Why do we need a FED… when we have an efficient Treasury market? Maybe our FED’s primary purpose is to create uncertainty in an otherwise boring marketplace. Uncertainty drives speculation, speculation drives liquidity, and liquidity produces efficiency. So maybe our FED is: just good for business. Our FED’s consistent mismanagement of the simplest decisions amazes me. Last week, 17 FED-heads gave speeches, told us their subjective interpretations, and delivered increased uncertainty. Maybe our FED is just a vehicle for economists to earn a living.
Novelty vs Action: Nerds, geeks, and early adopters all do things because they’re new, innovative, and (honestly) may not work. Most people hesitate in the face of novelty because it’s risky and scary. If you want more people to accept your new idea – make it safe and interesting.
You gotta ship… When innovation arrives, logistics people scramble because innovation always makes it hard to do things the old way. Innovative companies survive ONLY if they can bring logistics in line. You need to SHIP on time and on budget. Startups tend to concentrate on the innovation and forget that it’s the logistics that determine their success or failure. Innovators alone are a Dime-a-Dozen. Innovators that ship are Priceless.
The Market:
I like the way Josh Brown summed up the actions of our FED. “At a certain point, our FED should look in the mirror and say: ‘We’re not very good at this.’ FED, you’ve been oscillating back and forth between stimulus and austerity for the past 2 years – can we please stop and re-evaluate. The pendulum shouldn’t swing all the way in both directions – all the time. That’s not a cycle – that’s a circus. If the strategy is: We don’t have to wait to see IF the economy will cool off – we can just crash it and be absolutely certain – okay, but tell us that ahead of time.”
Hey FED, the world KNOWS you’re not very good at this because:
1. You told everyone that you would do ZERO rate hikes in 2022, and ended up doing the sharpest interest rate increases of all time.
2. You bought mortgage and treasury bonds to stimulate the economy in the March, and deliberately crashed the markets and created a recession in September.
3. You created massive bubbles in one calendar year, and popped them in the next. Heck, we were taught pace and moderation in elementary school.
4. When stocks and housing were at all-time-highs, you added 0% interest rates along with fiscal & monetary stimulus. Everyone thought that was a dumb idea.
5. You’re currently hell-bent on doing record-setting rate hikes - even before attempting to see if the first ones are producing the desired effect.
FED, we’re talking about people’s lives here. It seems that being ‘data-dependent’ isn’t working, so maybe we try being ‘common-sense dependent’? Or just let our FREE MARKETS manage the economy without you?
InfoBits:
- Digital World Acquisition Corp… the SPAC looking to take Trump Media public, disclosed that investors have already removed $140m of the $1B raised.
- One Prime Day isn’t enough… so Amazon’s hosting a 2nd member shopping event hoping to lure inflation-stressed shoppers as demand softens.
- $456B is what U.S. office buildings will lose… due to lower tenant demand.
- Cathie Wood launched a new fund… that allows small investors to invest in the VC market. Cathie, now your investors can lose money in the public AND private markets.
- National home prices cooled in July… at the fastest rate in history.
- Automation is coming… to our 200k fast-food spots and their 5m employees.
o Chipotle’s tortilla chips… will be robo-chips made by Chippy.
o Jack in the Box… has already debuted their fry-maker: Flippy
o Chili’s has employed… Rita the Robot to serve customers.
o McD’s, White Castle, and BWW… are testing robots.
o Panera and McD’s are testing… an Ai drive-thru
- Harley-Davidson listed its e-motorcycle brand LiveWire… on the NYSE via $1.8B SPAC.
- You can get 4% on 1-Year T-bills… so there’s no reason to: ’Buy-the-Dip’.
- August inventories rose more than in July… so clearance sales are coming.
- Pending home sales fell 24% YoY… and refi-applications fell 84% YoY.
- -0.6% is the final Q2 GDP reading… confirming 2 consecutive quarters of negative GDP growth == RECESSION.
- Goldman Sachs reported that a US recession… could cause the S&Ps to fall an additional 14% by year-end.
- China has told major state-owned banks… to be prepared to sell U.S. Dollars in offshore markets to help stem the yuan’s decline.
- Mark Zuckerberg signed his Little League baseball card as a child… gifted it to his camp counselor who recently sold it at auction for $105k.
- Amazon boosts worker pay before the holidays… but not enough to beat the inflation Grinch.
- Our FED’s inflation metric rose 0.6% MoM in August / 4.9% YoY. Yeouza we’re still HOT.
Crypto-Bytes:
- Stanley Druckenmiller believes that… cryptocurrency could have a real renaissance if/when people lose trust in their Central Banks.
- The European Central Bank is exploring… distributed ledger technology for interbank settlements.
- The Best U.S. Universities for blockchain are… (1) Cal. Berkley, (2) Cornell, and (3) Stanford. The global top spot went to: Hong Kong Polytechnic.
- For $1.4B, FTX.US acquired the assets… of the bankrupt crypto brokerage firm: Voyager Digital.
- Terraform Labs co-founder Do Kwon… who wiped out $60B in crypto, denied that he’s in hiding right after Interpol issued a red notice for his arrest.
- Bankrupt crypto lender Celsius Network's CEO resigned… following months of failed attempts to save his “neo-bank” – after directing corporate funds to his own personal accounts.
- Nexo has now acquired a U.S. bank charter… by buying a stake in a regulated bank. Nexo plans to offer products like checking accounts and crypto-backed loans through this relationship.
- Amazon was the only non-EU payments provider selected… to work on prototypes for digital euro apps.
- CFTC Chairman Behnam believes… regulation would cause crypto-sidelined institutions to buy bitcoin and other digital assets.
- Californians will now have the option… to keep a record of documents like birth and marriage certificates on a block-chain based app.
TW3 (That Was - The Week - That Was):
Monday: The market expects two 50bps hikes in November and December followed by smaller hikes in 2023, and a higher unemployment rate – adding to the recession fears. This marketplace is ugly. Buy more OTM SPY PUT spreads.
Wednesday: The picture looked bleak overnight as S&P futures had made a fresh overnight low and on track for a 7th straight day of losses – before the Bank of England did its thing. In desperate need to protect its currency (after last week’s aggressive tax plan announcement sent the Pound to record lows) the BofE stepped in with some monetary policy intervention. They started BUYING long-dated UK bonds (QE) with the purpose of restoring orderly market conditions (initiating a rally). The news eased pressure on the U.S. 10-Year as it had touched above 4% for the first time in over a decade. The move was introduced in conjunction with a ₤45B tax cut package that will likely lead to heavy long-term borrowing. Concerns about how the tax cut would be financed led to heavy selling of British assets and investors fleeing British fixed income assets. The QE move by the BoE immediately raised investor hopes that Central Banks have maybe hit an inflection point and will abandon their monetary tightening strategy. The British government’s choice to frame their fiscal policy centered around unfunded tax cuts has economists and the IMF drawing parallels to the U.S.’s ability to lead with reckless political theatre instead of well-thought-out fiscal and monetary policy.
Thurs & Friday: For September, the Dow tumbled 8.8%, while the S&P 500 fell 9.3%, and the Nasdaq lost 10.5%. Learn how to hedge your risk.
AMA (Ask Me Anything…)
Are we close to a bottom? Per HL: “I’m not sure what happens next.” The rise in rates is scary, but their rate of ascent is downright frightening. I’m don’t know what the chain of unintended consequences looks like. Suddenly, stocks have a ton of competition for marginal investing dollars which is a new twist for the BTFD (‘Buy-the-Dip’) generation. The S&P 500 just logged its 3rd straight quarterly loss for the first time since 2008, and we’re currently testing the 200-week moving average for the 1st time since the pandemic. We closed slightly below it on Friday, so buyers will need to show up soon if we’re going to avoid 3,250 on the S&Ps. Unfortunately, I’m seeing more signs of excessive behavior than bottoming. I don’t know how we bottom in the technology sector when the worst performing fund manager in growth technology (Cathie Wood) is still launching a new public/private mutual fund to retail investors. I’d be more comfortable calling a bottom if Cathie would be closing up shop or being unsuccessful raising capital for this new product. With so many technical support levels being broken in technology and stocks – next week could get ugly very easily.
Next Week: The FED… backed into a Corner?
- The BOE blinked – who’s next? If our S&Ps drop another 300 to 400 points, that could change the tone of our FED. Over the next couple of weeks, we could see the S&Ps play a wild game of chicken with our FED in order to get them to blink. (1) One scenario is where the S&Ps ‘tank’ so badly that our FED will need to change their verbiage in order to further stimulate market activity to the upside. (2) Another scenario could be our bond market spiraling out of control to the downside, and our FED would at minimum need to change its pace of rate increases. (3) A third scenario is bond market taking off and robbing investors from the S&Ps and further tanking the equity markets.
- Inflation vs Our FED… What if our FED is just too late to stop inflation, or the price to stop it is just too high. What if other nations / politicians are not willing to risk their economies / careers to bring it under control. The UK was just the tip of the iceberg there.
- PCE inflation data came in HOT… rising 0.6% MoM and 4.9% YoY. This is our FED’s most watched indicator, and things are going to get very serious – very quickly. Our FED now knows that curing inflation this time around could at minimum cost them a major recession and/or a depression.
- How do you break a Central Bank? You break it with a mixture of politics (over-promise and under-deliver), and bad fiscal policies. We’ve seen that in any number of political environments as of late, and it makes the ability to pick the next several culprits just that much easier.
- The Dollar and Bonds… because of the actions of the UK, the U.S. Dollar does not need to make all-time-highs for the S&Ps to dramatically selloff. And as we said above, there could easily be a situation where investors leave stocks and pour themselves into buying bonds – and further break the back of our FED.
- Volatility is positioned for us to rock to the downside… and this should not make anyone feel warm-n-fuzzy. The VIX is sitting around 32. The 32 to 33 level is where we’ve previously either seen spikes and corresponding capitulation, or a complete VIX and suddenly all’s right with the world. There is nothing in between. Factually, we are still in backwardation where October volatility is higher than November – so, there is still fear out there.
- AAPL, TSLA, AMZN, SBUX, Energy & Financials… We are in a heavily correlated environment:
o Apple: Last week we expected AAPL to get crushed, and this past week they did aajust that. AAPL is down 24% YTD and the QQQ’s are down 33% YTD; therefore, AAPL could still come in a little further.
o Tesla and Amazon: TSLA and AMZN are both down 33% YTD, but are higher by about 10% from their lows; so again – be careful to the downside.
o Starbucks: SBUX is only down 27% YTD, but is 12% higher than its lows.
o Energy: The XLE (the energy ETF) is UP 25% YTD. If markets figure out that they can win a game of chicken against the FED – the XLE and anything else above its lows will be sold hard.
o Financials: The XLF (30.4) have a natural resting place around 26.5. If markets believe that pushing the financials to 26.5 will help our FED blink, then down they will go.
- SPX Expected Move (EM):
o Last Week’s EM = $123. That would have put the lower edge of the EM down at 3571 and we close the week at 3584.
o Next Week’s EM = $121. We are in hideously over-sold territory, but markets NEVER crash from highs – they ALWAYS crash from lows. I believe upside and downside risk are currently equally weighted. One of these days, investors will come in, cover their shorts, and this market will rip to the upside. Prior to that however, this could be a very exciting time.
Tips:
HODL’s: (Hold On for Dear Life)
- CASH = Nexo @ 8% on USDC – waiting for Merge dust to clear.
- PHYSICAL COMMODITIES = Gold @ $1,668 /oz. & Silver @ $19.01 /oz.
- **BitFarm (BITF = $1.05 / in at $4.12)
o Selling CCs for income,
- **Bitcoin (BTC = $19,100 / in at $4,310)
- **Ethereum (ETH = $1,300 / in at $310)
- GME – DRS’d and HODL
- **Grayscale Ethereum (ETHE = $9.12 / in @ $13.44)
- Innerscope (INND = $0.0196 / in at $0.0052)
- SPY (Downside PUTS):
o BOT Oct 21 / +$350 / - $340 PUT Spread
o BOT Oct 31 / +$350 / - $340 PUT Spread
* * Denotes a crypto-relationship
Trading Tips: Hedging Action:
- Tip #1: BUY out-of-the-money SPY PUTS / PUT Spread: 31 Oct: +350 / -340
- Tip #2: BUY an EEM back-ratio CALL spread: 4 Nov: -(1) $35.5 / +(2) $37
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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