RF's Financial News: October 2022

Sunday, October 30, 2022

This Week in Barrons: October 30th 2022

When you’re trying to master something – remember:

- It’s not a function of genius or talent, but rather of time and intense focus.

- Your brain will become altered by years of practice and active experimentation.

- As time goes on, you will become younger in mind and spirit.

I can say, with absolute certainty that… 98% is not the same as 100%. Leaving yourself a few points of wiggle room will help to build trust with the client. But at the same time, if there is no need for wiggle room – then say so with a smile.

When do you know that it’s right? When you’re building a business there will be unforeseen speed bumps, missed connections, and bad luck. A lesson to be learned from the rock-n-roll groups of all time is that their final sound ended far away from where they started. They persisted, adjusted, and changed – until they created what their customers wanted. Change too often and you stand for nothing. Refuse to change and you will be overlooked. Professionals serve their customers by collaboratively leading them – where everyone needs to go.

The Market:

Adidas (and many others) have cut ties with Kanye West… for his public anti-Semitic rant; thereby, ending Ye’s billionaire status. Since launching in 2013, the Adidas-Yeezy partnership produced $2B in annual sales (10% of Adidas’ total revenue).

Just the facts:

- The Fed’s preferred inflation measure (PCE) rose 0.5% MoM and 5.1% YoY.

- Personal income increased by 0.4%; however, it’s flat after adjusting for inflation.

- Personal savings fell to 3.1%, as consumers use more of their savings to maintain their standard of living.

- Consumer confidence fell due to inflation and recession concerns.

- The Richmond FED reported a decline in manufacturing activity.

- The U.S. has just 25 days (lowest level since 2008) of diesel fuel supply.

- Mortgage demand fell to 1997 levels, with home sales dropping 11% MoM and 31% YoY.

InfoBits:

- “The bird is freed”… as Elon Musk closed his $44B deal to buy Twitter and take it private (Nov 8^th). Musk immediately ‘freed’ Twitter’s CEO, CFO, and general counsel of their jobs. And just as immediately: (a) the EU warned Musk that he’d have to ‘fly by their rules’, (b) India let it be known that they have ‘veto power’ over any social media platform, and (c) GM suspended their advertising until further notice.

- ‘What about TWTR’s severance?’ Twitter's fired CEO and CFO are likely to collect over $100m in severance – mostly in accelerated, vested equity.

- Binance’s CEO confirmed… that they invested $500m in Elon’s TWTR acquisition.

- Uber launched in-app journey ads… as data is an untapped profit area for companies that have historically sold only products and services.

- U.S. students' math-test scores plummeted this year… possibly a result of remote learning.

- Google’s quarterly sales growth slowed… as ad spending sagged and YouTube faced fierce competition from TikTok.

- $1.25m is needed for retirement… but the average person has less than $100,000 saved. How do we close that gap for the majority of Americans?

- Taylor Swift's "Midnights"… hauled in 1m album sales in 3 days. It broke her own 2017 "Reputation" sales record.

- Tesla is under criminal investigation in the U.S… over claims that the company’s EVs are self-driving. They’re not.

- It may be time to move back in with Mom… as surging rents are pushing apartment demand to its lowest level in 13 years.

- The SEC will force public companies… that make accounting errors on financial statements to revoke their execs’ bonuses and other incentives.

- Google has acquired Alter… an artificial intelligence (AI) avatar startup that helps creators and brands express their virtual identity.

- Shares of Meta plunged 24.5% on earnings day… closing at its lowest price since 2016.

- Mortgage rates are above 7% for the first time since 2002… more than doubling since the beginning of the year.

Crypto-Bytes:

- Bloomberg's Matt Levine just wrote an entire issue… centered on everything you would want to know about crypto. If you’re only going to read 40,000 words on crypto – make them THESE 40,000 words.

- Rishi Sunak is the UK’s next prime minister: He previously shepherded the U.K.’s new crypto regulations during his time as finance minister.

- Apple will not exempt NFTs from the App Store’s 30% fee.

- Stability and crypto… are two words normally not associated with each other. Bitcoin and Ether seem to have found firm’ish levels – despite concerns over inflation, interest rates, and the strong dollar.

- Being a true crypto believer isn’t cheap… but institutional players like a16z insist they're in it for the long haul. Chris Dixon is talking up the 9 crypto-startup deals that they did in Q3.

- Sam Bankman-Fried said that FTX… will launch a stablecoin in the near future.

- According to Ben Hunt of Epsilon Theory… the real money is not in buying low and selling high, but rather in controlling the money flow. Market makers make the big bucks standing on each side of the transaction - taking a small piece. The blockchain is designed to break this flow.

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

Monday: This is one of those bizarre periods where the market continues to climb the wall of worry. There's no reason for the market to be up like this. Nobody cried pivot or cut rates. In fact, our Army's 101st Airborne Division is now deployed to Europe for the first time since WWII. They are the closest U.S. forces to the fight in Ukraine. The chance of anyone using a tactical nuke / dirty bomb just rose exponentially. If/when the first report of a nuke hits the wires, global markets go limit down. We could easily see a 2,500-point haircut. I also think the entire globe will scream for peace talks, and we would get those points back in no time. It’s dangerous out in marketland.

Tuesday: The PMI data has new orders falling to their lowest reading since May, 2020. Prices paid also slid to their lowest reading since November, 2020.

Wednesday: Boeing’s earnings missed by a mile. Even with Boeing, MSFT, and GOOGL all flunking earnings, this market still wants to move higher. None of the world’s ills seem to matter right now. Traders believe our FED will pivot, and only after next week’s FED meeting and the mid-term elections – will the market gain a conscience. I’m watching NEM that’s fighting with the $45 level, and AG that’s having trouble breaking over $9. People are calling for S&P 4000 before the bounce is over.

Thursday: The 3-Month T-Bill is paying the same as the 30-Year. Is it normal to have the same risk of investing for 3 months as you do for 30 years? No. It just shows how weird things have gotten. GDP came in at +2.6% growth. Durable goods rose 0.4%, and Personal Consumption (PCE inflation) rose 4.5%. With a positive GDP and a high PCE, our FED has the license to go forward with all of its 75bps moves.

Friday: The Dow is on track for its best monthly return since 1987 (+11.5%). Blackrock is suggesting that our FED is going to inject "pivot" language in their meeting next week. There's no doubt that our FED is behind the big move down in yields, but it can’t go on forever. Blackrock also thinks that after the midterms – the market will begin to fade a bit. Ya think?

AMA (Ask Me Anything…)

‘Welcome to hell, Elon‘ said NP: “At the bottom of every social network is content moderation, and everyone hates the content moderators. Content moderation defines the user experience. Everyone incentivizes good stuff, disincentivizes bad stuff, and deletes the really bad stuff. YouTube videos are 8 to 10 minutes long because that length requires an additional ad slot in the middle. YouTube wants a certain kind of video, and it’s created incentives to get it. Elon, that’s the business you’re in. The longer you fight or pretend that you can sell something else, the more Twitter will drag you into the deepest possible muck of defending free speech. And if you accept that growth requires aggressive content moderation and pushing back against ‘free speech’ – then your fan base will dwindle. You’re caught between…”

Next Week: A Pivotal FED moment for Markets:

We broke outside the volatility box… and this coming week we have a pivotal FED meeting. The Vol. Box had a 3800 boundary on the upside, and we’re quickly headed for the 3931 level.

S&P levels you need to know: If we break thru 3931, it’s a straight shot to 4211. Therefore, Tip #1: when we top 3931 – buy an inexpensive November SPX / SPY Call Spread centered around 4211 / 421.

We had a tech earnings slaughterhouse: I continue to be amazed by this rally, because it’s taking place without mega-cap tech. They’re doing it on the backs of financials and energy.

$100B reasons to be concerned about mega-cap tech: $100B is roughly how much money The Zuck has lost – just this year. Meta (Facebook) is down over 70% YTD, over 50% over the last 5-years, and back down to 2016 levels.

Will our FED ‘dove it out’? We have a FED announcement this coming Wednesday surrounding interest rate hikes. Tip #2: If our FED only raises 50bps on Wednesday, buy an inexpensive November SPX / SPY Call Spread centered around 4211 / 421.

GDP was sandbagged by our Government… ordering a lot of airplanes. Durable goods orders were a disaster, and our FED’s inflation indicator (PCE) came in hot. Markets are hoping that our FED will begin to review their rate stance – after they raise rates 75bps for the fourth consecutive time.

If you wish to short something… since we’ve rallied +400 S&P points in the last 2.5 weeks: Tip # 3, 4 and 5:

- SOLD: an SPX 4660 Feb. 2023 CALL for $12.75,

- BOT: a GS +$342.50 / -$340 Nov 2022 PUT Spread, and

- SOLD: a JPM Nov. CALL Unbalanced B-Fly – a 1 by 3 by 2 trade.

SPX Expected Move (EM): Yes, we are rallying back, but we breached the Expected Move 7 out of the last 10 weeks. Our markets have become completely inefficient and are just reacting to macro-economic news. Market volatility has NOT declined.

- Last Week’s EM = $114 and we moved over $160 to the upside.

- Next Week’s EM = $119. We moved $93 just on Friday. This tells me NOT to sell short-dated options. We have explosive gamma risk to the upside, and are on course to hit 3931 and 4211 the week of the mid-term elections.

Tips:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,648 /oz. & Silver @ $19.20 /oz.

- AGG – BOT some bonds (AGG = $93.13 / in at $93)

- **BitFarm (BITF = $1.05 / in at $4.12)

o Selling CCs for income,

- **Bitcoin (BTC = $20,800 / in at $4,310)

- **Ethereum (ETH = $1,600 / in at $310)

- GME – DRS’d and HODL

- GS (Downside PUTS):

o BOT Nov 18 / +$342.50 / -$340 GS PUT Spread

- **Grayscale Ethereum (ETHE = $10.44 / in @ $13.44)

- Innerscope (INND = $0.013 / in at $0.0052)

- RIG ($3.62 / in at $3.47)

- SPY (Downside PUTS):

o BOT Oct 31 / +$350 / - $340 SPY PUT Spread

o BOT Dec / $285 DIA PUT

- XLU (Upside CALLS):

o BOT Nov 18 / -1X $63 / + 2X 67 Back-Ratio CALL Spread

* * Denotes a crypto-relationship

Trading Tips:

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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Sunday, October 23, 2022

This Week in Barrons: October 23rd, 2022

“I’m not that smart.” When someone said that to me the other day – I was depressed. The number of tasks that require someone with off-the-charts intelligence are extremely limited. Just about everything we do, is the result of effort, practice, and caring. Sure, variations of the work come easier to some, but no one finds everything easy. Just stop saying: “I’m not that smart,” and tell the truth. Just say: “I don’t care enough…” to do the required homework, to fail along the way, or to even show up – in order to get better at the job. Because, you’re most certainly smart enough.

“Get Big Fast…” Are the words that are mouthed by 90% of the VC’s. Unfortunately, when the stakes are high and everything has to be a home run – people tend to go: All-In. The problem with over-investing is that creative risk and flexibility decline. In place of creativity and innovation, come inflated budgets and exhaustive meetings - instead of getting stuff done. A community that insists that it must work perfectly – virtually guarantees that it won’t work at all. The way to ‘Get Big Fast’ is no secret – you start small, and expand outward with demand.

Moore’s Law… tells us that the number of transistors that can be put on a chip – will double every 2 years. That doesn’t sound like much, but if you constantly double a small number – you ‘Get Big Fast’. Ever since the law was spoken, critics & experts have pointed out that nothing goes on forever. Maybe it won’t, but that doesn’t mean it’s over or bad. I always wonder what would happen if we were required to create the conditions for things to flourish, rather than to predict their demise?

The Market:

“Don’t fight the FED...” Remember when our FED was lowering rates and printing a bunch of new dollars? Companies were borrowing at cheaper rates, expanding their production capacity, and people were buying more stuff. They were buying new homes which created demand for furniture, appliances, etc. The stock market was moving higher – as the DOW ran from 8,800 in 2009 to 34,000 in 2021. There was no question that it ran up because of all the FED stimulus: Cars for Cash, QE1, QE2, the Twist, and dropping rates from 6% to Zero. Nobody was Fighting the FED. Even COVID, with its tens of thousands of businesses closed, no travel, and a slowing economy - couldn’t stop the expansion. Our FED is currently raising rates into a slowing economy in order to get inflation under control. Consider this:

- Current treasury yields are above the pre-financial crisis (2008) highs.

- The demand for home mortgages is at a fresh 25-year low.

- Home prices are falling at the fastest rate since 2011.

- And our GDP has been negative for +2 consecutive quarters.

Our FED is attacking inflation by destroying demand, but the bulk of our current inflation is not demand related, but rather caused by supply chains and services (wages, rents, and healthcare). With limited supply, everything becomes an emergency – and nobody ever asks the ER Doctor how much they cost? Compound that with fewer people who can solve the problem, and the price for that fix will naturally increase. Our FED can’t fix supply chains or service issues via raising rates – and they know it.

Our FED is trying to orchestrate a ‘controlled destruction’ – not a crash. If the debt market and all of its derivatives break – then we crash. Tip #1: Trouble’s everywhere. Consider buying some precious metals, and long-dated PUTS on the indices.

InfoBits:

- Bloomberg predicts… a 100% chance of a U.S. recession in 2023.

- Intel has slashed Mobileye’s valuation… by over 50% to under $20B.

- JPM and Wells Fargo reported home-lending revenue is way down… as spiking mortgage rates cool the market.

- BP is buying biogas Archaea Energy for $4B. It will get them in the renewable-gas game, and net them tax breaks for green investment.

- Kanye West is buying the social platform Parler. Ye was locked out of Twitter and Insta after his anti-Semitic remarks.

- Federal Reserve officials will raise rates 75bps in November… but are worried that inflation is now feeding on itself via the service sector.

- Cadillac and Rolls-Royce are launching luxury EVs… for $300,000 and $413,500, respectively.

- The U.K. has ordered Meta to unwind its $400m purchase of GIPHY: It’s the first time a global regulator has unwound a completed Mega-Cap Tech deal.

- Jeff Bezos says… “It’s time to batten down the hatches.”

- The Inflation Reduction Act eliminated the $7,500 tax credit… for plug-in hybrid and electric vehicles that are imported and sold in the U.S.

- U.S. housing starts fell 8.1% in September… led by a 13.1% decline in multi-unit projects. Demand is at its lowest level since 1997.

- Inflation in Canada = +6.9%, the U.K. = +10.1%, and the Eurozone = +11%.

- Retailers want you to buy their 2021 leftovers this holiday… at a discount.

- The Bank of Japan conducted emergency bond buying… as global debt markets continue to creak and groan under economic pressures.

- Twitter’s workforce will be cut by 75%... as Elon plans to get rid of 5,500 of Twitter’s 7,500 workers.

Crypto-Bytes:

- Shark Tank’s Kevin O'Leary says… “Once a specific stablecoin bill is passed and institutions smell policy, then you’ve got a real move up. That’s when Bitcoin breaks out of the $19,000 to $22,000 trading range.”

- Mastercard partnered with crypto trading platform Paxos… to help financial institutions offer cryptocurrency trading.

- Avraham Eisenberg claimed responsibility for last week’s $114m exploit. He returned $67m to Solana, and his DAO will vote in the coming days to decide how to divvy up the remaining funds.

- Out of 180+ active crypto exchange-traded products… more than half launched after the crypto market peaked. So, as retail investors ran for the sidelines, institutions kept playing ball despite crypto winter's chill.

- A former Celsius exec… joined JPM as director of crypto regulatory policy.

- BlackRock and BNY Mellon ($10T in managed assets)… have expanded their crypto offerings.

- Starting 10/28, Fidelity’s institutional clients will be able to trade ETH.

- Electric car maker Tesla did not sell any of its bitcoin holdings… or purchase any additional bitcoin in Q3.

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

Monday: I’m hearing rumblings of some form of a Ukrainian peace process, but I’m also hearing we get one more escalation before a peace deal is reached. People are talking about a small nuclear explosion. Imagine what happens to the stock market if a low density, low volume nuke goes off in Ukraine. We could see a one-day 2000-point drop. I am hearing that a peace deal would be announced immediately after that – which would send the markets roaring higher. So, I’m buying some inexpensive PUTs on the indices – into any market strength. Expect major earnings cuts in Q4 – not in Q3, and most strategists see an upper bound of 3,800 and then 4,150 to this rally.

Tuesday: The market decided to crush the shorts yesterday, held us up over +500 points all day, and they're not done. We’re witnessing a short squeeze that hurts the traders that were convinced the market couldn't put in a big bounce. Always remember that the market can rip your face off in either direction. You know the drill: watch for the DIA, SPY and or QQQ to mark an early morning high, then jump on it if it exceeds that high later in the session.

Thursday: 3 market gurus are out there saying that everything is aligned for a crash. Unfortunately, when the news just couldn't get much worse (and we're in one of those times) it's the market's job to confound everyone and remain irrational. Rising from here seems irrational, but AAPL over $146 seems like a trade, and AMD over $60 could work. NEM looks like it's warming up, but miners are often one day wonders. This is one strange market – so don’t get careless.

AMA (Ask Me Anything…)

“How do I preserve my capital?” A component of every portfolio is precious metals (PMs). Currently, you need to look beneath the surface for the real PM prices. Silver Eagle coins may be $18.50 on the spot market, but that price doesn't really exist. The coins are going for $35 – almost double. And yes, if you buy them now, they will double in the future. If you’re in the market, try www.cornerstonebullion.com and ask for Chad or Bill – they’re good people.

“What happened on Friday?” Friday morning the futures were down -240 because the bond markets were giving off horrific vibes. The 10-Year was at 4.3%, and it was 16% cheaper (3.6%) just last month. Bonds are not supposed to do this. Liquidity is drying up, and monetary velocity is in the toilet. If the credit markets freeze-up, then everything grinds to a halt. Bank of America announced that the treasury markets are at risk of a “large amount of forced selling” or a surprise that leads to a breakdown. Our world is being torn apart, and the global financial system is creaking and groaning under the weight.

The market opened red, but then like magic – it suddenly ran bright green to the tune of over 300 points. What happened? The WSJ ‘leaked’ a story that our FED was going to do a 75bps raise in November, but is considering 50bps or less in December. Instantly the market went bananas. The WSJ ‘leaked’ the story to take some pressure off of the bond markets. Sure enough, it halted the pace of the increase, and the 10-Year went from 4.33% to 4.22%. On the same day, the Bank of Japan stepped in to save the yen, and FED-head Daley suggested that they may hike in smaller increments.

On Friday, the entire global financial structure was about to blow up. Friday wasn’t about a stock market rally, but rather another attempt to halt an end to our global financial nightmare via coordinated actions. Will this work going forward? It’s strictly an election aid, but after that = we’ll go right back to being in the soup.

Next Week: The Damage is DONE in Bonds:

Price Action last week was a volatility slop-fest: Anytime the S&Ps can gain 2.5% on a Friday afternoon AND the VIX increase – you know that your markets are in trouble. The price action in last week’s S&Ps is all for naught – because the focus is on the action in the bond and currency markets. By virtue of the bond and currency markets, you really can’t read anything into last week’s equity price activity.

We’re still inside the 3600 to 3800 volatility box: By virtue of remaining range-bound, the explosive nature of the final directional move will be that much more dramatic. We moved 130 S&P points on Friday (3641 to 3769), and we’re still just moving inside this range. If we break to the upside, look toward 3931 as the next gravity point. If we break to the downside, look toward 3400 and 3000. This coming week we not only have GDP numbers to report, but also mega-cap tech earnings. The element to watch for in earnings, is listen to see if any tech companies suspend their internal stock buybacks due to high interest rates and the need to maintain a high cash position through a recession.

This market is highly correlated… and will potentially remain that way until after the mid-term elections. Last week was a short-covering exercise – while all of real decision-making remained on the sidelines. In fact, Tip #2: Try not to maintain any directional bias (zero delta). I could easily see a bond rally occurring next week that rotates capital out of the S&Ps and into the bonds. Our equity markets need to stop moving as a unit, return to normalcy – so that each individual stock can be evaluated on each own merits… again.

The VIX is alive, living in the 30’s with backwardation: I can count the number of times on one hand, that in the last 50 years – the S&Ps have been up 2.5% and the VIX has moved higher. This is a troublesome statistic. This market is a powder-keg of risk, that will use an external event as a trigger – and we don’t know what or when that particular event will occur.

Bonds have collapsed. Is this capitulation? As bonds go lower, interest rates move higher. Last week our bond markets collapsed (down 35% YTD) and that sent interest rates through the roof. The spike in rates will be felt on main street for at least the next 3 to 6 months. It has serious consumer implications from holiday spending to home buying, and from credit card debt to financing an education. The consumer is caught between higher interest rates on one side, and inflation on the other.

What are the implications of spiking yields on:

- (a) buybacks – Tip #3: watch to see if any of next week’s mega-cap tech earnings announcements discuss delaying their internal stock buybacks in order to maintain a higher cash position going into a recession.

- (b) rising consumer credit – Walmart (WMT) is only down 5% YTD. With rising credit card interest rates, this could signal a tough holiday season for both WMT and Costco.

- (c) collapsing housing markets – The index of homebuilders (XHB) is already down 35% YTD, but with a spike in mortgage rates – this could be just the tip of the iceberg.

Have the S&Ps bottomed… Tip #4: ABSOLUTELY NOT. We have yet to see the implications of spiking interest rates (doubling over the past 6 months) on mortgages, car loans, tuition payments – and let’s not forget: heat, groceries, and gasoline.

Currency markets are moving like there’s no tomorrow… The British Pound moved 10% last Thursday and Friday. The Japanese government was forced to intervene on behalf of its Yen – to avoid global trade imbalances and catastrophic debt responsibilities. The bond market (liquidity and potential capitulation), the currency markets (global liquidity and debt), and our internal FED/PPT team – will decide the fate of U.S. equities prior to the mid-term elections.

SPX Expected Move (EM):

- Last Week’s EM = $120 … we breached the EM to the upside last week.

- Next Week’s EM = $114 … After we moved $130 points on Friday afternoon, I’ll take the ‘over’ on our market’s ability to predict their upcoming behavior. Keep your hands-n-feet inside the vehicle at all times, because these next couple of weeks are going to be a rough ride in market-land.