“This was only a matter of time,” said a senior fusion scientist at the National Ignition Facility of the Lawrence Livermore National Laboratory in California – where the fusiondiscovery was made. Whenever fusion arrives in a workable fashion, the entire world changes – forever, and for the better. Geopolitics and the axis of power will be quickly rewritten. Climate issues will be transformed. Our ability to feed, house and enrich the lives of billions of people will be amplified.
Last week (for the first time), scientists successfully used a nuclear-fusion reaction to generate 25% more energy than what was required for its creation – i.e. the ‘final total’ was larger than the ‘sum of its parts’. Nuclear fusion would unlock limitless, carbon-free power. It’s a $40T addressable market. Constellation Energy views what happened last week as: “The biggest scientific advancement in 30 years. It’s a short-term step, but a long-term leap.” Nobody cares that the market damn-near crashed when you get to say that a couple weeks before Christmas 2022 – we proved that ‘Nuclear-Fusion’ worked.
The Market:
Wealth creation became too big a focus of an entrepreneur’s journey. Everybody forgot that it’s Passion and Goodwill that are the drivers of the entrepreneurship bus. Entrepreneurs need to make a difference. Goodwill propels the entrepreneur toward live events, where they get to deliver their narrative to groups of willing listeners. Their stories start with: “Taking risks - Not listening to experts - Challenging Wall Street and Main Street – and Not worrying about a master life plan… are all okay.” Goodwill is the Balance Sheet item that reflects that ‘making a difference’ attitude. Long before Silicon Valley’s ‘Fake it till you Make it’ mantra, the entrepreneur was out talking with anyone who would listen. As ‘Raising Money’ fades into ‘Finding Paying Customer #1’, we will return to a world guided by passion rather than greed. That will allow us to decouple productivity from valuation. Entrepreneurship is best implemented one step at a time: doing what they love and loving what they’re doing.
InfoBits:
- "There is a slowdown happening – no question about it.”… Wells Fargo CEO Charles Scharf.
- “It’s a hurricane, but right now it’s kind of sunny. It’s right down the road, coming our way. We just don’t know if it’s a minor one or Superstorm.”… JPM CEO Jaime Dimon
- 73% of professional / institutional / traders are short. Retail traders (on the other hand) are 56% long. That’s what makes a market!
- Global venture funding was down 69% YoY in November.
- South Korea has found an anti-aging solution… Sign me up!
- Wendy’s fast-food prices jumped 35% YoY.
- Gold, Silver, and Platinum have all hit new 5-month highs.
- Elon Musk is no longer the richest man on earth… as his fortune has tumbled over $100B since January.
- Google employees are concerned about ChatGPT. Google said that they have those capabilities, but launching that product would jeopardize their current business model.
- China will buy oil and natural gas in yuan. Most of the world’s oil trade is tied to the US dollar, and this switch will lead to a decline in USD’s dominance.
- November’s average, 30-year mortgage rate fell to 6.3%... double Jan’s rate.
- Netflix’s “Harry and Meghan” set a record… for debut hours watched.
- The European Central Bank (ECB) announced a 50bps rate hike… and hinted that 2 more consecutive 50bps hikes were on the way.
- November’s retail spending showed its largest decline all year… -0.6% MoM despite Black Friday and the holidays.
- Spending at bars and restaurants was UP 0.9% in Nov... despite the retail downturn. Maybe consumers are drinking away their fears?
Crypto-Bytes:
- SBF was arrested and charged with… “defrauding investors and orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire."
- FTX CEO John J. Ray III told the House Financial Services Committee that… “FTX under SBF went on a $5B spending binge that commingled FTX’s assets with those of his hedge fund – Alameda Research.”
- Kevin O’Leary told the U.S. Senate Banking Committee: “I am of the opinion that crypto, blockchain, and digital payments will be the 12th sector of the S&P within the next decade.”
- “I would like to make a note, of all the 130+ entities that went to zero, into bankruptcy, within the FTX portfolio – the only entity that is not bankrupt is LedgerX. Why? Because LedgerX is 100% regulated by the CFTC. Your reason for regulation is so that you don’t go bankrupt.”
- “The collapse of FTX is nothing new. While this situation is painful for shareholders, employees, and account holders – in the long run, it does not change this industry’s promise. Enron came and went and had no impact on the energy markets. Bear Sterns and Lehman Brother’s demise had no impact on the long-term potential of American debt and equity markets.”
- “Disruption is always uncomfortable at first, and entrenched businesses abhor new competition. But we can’t let FTX’s collapse cause us to abandon the great promise and potential of crypto.”
TW3 (That Was - The Week - That Was):
Monday: Tomorrow we get the CPI reading, and many are hopeful that it will show a meaningful drop in prices. On Wednesday we get the FOMC decision, and the press conference with Powell himself. Binary: (a) If they've tarted-up the CPI report to be around 7.1%, we could run into January higher. (b) But if it's ugly, I believe Powell will stand firm and we'll roll over hard. Factually, prices remain up over 7% YoY – where 7% really is closer to 15%. So, this week either sets the stage for a massive run or a complete beat down. Then, on Friday we get quad-witching with a ton of options expiring. The median estimate among big banks is that the CPI comes in around 7.3%. If that happens, this market will have a hissy fit.
Tuesday: As for the CPI, they were looking for 7.3%, and it came in 7.1%. So, instantly the futures surged for 900 points. So, the market is celebrating 7% YoY inflation, staring another rate hike and a recession in the face. If we ended the day where the futures are, that's 1,000 DOW points in two days. What does Powell do with this tomorrow? I think he comes out hawkish tomorrow and tries to put some brakes on things.
Wednesday: Things were going swimmingly for the bulls right up into the released statement. The DOW went from being up 240 to being red by 112 in a matter of moments. Why? Inside the statement things got ugly. First, ongoing rate hikes will continue, and the terminal rate will go to as high as 5.1%. In September, no FED members put the end rate over 5% - but now 17 of 19 of them say it will be above 5%, 7 want it over 5.4%, and one wants it at 5.6%. The market puked on that news. Unless Powell says something different than what I’m reading, our markets will not like it. When you have the FOMC members saying that they should have done 75bps and the terminal rate is more like 5.4% - this is not what markets wanted to hear.
Thursday: Yesterday, Chair Jerome Powell also pushed back on the idea that the central bank will cut rates next year. Our markets are starting to react to the more aggressive FED posture this morning, while also preparing for two more big central banks actions as the Bank of England (BOE) and European Central bank (ECB) – both are expected to raise interest rates. Something that may show hope is PLUG. It's slightly green on a horrible day. If things perk up, PLUG over $15.68 looks doable.
Friday: As rates fell to historic lows, the mantra was: “Don’t fight the FED” – and the stock market rose. Now, with the FED in a sharp rate hike cycle, it finally appears the market is beginning to listen. [But as long as our Treasury Dept. is still printing money –‘Houston – we have a problem.’ ]. The S&P 500 finished Thursday at a one-month low, falling below its 100-day moving average for the first time since early November and below its 200-day. The economy continues to melt and just this morning Goldman Sachs is laying off 4,000 people. There are 3 ways that this can play out: 1) We simply continue lower, investors take the tax loss, and move on to 2023. 2) We enter a trading range, where we wobble sideways and end the year lower. And 3) we sell off a bit more, and then create a monster ‘V-shaped’ bounce that runs us into EOY. I like #2 = sideways and down. I think they'd rather mark this year as a loss, take tax losses, and work on next year. The S&P has actually plunged through its 50-day moving average (3863). If they can't recover by the close, Monday could be pretty dark.
AMA (Ask Me Anything…)
The new FTX CEO John Ray testified at a congressional hearing that: “FTX was just old-fashioned embezzlement. FTX's collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company entrusted with other people's money or assets. Some of the unacceptable management practices identified so far include:
- the use of computer infrastructure that gave individuals and senior management access to systems that stored customer's assets without security controls to prevent them from redirecting those assets;
- storing certain private keys to access hundreds of millions of dollars in crypto assets without effectively security controls or encryption;
- the ability of Alameda to borrow funds held by FTX.com and utilized for its own trading or investments without any effective limits whatsoever;
- the commingling of assets;
- the lack of complete documentation for transactions involving nearly 500 separate investments made with FTX Group's funds and assets in the absence of audited or reliable financial statements;
- lack of personnel and financial risk management functions;
- and the absence of independent governance throughout the FTX Group.
The fundamental challenge we face is we're in many respects starting from near zero in terms of the corporate infrastructure and record keeping that one would expect in a multibillion-dollar corporation.”
In a Nassau courtroom, SBF's lawyer told the judge that SBF will fight U.S. extradition.
Next Week: Recession’s Around-the-Corner…
- CPI & our FED… The CPI release caused a $160 mover higher in the SPX. Then our FED triggered a $260 move lower to net a $100 move lower in the SPX for the week – well within the weekly Expected Move. The losses were not as great as anticipated except in the Nasdaq – where we closed on top of the lower edge of the Expected Move with TSLA hitting 52-week lows.
- Are markets pricing in a recession? As of yet, I do not think that markets are pricing in a recession, and ‘yes’ that means that they’re going lower. We’re beginning to see bad data come out (like retail sales declining for November) – and the market reacting negatively (aka bad news = bad news).
- The trade in bonds is confusing… If we think we’re coming into a recession, you would think that Bonds (/ZB) would rally and corresponding interest rates would fade. But we’re seeing the inversion between the 2-Year (4.25%) and the 10 and 30-Year (3.5%) become even greater. Tip #1: So, the opportunity for rates to go higher (5%) could reside solely in 2-Year notes. Often going into a recession, longer-duration bonds rally as their rates fade lower. The key is to watch whether ‘bad news’ for the economy becomes ‘bad news’ for the markets. If so, then markets are continuing to price in a recession and the ride lower is not over.
- Volatility is not back… yet – because our markets have been here – done that. However, SKEW (the relationship of out-of-the-money PUTS to CALLS) is coming back, and that tells us that hedging activity is dramatically increasing.
- High probability of returning to the Volatility Box… between 3931 and 3600, and especially between 3800 and 3600. If we sell off to 3800 on the S&Ps, we could immediately go to 3600.
- New Trades & Set-Ups: DOW, CAT, BA, XLF:
o DOW is really strong on a YTD basis vs the S&Ps and the Russell. To trade the DOW lower, I’m looking at CAT and BA to go lower. Why? Because I believe markets have not totally priced in a recession.
o Tip #2: CAT is up 12% YTD, BOT downside PUT-Spread
§ BOT Feb: +$200 / -$190 PUT Spread
o Tip #3: BA is only down 11% YTD, and has been as low as 50% lower. I will retest lower as this market further prices in a recession:
§ BOT Jan +$182.50 / -$180 PUT Spread
o Tip #4: XLF (Downside PUTS):
§ BOT Feb: +$32 / -$30 PUT Spread
§ BOT Feb: +37 PUT
- SPX Expected Move (EM):
o Last Week: we expected a $127 move, and we ended within the expected move – after touching both extremes of it during the week.
o Next Week: we’re expecting an $88 move. We moved over $87 on Thursday – so these estimates no longer reflect the investing reality of: Mr. Toad’s Wild Ride.
Tips:
A Santa Rally is possible, but not probable. Our markets are lower on the year. The NASDAQ is down over 30%. I think our market’s plan has changed from charging higher into 2023, to: the heck with it – let’s just dump a lot of our underwater crap and take the tax loss. I’m seeing sideways and lower thru the end of the year.
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,803 & Silver @ $23.41 /oz.
- AGG – BOT MORE bonds (AGG = $99.35 / in at $93)
- BA (Downside PUTS):
o BOT Jan: +$182.50 / -$180 PUT Spread
- **Bitcoin (BTC = $16,700 / in at $4,310)
- **Ethereum (ETH = $1,175 / in at $310)
- CAT (Downside PUTS):
o BOT Feb: +$200 / -$190 PUT Spread
- GME – DRS’d and HODL
- GS (Downside PUTS):
o BOT Jan: +$340 / -$330 PUT Spread
- IBM (Downside PUTS):
o BOT Jan: +$130 / -$120 PUT Spread
- Innerscope (INND = $0.006 / in at $0.0052)
- SBUX (Downside PUTS):
o BOT Jan: +$85 / -$75 PUT Spread
- XLF (Downside PUTS):
o BOT Feb: +$32 / -$30 PUT Spread
o BOT Feb: +37 PUT
- XLP (Downside PUTS):
o BOT Jan: +$77.5 / -$75.5 PUT 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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