This Week in Barrons: April 10th, 2022

“It's the End of the world – as we know it” …   Yes, we are witness to the end of free, dumb money being rewarded by loose public funds instead of by profits and free cash flow. Finally, it does appear like the blank check, gravy-train era is over.  [‘Boom, boom, boom, another SPAC bites the dust – and another one gone, and another one gone – another SPAC bites the dust’.]  I believe that innovation, creativity, and risk-taking are essential to a growing economy, but selling the dream without sustainability should not be rewarded.  That’s why the IPO and SPAC markets have collapsed as of late.  Gone are the days of pick your own valuation.  This will not spell doom for start-ups and initial fund raising, but rather emphasize healthy and sustainable businesses where everyone is committed to doing the impossible.  It’s not the end of the world, but the beginning of things starting to make sense: like profitability and sustainability.

Who is Jack Mallers?  Jack Mallers (the CEO of Strike) recently unveiled an integration with Shopify, a partnership with NCR (the world’s largest point-of-sale supplier), and a join with payments firm Blackhawk.  This colab will allow anyone, anywhere, anytime – to send funds as payment – without fees, without tax ramifications, without price volatility, or knowledge of bitcoin.  This allows any merchant to accept any currency in the world, avoiding ALL of the credit card network fees, and ultimately getting paid in their currency of choice.  In this case, Bitcoin is both the asset and the payment network.  The asset is being held on digital wallets all around the globe.  But it’s Bitcoin as a payment network that allows anyone in the world to send value to anyone else without requiring the participation or approval of a third party.  There is no censorship, no seizure-ship, and no dependence upon monetary policy.  Strike is bringing a disruptive technology to payments in a way that threatens hundreds of billions of dollars in market cap.  It also threatens nations such as the U.S. trying to place ‘economic / payment sanctions’ on other governments.  The U.S. is accustomed to having ultimate control over the global reserve currency; therefore, they will definitely object to this payment mechanism on the grounds that it’s just too gosh darn: open, transparent, and fair.

The Market:  

A new survey finds…   that over 80% of Americans with incomes over $100,000 are worried about both Inflation and Recession.  But all families have started buying less across the board.  Fair warning!

Our FED plans on controlling inflation…   by selling off $95B worth of assets every month; however, they’re sitting on over $9T worth of assets.  Our own FED is giving us $95B reasons to sell this market – every month.  If bonds make up 50% of our FED’s portfolio, then they have $4.5T in paper assets – that will take about 48 months to run-off.  That assumes our FED is able to sell their bonds back to the market – which will decrease their price, increase rates, cause borrowing to be more expensive and money scarcer.  Their actions will absolutely suppress inflation, but will also cause less investment in stocks.  The FOMC minutes revealed that our FED is also considering selling mortgage-backed securities (MBS) as part of its tightening regime.  An MBS sale will have an unknown side-effect on the economy.  Markets understand positive or negative impacts, but get scared when the outlook becomes unknown and almost impossible to predict.  Don’t Fight the FED.  They Sell == You Sell.

InfoBits:

-       Startup Investment fell 11% in Q1, and Elon bought 9% of Twitter.

-       The US Treasury 10-year (TNX) jumped…   this week and is up 80% YTD.

-       Money is the 2^nd-most discussed family topic…   (after COVID) as high food and gas prices eat into family budgets.

-       93% of teens believe financial knowledge is crucial…   to achieving their life goals – yet most fail basic financial literacy tests.

-       Financial literacy cost Americans $350B last year…   think: overdraft fees, high-interest loans, etc.

-       New Yorkers judge inflation by the slice…   because a NY slice should always cost the same as a subway ride.  But thanks to inflation, the plain Slice is now over $3, while train fare is $2.75.

-       Ford’s sales dropped 17% in Q1 and F-Pickups were down 31%…   all the while waiting on the on-going chip shortage to be resolved.

-       Exxon expects higher oil prices to boost profits by $2.3B / quarter…   but it also lost $4B on abandoned drilling projects in Russia.

-       Recently FED Head Lael Brainard said: “We will continue tightening monetary policy methodically via a series of interest rate increases and by reducing the balance sheet at a rapid pace as soon as our May meeting.” 

-       Fast, a 3-year-old, $120m one-click checkout software company…   is shutting down completely.  Yet another example of funding having very little effect on corporate success.

-       JetBlue has offered to buy Spirit Airlines for $3.6B…   potentially spoiling a bid by rival Frontier Group ($2.9B) and reshaping the landscape for ultra-low-cost air travel. 

-       Honda and GM are teaming up to develop EVs for under $30k…   and will start cranking out millions by 2027.

-       The White House will extend the freeze…   on federal student-loan re-payments through August.

-       The idea of everyone else paying for your life and education…   ain’t gonna happen during a recession.

-       Supply struggles will speed the decoupling…   of our manufacturing from China as multinational companies have options — and a growing list of reasons to reduce dependence on China.

-       Walmart is raising pay for its truck drivers to $110,000/yr…   the same as a starting salary of a junior Wall Street banker — without all of the educational loans.

-       Tesla finally opened its Gigafactory in Austin, Texas...   and will use it to manufacture its complete truck line.

Crypto-Bytes:

-       Crypto Facts:

o   43% of the U.S. thinks crypto “is a long-term dominant economic force.”

o   20% of the U.S. has traded or invested in crypto. 

o   25% of millennials are using crypto to fund retirement goals.

o   40% of investors view digital assets as a way to hedge against inflation. 

o   60% of Goldman’s clients will increase their crypto holdings this yr. 

-       Stargate is a new crypto bridge...  hoping to fix the security and settlement issues incurred by sending between blockchains.  It only deals in stablecoins, but in just over a week has accumulated over $4B in assets under management.

-       Intel launched its 2^nd-generation bitcoin mining chip...   which will play well on the regulatory front amid an environmental, social, and ESG industrial debate.

-       German authorities seized 19,000 seller accounts…   on the Russian Darknet Market – the largest illegal marketplace on the planet.

-       In Q1, MicroStrategy bought another +4,000 BTC for $200m…   likely financed by Silvergate Bank.  They now hold over $6B in BTC.  

-       Bitcoin’s “reserve risk ratio” has traded at undervalued levels for 77 days…   indicating that long-term holders aren’t selling.

-       SEC Chairman Gary Gensler is working with the CFT…    in an effort to split oversight of crypto trading platforms between the 2 entities. 

-       The Brits are making the U.K. a crypto tech hub…   by recognizing stablecoins as a valid payment method and introducing a “financial market infrastructure sandbox” to enable innovation without fear of regulation. 

-       The U.K.’s Royal Mint is working on its own NFT…   to commemorate the country’s “forward-looking approach” to digital assets.

-       Kevin Smith will release his latest movie…   along with a collection of NFTs.  NFT holders can use the movie’s characters to create personal content, and the best personal content will be used in the film’s sequel.

-       Luna Guard purchased over 5,000 BTC…   boosting its stash to $1.6B.

-       A copy of the first-ever tweet by Twitter co-founder Jack Dorsey…   has been offered for $48m on the OpenSea NFT marketplace.  That’s 16 TIMES more than the owner paid for it 1 year ago. 

-       Wall Street’s Charging Bull statue now has a crypto cousin:   Miami’s Robo-Bull (with laser eyes) is a symbol of the city’s crypto bullishness.

-       eToro launched a $20m fund to purchase blue-chip NFTs…   aiming to be “one of the leading NFT collectors in the world”.

-       Blockstream, Tesla and Block (formerly Square) are joining forces…   to mine Bitcoin with solar power in Texas == large-scale sustainable crypto mining.

TW3 (That Was - The Week - That Was):  

Monday:  Elon bought 9% of Twitter, and Hertz is purchasing 65,000 EV’s over the next 5 years from Polestar cars.  Welcome to Monday.  Watch: NEM, GDX and GDXJ today.  The miners have caught a bid and if it holds, that might be a very interesting sector.  I still like LTHM, LAC and LITM.

Tuesday:  We're getting close to ‘decision time’ in the markets.  The pattern in the current market is one of: ‘Lower Lows and Lower Highs’.  Right now, the DOW is between its 50-day and 200-day moving average.  It could fail and be yet another example of lower lows and lower highs.  Coal prices topped $100/ton for the first time since 2008.  Watch ARCH and BTU.  FED Head Brainard dropped the following: “The FED is prepared to take stronger action if indicators of inflation indicate that such action is warranted.  I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19.”  There is a massive wave of bird flu ripping through the US Poultry supply.  Watch for poultry to go up another 30% shortly.

Wednesday:  We have just witnessed the fastest rise in the 30-year mortgage rate in history.  But more importantly – cash refinancing w/ lower rates and higher appreciated values is going to dry-up.  My suspicion is that 1) the strong consumer is going to become much weaker, and 2) many of the people that did cash out are soon going to be upside down - owing more than their house is worth.  Watch EGY, as it’s an almost perfect set up for an attempt at a triple top break out.

Friday:  Watch BTU.  With coal hitting its highest price in 15 years and natural gas / oil shipments out of Russia being sanctioned – you can bet the EU is scrambling to get energy. CEIX may join the coal party.  Also watch CCJ and DNN trying for break outs.

AMA (Ask Me Anything…)

Why do you like crypto so much?  The Fed will try its darndest to ‘soft land’ the economy, and to not shock markets by raising rates too quickly.  Market observers are doubtful that this will be possible given the high inflation rates, global supply chain disruptions, and the sheer size of our FED’s balance sheet.  For digital asset investors, while the prospects of a recession in the U.S. may be unnerving, there are signs that crypto may be divergent.  On-Chain data indicates that the illiquid supply of Bitcoin is close to all-time highs.  Long-term BTC holders are digging their heels in, and reducing the number of coins available for trading.  This lack of supply has been creating positive price pressure.  In the altcoin market, with projects like Ethereum (ETH), and Solana (SOL) hitting key development milestones and integrations - investors are willing to allocate capital towards these projects despite the macro-level uncertainty.  Watch NFTs and OpenSea to continue driving Solana’s gains.

Next Week:  A Risk vs Reward Imbalance?

Headwinds Continue to Accumulate from: (a) our FED raising rates 50bps, (b) our FED selling $95B/month back into the marketplace, (c) our FED selling MBS’s to (c) the BOND Market.

-       Currently, we are barely holding onto the edge of the Expected Move, which is a sign of an efficient marketplace.   

-       With just some of the headwinds listed above, the market has limited upside reward vs a virtually unlimited downside risk – causing a risk/reward imbalance.  This will reinforce the ‘bear market rally’ market characterization – especially in so far as the QQQ is concerned.

-       The Dollar ($DXY) is beginning to break out, and the marketplace is using the Dollar as a place to park money when you need to: ‘duck-n-cover’.  The Dollar is the new VIX.

-       Bonds are breaking down.  We can forget the Yield Curve Inversion because it’s yesterday’s weather.  Our Interest Rates are exploding to the upside; however, next week is a data-packed week – be careful as things have moved fast-n-far.

-       Markets are showing a complete lack of correlation – as we’re playing the ‘sector rotation’ game.  If our markets do become correlated in either direction, the move will be fast-n-furious.  

Position Updates:

-       XLU: Tip #1:  I’m looking for the utilities to go lower, along with the rest of the market.  It’s a beautiful chart to the upside, that has exceeded its own Expected Move in 2 consecutive weeks; therefore, it is ready to ‘return-to-the-mean’.  

-       SLV: Tip #2:  I’m looking for silver to go higher as the dollar pulls back.  That small move higher in the SLV – will cause the +$22 / -$24 call-spread in the May 20 contracts to go higher.

SPX Expected Move (EM):

-       Last Week’s EM was $75, and we hit it to the penny.

-       Next Week’s EM is $77, and that EM looks ‘low to me’ vs the risks that we’re seeing and are being telegraphed by our FED – to this marketplace.

Tips:

HODL’s: (Hold On for Dear Life)

-       CASH == Nexo & Celsius == @ 8 to 12% yield

-       PHYSICAL COMMODITIES == Gold @ $1,950 / oz. & Silver @ $24.91 / oz.

-       **BitFarm (BITF = $3.18 / in at $4.12)

o   Sold May, Dec ‘22: $5 CCs for income,

-       **Bitcoin (BTC = $42,300 / in at $4,310)

-       CPG (CPG = $7.30 / in at $6.44)

o   Sold Jul $7.50 CCs for income,

-       Energy Fuels (UUUU = $9.72 / in at $11.29),

o   Sold June $11 CCs for income, 

-       **Ethereum (ETH = $3,230 / in at $310)

-       GME – Holding

-       **Grayscale Ethereum (ETHE = $24.48 / in @ $13.44)

-       **Grayscale Bitcoin Trust (GBTC = $29.82 / in @ $9.41)

-       Hyliion (HYLN = $3.90 / in @ $6.01)

o   Sold April $4 CCs for income,

-       **Solana (SOL = $110 / in @ $141)

-       Uranium Royalty (UROY = $4.39 / in at $4.41)

o   Sold April $5 CCs for income,

-       Vertex Energy (VTNR = $    8.44 / in @ 4.74)

o   Sold April $5 CCs for income.

** Denotes a crypto-relationship

Trade of the Week:  Bullish on Metals:

-       Silver - SLV:               BUY $22 / SELL $24 May 20 Bullish Call Spread

Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

 

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