unveiling: This highly anticipated event revealed Tesla's first dedicated self-driving vehicle, the "Robotaxi." This marks a significant milestone in Musk’s long-term vision of autonomous transportation. The Robotaxi, designed without a steering wheel or pedals, is built to operate entirely on Tesla’s Full Self-Driving (FSD) technology. Some analysts believe that this is one of the most significant moments for Tesla in years, potentially redefining the electric vehicle industry​.

At the Robotaxi event, Musk also showcased an update on Tesla's humanoid robot, Optimus. Optimus 2 represents the next step in Tesla's AI-driven robotic ambitions, with potential applications in both manufacturing and domestic use. This event also focused on Tesla’s advancements in AI, which is expected to play a significant role in the company’s sustainable future​. 

SpaceX Starship Rocket Launch: Along with the Tesla event, SpaceX also successfully launched the fifth test flight of its megarocket from Texas. The mission aimed to test the Super Heavy booster’s mid-air recovery system, utilizing the innovative "chopstick" arms on the launch tower to catch the booster upon its return. This was a critical step for the development of fully reusable spaceflight systems, which are crucial for SpaceX’s future deep space missions, including NASA's Artemis program to the Moon​. These accomplishments are part of Musk’s broader vision for integrating AI and autonomous technology into daily life, as well as the continuing development of reusable and sustainable space travel. 

By: Will Laney 

Economics 

Tangled Economic Data 

In the past few weeks, we’ve seen some very convoluted economic data. To start October off, we got a strong jobs report, with nonfarm employment increasing by 254,000. While this is a strong sign compared to the previous month, the big story here is the revisions. For the past year, we’ve seen strong initial releases followed by massive downward revisions. September had the first sign of strong upward revisions this year.

Looking at the manufacturing side of the economy, it gives us insight into the future of the current business outlook. The PMI dipped in September from 47.9 to 47.3, marking the third straight month of manufacturing decline. The eye-catching portion of the PMI was the big decrease in new orders and inventories, which signals broader economic weakness.

Now, onto inflation, this is the most controversial part of the economy. The CPI came in at 2.4%, above the expectation of 2.3%, and core CPI rose in September from 3.2% to 3.3%. Core CPI removes more volatile items like food and energy. While this might seem like a minor increase, we’re seeing inflation rise during the same month as a big 50 bps Fed rate cut. The Fed now faces an even tougher challenge, with manufacturing in the private sector declining, jobs increasing, and inflation potentially rebounding. It wouldn’t be surprising if the Fed keeps rates steady in November and December, despite previous expectations of two more 25 bps cuts.

By: Andrew Brown

Rio Tinto to Acquire Arcadium Lithium

On October 9th, 2024 Rio Tinto struck a deal to buy Arcadium Lithium for $6.7 billion at a 90% premium to the stock’s closing price last week. Lithium has become a priority target for Rio Tinto as it seeks to rely less on iron ore for-profit and produce more commodities that are growing in popularity as the world decarbonizer. 

Rio Tinto has tried to create their own lithium operations from the ground up, but struggled as business plans have faced setbacks. They planned to build a lithium mine in Serbia, however faced pressure to stop the operation from community members. Leveraging the takeover of an already established company, Arcadium Lithium, would give them immediate access to metal production sites. They are anticipating a rise in the demand for lithium because of the metal’s increasing importance to EVs and large batteries that store energy until it is needed, which are essential for supplying clean energy.

After a two-year boom in the industry, prices began to fall forcing many companies to terminate their plans for lithium mines and investment plans in the industry. Rio Tinto timed its acquisition with the markets, looking to invest when the prices were low. The CEO of Rio Tinto, Jakob Stausholm, says that he believes in the demand for lithium and thinks that the addition of the industry would increase the value of his company. According to market analysts, Arcadium Lithium was valued at $10.6 billion in May of 2023. This shows how the market has faced steep declines in value, allowing for entrance by Rio Tinto as prices are no longer too expensive.

This is a strategic acquisition for Rio Tinto as the focus of global energy is shifting to clean means of production. Investing in lithium production will position Rio Tinto to be ready to contribute to EV batteries that rely on lithium, allowing them to take advantage of the market shift. After failing to build their own lithium production, they shifted their focus to acquiring an existing lithium-producing business and working around the challenges of creating their own from the ground up. This method of growth, hopefully, will prove to be more efficient and simple.

By: Haley Patzer and Connor Benoit 

Issue 4: October 2nd, 2024

Welcome to the fourth issue of Volunteer Capital Insights! We are always excited to have you join us as we explore insights on global events every other week. Unfortunately, this week has seen devastating news around the world. VCI extends our best wishes to everyone affected by Hurricane Helene and those impacted by rising global tensions. In this week’s edition, we dive into the next boom in venture capital, the massive stimulus enacted by the Chinese government, and the escalating tensions in the Middle East.

A special thanks to Peter Costa from Costa’s Corner for his help in editing and guiding us through this week’s issue. Don’t forget to check out his Substack for more great content!

Let’s break it down!

Venture Capital 

The Next Supercycle in Venture Capital 

The first “supercycle,” at least since I’ve been around, kicked off when Steve Jobs held up the iPhone in 2007. The introduction of the App Store put software at everyone’s fingertips and forever changed how we interact with the digital world. Suddenly, apps were everywhere, and entire industries built on each other. Venture capitalists rode this wave, funding every new app, service, and platform, fueling unprecedented growth. Today, life without these innovations is unthinkable. Seriously, what’s your screen time today? 

But lately, things have changed. The venture capital market has hit a rough patch, with major players like Tiger Global contributing to the downturn. Companies once drowning in capital are now struggling for funding and fighting to stay alive. The era of endless cash is over, and startups that were overfunded during the boom are falling apart. Tiger Global’s aggressive capital deployment backfired, as valuations tanked about 30%, on average. Deal flow has slowed, marking nine straight quarters of decline, and the pace of investments has fallen off since the peak of 2020. The party might seem over - but the next wave is already upon us, and it promises to be even bigger.

Enter artificial intelligence: the dawn of the next supercycle. OpenAI, with its $150 billion valuation despite ongoing losses, is the poster child for this new era. AI is the battleground everyone is racing to win, and it’s an exciting time for the venture world. We’re seeing breakthroughs in everything from robotic exoskeletons to autonomous cargo flights, even electric-powered trailers. It truly is the ultimate arms race. AI is set to become the driving force behind everything, whether we’re ready to admit it or not. While I could write a book on my opinions of AI, I’ll keep it brief for now - just know we’re on the brink of something big. With more capital and intelligence than ever before, venture capital has never been this thrilling - or this full of potential. So buckle up, It’s going to be a fun comeback. 

By: Will Gusanders

Economics 

China Flooded with Stimulus

On September 24, the Chinese central bank unveiled an extremely aggressive stimulus package in an effort to rescue the Chinese economy from recent deflationary trends and other significant issues. This move is part of a larger effort to reverse the country’s slowing economy, which has been weighed down by deflation, high unemployment (especially among youth) , rapidly decreasing M1 money supply, and a real estate crisis. Stimulus measures include rate cuts, increased stock market liquidity, and support for the real estate sector, such as lower mortgage rates, reduced down payments on second homes, and $284.43 billion in sovereign bond stimulus. The Chinese markets reacted extremely positively to the news, sending the CSI 300 index up by 8.5% for its best day since 2008.

Although stock prices surged, there is still plenty of skepticism about whether the stimulus will have long-lasting effects. Many analysts believe these measures may only provide temporary relief and lack the depth to address the core structural issues in the economy, such as sluggish domestic consumption, a real estate bubble, high levels of debt, and a rapidly aging population. China’s bond market reflects this uncertainty, with yields on 30-year government bonds continuing to fall. While the stimulus may have improved short-term market sentiment, it remains to be seen whether it can truly dig China out of the economic hole it has been digging for decades.

By: Scotty Brown

Geopolitics

Israeli Incursions into Lebanon Threaten Global Oil Markets, Inflaming Price Volatility

On September 30th, the Israeli military launched a targeted ground invasion of southern Lebanon, seeking to eliminate Hezbollah positions. The Israeli Air Force has also launched targeted airstrikes on Hezbollah’s headquarters in Beirut, Lebanon, killing their leader, Hassan Nasrallah. These recent escalations in Gaza and Lebanon have strained Israeli relations with Iran and Syria. The U.S. military has bolstered its defense posture in the Middle East this week with increased infantry and warplanes, preparing for an imminent ballistic missile attack by Iran.

Any further escalations in the Middle East could put tremendous stress on the oil and gas production industry. Iran accounts for roughly 4 million barrels per day of worldwide oil production (as of December 2023), and if conflict were to spill over into other Middle Eastern countries, over 16 million barrels per day of global oil production would be jeopardized. Vital shipping routes in the Gulf of Oman, Persian Gulf, and Mediterranean Sea would also be at risk, further threatening export capabilities.

After Hamas launched an attack on western Israel in October 2023, Brent crude rose $2.25 to $86.83 a barrel, with U.S. crude prices also increasing. This attack led Israel to order a production pause at Chevron’s Tamar gas field and nearly jeopardized their largest oil field, Leviathan. Even with this palpable volatility, Brent crude only added 1.56%, reaching $73.10 a barrel, while Texas International Futures were up 1.09% following the killing of Hassan Nasrallah. Analysts argue that an all-out war between Israel and Iran might not severely affect oil supplies or prices. However, they warn that if the Strait of Hormuz—where one-third of natural gas and one-fifth of oil exports pass—were closed, prices could jump to $100 per barrel. Some analysts place that number even closer to $125 per barrel—levels not seen since the Russian invasion of Ukraine. Brent crude closed on September 30th at $71.65 a barrel, jumping almost 4% to $74.6 by October 1st lunch in reaction to the ground invasion.

Even if analysts have fully priced in an Israeli-Iranian conflict, a significant blow to the oil and gas exporting capabilities of the Middle East could cause substantial impacts on the energy markets.

By: Joshua Reaves

Mergers & Acquisitions 

M&A Snapshot 

PepsiCo has announced that it has entered into a definitive agreement to purchase Garza Food Ventures, also known as Siete Foods. The total transaction value sits at $1.2 billion, making it the one of the larger food industry deals of the year. Lazard acted as a financial advisor to Siete, and Centerview acted as PepsiCo’s advisor. Siete is a company that was started by the Garza family as a way to eat healthier, and has rapidly grown its presence in grocery stores across the country. The transaction drew large amounts of demand with offers coming from other strategic acquirers and many financial sponsors. This deal comes as no surprise with deal volume continuing to increase across the M&A landscape as economic conditions stabilize and borrowing costs come down. Over the years PepsiCo has looked to broaden its product range by offering healthier snacks, and its purchase of Siete reflects this strategy. 

By: Charlie Curtis 

Volunteer Capital Insights (Issue 3)

Welcome to the third issue of Volunteer Capital Insights! We’ve got a big week coming up, not only in the economy and market, but also in football: Wednesday’s Fed rate cuts and Saturday's big game against Oklahoma. In this week’s edition, we cover the growing opportunities in India’s equity markets, new ETF derivatives, MicroStrategy's Bitcoin holdings, and the powerhouse of the market, Nvidia.


A special shoutout to our friend Peter Costa from Costa’s Corner for helping us edit this week’s edition. Don’t forget to check out his Substack for more great content!


Let’s break it down!

Equities

Indian Equity Markets: A Profitable Venture for U.S. Investors

India’s equity market has been on a record-smashing bull run for the past four years, with the Nifty 50 and Sensex indices growing 235% and 220%, respectively, since March 2020. This run is partly due to India’s economic boom, with average GDP growth over the past 10 years reaching 5.5%, real GDP reaching 6.5% (2024), and estimates indicating the GDP could double from $3.5 trillion to $7+ trillion by the end of the decade. India also benefits from an increasing population of 1.42 billion people with a median age of 27.6, with high expenditures fueling economic stability and market participation. India has also implemented several reforms with its tax, technology, and business incentive programs aimed at rebuilding its infrastructure. Investing in this market isn’t without its risks; high volatility, valuation gaps, lack of transparency, and subpar regulatory enforcement/standard of financial accounting have forced investors to approach the market with caution and diligence.

U.S. and foreign investors have poured a whopping $206.7 billion into the market, driven by strong rupee performance and the removal of foreign capital restrictions for trading platforms. Investors like Citadel Securities and Jane Street have profited heavily from this, as retail investors create wide spreads for index options and arbitrage strategies benefit from valuation gaps in the tech, consumer goods, and pharmaceuticals sectors. Index investing and buy-and-hold strategies have proven to be less risky investment options to avoid volatility and benefit from accumulating returns. As the Indian Rupee continues to strengthen and stabilize, investors have also benefited from alternative strategies like currency arbitrage due to favorable exchange rates. By tapping into the stable macro outlook and strength in India’s equity market, U.S. investors are bound to unlock substantial profits while making this market an attractive destination for long-term wealth creation.


By: Joshua Reaves

Equities 

Use of Derivative Strategies in ETFs: “Boomer Candy” 

Investors have put billions of dollars into a new type of exchange traded fund. Since 2020 when the SEC finalized their rule regarding the use of derivative strategies in ETFs, a new class of derivative ETFs have taken considerable market share. These funds have received at ~$31 Billion of new investor money over the past 12 months, according to Fact Set.


The most popular type of derivative ETF has been referred to as “equity premium income.” This type of ETF is essentially executing a covered call strategy. These funds buy large-cap stocks and sell option contracts on those shares. This strategy allows investors to receive a much higher dividend yield of 8% to 10% which is much higher than a typical stock portfolio. However these funds cap investors' gains and charge large fees.  

Another popular ETF using derivatives is called a “buffer fund” which claims to prevent investor losses up to a certain point, but limits upside. This new class of funds and in particular “buffer funds” and “equity premium income” funds are extremely popular among retirees who are looking for risk averse investments amidst a volatile market. The Wall Street Journal quoted senior ETF analyst at Bloomberg Intelligence, Eric Balchunas who said, “We like to call this kind of stuff boomer candy.” 

Typically retirees would shift from stocks into bonds to balance risk as they get closer to retirement, but due to the returns of bonds lagging so far behind the S&P 500 over the past 15 years many have been hesitant to make the shift. Since March 2009 the U.S. Aggregate bond index has only achieved returns of 50% compared to the S&P 500’s 980% return. The opportunity to share the higher returns of stocks while having limited downside risk has truly turned these funds into “boomer candy.” 

By: Josh Sievers

Crypto

Big on Bitcoin

MicroStrategy, the world’s leading institutional Bitcoin holder, recently announced plans to issue a private offering of $700 million in convertible senior notes. The company will use the funds to pay off $500 million in existing senior notes. The remaining capital will be allocated towards growing the company’s Bitcoin holdings. 

Earlier this month, MicroStrategy acquired an additional 18,300 Bitcoin, bringing its total holdings to 244,800 Bitcoin, valued at approximately $14.2 billion. This makes MicroStrategy the largest Bitcoin holder among publicly traded companies, excluding exchange-traded funds. The company's Bitcoin holdings represent 1.16% of the total Bitcoin supply, or about 1.24% of the current supply.

MicroStrategy classifies as a business intelligence software and services company, but really does much more than that. The company first bought Bitcoin back in 2020, with the main goal of preserving wealth and generating high returns for shareholders. Since then, it has become a pioneer in institutional Bitcoin investment. Investors now have the opportunity to buy into a software company, while also gaining indirect exposure to Bitcoin. MicroStrategy stock is up over 800% since it started utilizing Bitcoin as a treasury reserve asset and plans to continue buying and holding Bitcoin into the long run.

By: Will Laney 

Equities

The Market’s Driving Force: Nvidia 


2024's undeniable hero of the stock market is Nvidia ($NVDA).The AI boom has benefitted nobody more than the tech giant and its CEO Jensen Huang. Nvidia at the time of writing this article sits at a market cap of nearly 3 trillion dollars. This success is due in no small part to Nvidia's H100 chip, and the many upgrades that have since come such as the H200 and the Blackwell platform introduced back in March. 

In the past month, semiconductor stocks have been somewhat stagnant. Semiconductor ETF, ($SMH) Saw less than 1% growth in the month of August. European stock markets all experienced tough losses following suit of the US exchanges in the beginning of September. ASML ($ASML), a prominent chip manufacturing technology supplier saw some of the U.S market's biggest losses. However, the global sell off is not the fault of Nvidia or semiconductors. I would assert that the stagnation is more so a reflection of the overall U.S economy. Reports indicated a weakening demand for factories, triggering investor fears of recession.  In addition, broader economic slowdown has raised questions about the pay off timeline of investments in AI. With The Fed predicted to cut rates, it is likely the market will bounce back in due time.

In the shadows of Nvidia's success, certain equities have flown relatively underappreciated. Taiwan Semiconductor ($TSMC) in particular, the world's largest semiconductor manufacturer, and primary manufacturer of the H100 chip has seen a 70% price increase YTD. With Taiwan Semi gearing up to manufacture Nvidia's Blackwell chips starting in Q4, I am bullish on the stock. The company has shown steady growth despite the stagnation of semiconductors, and I would bet this continues into FY26. TSMC has stayed out of the media spotlight, despite being the key manufacturer of Nvidia without which, growth of such a scale would not have been impossible. While it is a slight possibility that prominent hyperscalers such as Amazon and Microsoft, driven by the AWS and Azure platforms respectively, will temporarily cut back on spending on AI datacenters, which drive the bulk of Nvidia's growth. However, TSMC is likely to avoid much of the associated complications because the broader demand from enterprises for Nvidia will continue to be strong. 

By: Nick Huber

Volunteer Capital Insights (Issue 2)

Welcome to the second issue of Volunteer Capital Insights! We hope you had an amazing Labor Day weekend, especially after the 69-3 win over the University of Chattanooga!  Unfortunately, if you’re a Florida State fan or a Boeing stockholder, your week probably hasn’t gotten off to the best start—so we hope you find some enjoyment in this newsletter! In this week’s edition, we’re diving into the exciting world of the aerospace sector, private equity’s touchdown in the NFL, Nvidia’s impressive earnings, and the latest on the PCE.

A special shoutout to our friend Peter Costa from Costa’s Corner for helping us edit this week’s edition. Don’t forget to check out his Substack for more great content!


Let’s break it down!

Private Equity

Skin in the Game: Investing in Sports

This past week, the National Football League decided to open its doors to select institutional investors, cementing its status as the last of the “Big 4” leagues to welcome private equity into its ranks. Firms including Arctos, Ares, and Sixth Street Partners have already capitalized on the supply and demand imbalance of league ownership, highlighted by the surplus of potential buyers (billionaires) and the finite number of major league teams. With the NFL’s momentum showing no signs of slowing down, these firms – and likely many others – are positioned to claim up to a 10% stake in the largely unregulated monopoly.

Major League Baseball led the way in 2019 by changing its ownership rules, allowing private equity investors to hold passive, minority stakes in multiple teams. The NHL and NBA followed suit shortly after, recognizing that funding state-of-the-art stadiums and entertainment districts on their own was becoming increasingly out of reach. Now, with institutional investors jumping in, it seems everyone wants a piece of the action. Just this past weekend, the Buffalo Bills tapped Bills Mafia to help finance the team’s new $1.7 billion stadium through municipal bonds.



It makes sense, though. As the value of sports franchises continues to soar – fueled by billion-dollar media rights deals, sponsorships, and merchandising – these revenue streams are only set to grow. The question is, what’s next for private equity? Kids’ sports? Believe it or not, that’s already been done, but that’s a story for another time. In the meantime, check out the Big 4 sports team valuations benchmarked against the S&P 500 below. Maybe it’s time to invest in DA BEARS.

By: Will Gusanders

Equities

More Turbulence for Boeing

Tuesday, August 20th, Boeing stock dropped 5% following a test flight of the long awaited 777x test jet. During said flight, cracks in the structure of the jet were discovered, and eventually also found on two other jets. The particular part in question has been identified as the "thrust link," which connects the engine to the rest of the plane. Aside from the thrust link, many other issues were identified in the now four year delayed project, including a problem with the pilot's seat in the cockpit. While covid related delays are excusable, seeing as the entire market was hit, I find it hard to place any confidence in Boeing right now. With the infamous Alaska Airlines emergency exit door malfunction involving the Boeing 737 MAX 9 not so long ago, it is clear that the company has not made the necessary adjustments in quality control to warrant investor trust. Perhaps finding these problems now is indicative of quality control progress, but we still need sustained evidence of better quality control before placing any confidence in Boeing again.

Many investors question if Boeing's largest competitor, Airbus, is a worthwhile investment with the current issues Boeing faces. I would argue that despite Airbus having the advantage at the moment, it is not a worthwhile investment. There is nothing special about Airbus currently that makes me think they are capable of capturing Boeing's lost market space. It takes years to develop airplanes. It is one of, if not the most expensive, difficult, and regulated manufacturing processes on the planet. Both manufacturers have hit a metaphorical ceiling on how many planes they can produce due to the aforementioned difficulties. Both manufacturers have orders that they will not be able to fulfill for years. Thus, it is unlikely Airbus will see significantly more than a short term temporary bump in competitive orders vs Boeing in 2024 and 2025. Airbus has only a short term window to capitalize on the hole Boeing's misfortune leaves in the market. I think aerospace stocks with larger defense operations such as Lockheed Martin and Leidos are more promising, given rising geopolitical tensions in the middle east and eastern Europe.

Both Lockheed ($LMT) and Leidos ($LDOS) have seen extraordinary growth YTD, with Leidos nearing 50%, and Lockheed seeing around 25% increases. However, I am more bullish on Leidos due to increasing earnings estimates and price targets by analysts. Further, with the election coming ever closer, it is unclear if the US will continue to send military aid to Ukraine due to the differing positions of candidates Kamala Harris and Donald Trump on the controversial issue.

By: Nick Huber

Equities 

Nvidia’s Electric Earnings

Nvidia just reported a massive $30 billion in revenue for the second quarter, which ended on July 28, 2024. This is up 15% from the last quarter and a whopping 122% compared to a year ago. Over the first half of fiscal year 2025, Nvidia also returned $15.4 billion to its shareholders through buybacks and dividends, with another $7.5 billion still available for more share repurchases. 

Despite these impressive numbers, Nvidia’s stock took a 7% hit on September 3rd. The reason wasn’t the revenue itself, but rather concerns over slightly lower gross margin guidance for the rest of the year. According to Bernstein senior analyst, Stacy Rasgon, Nvidia is in a holding pattern until its next-gen chip, Blackwell, starts production in Q4. If Blackwell delivers as expected, the stock should follow in a big way.

But here’s where it gets interesting: a big chunk of Nvidia’s revenue comes from just a few key customers. In the first quarter of fiscal 2025, one customer alone made up 13% of their total revenue, and another made up 11%. UBS analyst Timothy Arcuri thinks the biggest of these customers is Microsoft, which he believes accounted for 19% of Nvidia’s revenue in fiscal year 2024. Microsoft has been ramping up its AI game, especially with its CoPilot product and its partnership with OpenAI, which likely explains why they’re such a big customer.

If you’re thinking about investing in Nvidia, it’s important to realize how much they rely on a few major players like Microsoft. While this can be a good thing, showing strong partnerships and high demand, it also means Nvidia’s fortunes are closely tied to these relationships. If anything were to change, like if Microsoft decided to scale back, it could have a big impact on Nvidia’s bottom line. Understanding this is key when considering Nvidia as a long-term investment.

By: Cayle Beltran 

Economics

Inflation Eases, Prices Still High

Last Friday, the Bureau of Economic Analysis (BEA) released the Personal Consumption Expenditures (PCE) data for July, the Fed’s preferred inflation gauge. The report showed continued signs of cooling inflation, with the year-over-year rate holding steady at 2.5% and a monthly increase of 0.2%. The core portion of the index, which excludes food and energy, also rose by 0.2% for the month and remained steady at 2.6% for the year. Both the PCE and core figures were in line with market expectations. Additionally, the report highlighted a 0.3% increase in personal income, beating the estimated 0.2%.

When considering inflation, it's important to focus on its definition "the rate at which prices increase over time" and its cause, which occurs "when demand for goods and services exceeds the economy's ability to produce them." From this perspective, inflation has eased, and prices are not rising as they were in 2021 and 2022. Demand for goods has dropped significantly, and supply has recovered. However, consumers still notice the substantial increase in price levels. A look at the CPI aggregate graph clearly shows that while the rate of inflation has slowed, the elevated price levels have not decreased. This highlights the difference between the percentage change in inflation and the actual prices consumers see while shopping. Ultimately, while the Fed has succeeded in slowing the economy and inflation, consumers remain frustrated by the persistently high price levels.

By: Andrew Brown

Thanks for tuning in, we appreciate your support!

Volunteer Capital Insights (Issue 1)

Welcome to the first of many issues of Volunteer Capital Insights! We want to thank you for taking the time to hear our perspectives. If you’re a student, faculty, or alumni, we would greatly appreciate it if you would spread the message of Volunteer Capital Insights with your friends, family, and colleagues. In this week’s issue we have a lot of interesting perspectives including mergers & acquisitions, yen carry trade, interest rates, and a little bit of politics. 

We would also like to thank Peter Costa from Costa's Corner for helping edit and advise on this issue of Volunteer Capital Insights. 

Let’s break it down!

Economics 

Interest Rate Cuts Imminent 

After weeks of convoluting economic data, the Federal Reserve is now signaling a September rate cut of 25 basis points. Earlier this month, unsettling jobs data shook the market, raising fears that a recession might be closer than anticipated. However, recent weekly employment reports suggest the job market is more stable than initially thought. Last week’s softer CPI at 2.9% and PPI at 2.2% hammered the nail in the coffin for a September rate cut.

While rate cuts are on the horizon, the media often portrays the current interest rate as unusually high. However, if we look at the past 50 years, the average fed funds rate was 4.60%, just 73 basis points below the current rate. Although the economy is slowing, the Fed's aim for a "soft landing" should not push us back to the extremely low interest rates seen over the past decade.

By Andrew Brown

Equities

Dilemma of the Japanese Yen Carry Trade
The recent market volatility has been driven by the reversal of a popular investment strategy known as the carry trade. The carry trade was triggered after the Bank of Japan hiked interest rates to a 16 year high of .25%. In this strategy, investors borrow in currencies with low interest rates, like Japan’s yen, and invest in countries with higher rates or strong financial systems. The yen has been a favored borrowing currency because of Japan's low rates, but recently, the yen surged by 7.5%. 

This surge caught investors off guard, triggering margin calls. Margin calls happen when the value of the borrowed yen rises, meaning the loans become more expensive to pay back. Since investors borrowed yen expecting it to stay cheap, they were forced to put up more collateral or sell assets to meet these obligations. To cover their losses, investors had to buy more yen quickly, which further increased demand for the currency, pushing its value even higher and causing a chain reaction of more margin calls. This cycle hurt U.S. markets as well, leading to a sell-off of riskier assets as investors scrambled to cover their positions. The instability has shaken confidence and increased concerns about financial stability, especially for those heavily invested in these trades. Ultimately, the majority of market events nowadays have a short lifespan. 

By Cayle Beltran 

M&A

Mergers & Acquisitions Rollercoaster

The past couple of years of M&A activity has been lackluster at best, and disastrous at worst. However, as the back half of 2024 nears the midway point, many are expecting the recent uptick in activity to continue. Before we discuss the recent transaction volume, it is important to go back in time to the glory days of M&A, or 2021. During this time, M&A deal value reached an unprecedented $5.9 trillion, shattering past records (Bain & Company). The market saw a steep increase in valuation multiples, which soon cratered in the years to follow.  2021 saw corporate led deals grow by 47% and deals led by financial investors grow by 100% (Bain & Company). However, these good times wouldn’t last forever.

In the year 2023, U.S. M&A deal value fell 11% compared to 2022, and a staggering 49% compared to 2021 (Paul Weiss). Since 2021 the M&A market has essentially been at a standstill, mainly caused by uncertainty of interest rates, record inflation, geopolitical tensions, and fears of a recession. This uncertainty has led to a mismatch in valuations between private equity buyers and sellers. Recently, the market has gotten more clarity on interest rates, and strong economic and inflation data has led to a slight increase in M&A deal volume, investment banking related activities, and private equity led deals. Private equity firms are sitting on record levels of dry powder, and have held assets much longer than they expected. Eventually, private equity firms are going to have to unload their assets, as Limited Partners (LP) await their distributions, many of which have been reluctant to write new checks to many of these firms. According to a recent poll conducted by CFO, ⅔ of dealmakers expect an increase in deal volume if  a .25% or .5% rate cut occurs. A good sign for the M&A market has come from investment banks. Larger banks Goldman Sachs, JP Morgan, BofA, Morgan Stanley, Citi, and Wells Fargo all posted double-digit increases in investment banking revenue (The Wall Street Journal). Elite Boutiques also saw a sizable revenue increase, as Lazard posted a 17% increase in financial advisory related revenues (Reuters). Although the M&A outlook remains clouded throughout the back half of the year, many expect deal activity to tick up as central banks around the world begin to lower interest rates, and private equity firms sell off their assets.

By Charles Curtis

Op-ed

Trumponomics vs Harrisonomics

Over the past week, both Harris and Trump's campaigns have outlined their economic policies, each of which has significant flaws. Nationwide inflation remains the most pressing political issue, affecting everyone from the wealthy to the middle class to the poor. One often overlooked aspect of this inflation is that it was largely driven by actions taken by both Trump and Harris. Trump's $2.2 trillion Covid relief bill in 2020 initiated inflation, and Harris, by casting the tie-breaking vote for Biden's $1.9 trillion American Rescue Plan, exacerbated it further. The Biden-Harris bill was implemented after the economy had already begun recovering post-Covid, which only intensified inflation. Trump's proposed solution to inflation involves significantly increasing the U.S.'s drilling capacity, a logical approach given the reliance of nearly every industry on oil and gas. However, the U.S. is currently at its peak domestic oil production under the supposedly anti-drilling Biden-Harris administration. While Trump’s return could see the revival of projects like the Keystone pipeline, it’s questionable whether this would dramatically curb inflation, as the primary issue lies with elevated price levels, not just inflation itself.



Both Trump and Harris have embraced populist policies, including the elimination of taxes on tips—a policy both candidates have supported (who said it first, we’ll leave that for another day……). This move, however, could open more tax loopholes, regardless of who wins the election and implements the policy. Harris’s most significant policy proposal involves a federal ban on food price hikes, framing the issue as big corporations raising prices for profit. Yet, across the nation, businesses of all sizes have been forced to raise prices, due to the government’s excessive spending trickling down into the economy. The idea of empowering the government with more price control is not the true solution to the problem. 

If either candidate genuinely wants to tackle inflation, they will need to make substantial cuts to federal government spending.

By Andrew Brown

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