You’re living the Innovation Story… and it’s the STORY that everyone will remember. Stories resonate, and hit us in our hearts ‘n souls. Stories feel hard-earned and timeless. Between crypto displacing our financial system, EV’s replacing ICE engines, and AI removing a lot of what’s left … the Innovation Story is telling itself. For those of us old enough to remember the birth of Rock-n-Roll, nothing happens in a straight line. Crypto gave birth to DeFi, blockchain, and an entirely new vision for fin-tech. EV’s paired with inexpensive energy storage have changed millions of people jobs & lives. And, if you haven’t used ChatGPT / OpenAI yet, try it and get used to it.
Innovation changes everything. With ChatGPT, it means that assigning busy-work essays in school or average copywriting at work – are now a complete waste of time. It reminds me that attention-to-detail and time are non-scalable. If you’re work is not any better than what ChatGPT can create in 12 seconds – then don’t bother. Per SG, tech makes old-stuff-easier, but requires new-stuff-to-get-better.
Bill Gates said it best 50 years ago: “Give me a small team, an office above a pizza shop… and we’ll change the world.” And they did. Every time we get too far away from the ‘garage band’ mentality – innovation resets and brings us back. The good thing about open tech – is that no government can stop it. Effected industries will be forced to quickly devour their humble pie, and reinvent themselves. There will always be ‘con-artists’. Just allow good people the transparency, leadership, and financial discipline to win out. Good people never back away from showing their work and verifying their results. A crisis of Innovation does not require a bailout. Did you honestly think that NOTHING would get broken along the way? Innovation is all about making sure a bad story doesn’t get in the way of good facts. Polish and practice your Innovation STORY.
The Market:
It smells like a recession is coming. Are these signs of a healthy economy?
1. Blackstone started limiting withdraws from its Real Estate Fund.
2. FTX’s bankruptcy tops $30B in just direct impact.
3. M&A volumes are down over 35% this year.
4. U.S. manufacturing orders in China are down over 40%.
5. Retailers (TGT & WMT) are reporting HUGE merchandise thefts.
The world is melting down, and our FED is just another puzzle piece. Powell may come out next week, ‘play nice’, and promote a Santa Claus rally, but how long can the masquerade go on? The underpinnings of this economy stink. Recently core Producer Prices increased 0.4% - double the estimate. And while the YoY rise of 6.2% is less than October’s 6.6% reading, inflation remains far too high for anyone’s liking. Heck, vegetables rose 38% YoY – offsetting any decline in energy. China’s prices fell due to lack of demand. And when the world’s second-largest economy shows signs of weak activity and reduced demand – that smells like a global recession to me. I’m just sayin’.
InfoBits:
- Our FED has raised rates at the fastest pace since the early 1980’s.
- For the first time in 20 years… analysts expect a ‘down-year’ for stocks in 2023.
- Car-sharing company Getaround… made its public debut last week via SPAC and promptly lost over 65% of its value. Duh?
- Credit Suisse raised $4.3B to accelerate its turnaround plan… and to help reverse billions in losses. Oh yeah, it will also layoff 9,000 more workers.
- Twitter plans to delete 1.5B accounts… that have been inactive for 15 years. Has Twitter really been around that long? I gotta get out more.
- General Motors battery plant workers voted to unionize.
- Britain warned that their economy will shrink next year… believing that stagflation has arrived, and that the country is in for a ‘lost decade’.
- North Face and Timberland reduced… revenue and earnings expectations due to weaker demand and order cancellations.
- Delta agreed to boost pilot’s pay by 31% over several years… in a $7B+ deal that could end years of contract-negotiation clashes.
- Americans need $1.2m to retire… up 20% (real inflation) from a year ago.
- Metal investors are sounding the lack-of-supply alarm… especially in silver and copper. Analysts expect large deficits to begin soon due to renewable energy and EV demand.
- Morgan Stanley just laid off 1,600… and Plaid about 20% of its workforce.
- Ramesh Balwani (COO of Theranos)… was sentenced to 13 years in prison for fraud. I guess ‘Fake it till you Make it’ didn’t work out this time.
- Uber and self-driving vehicle startup Motional launched… autonomous robotaxi operations in Las Vegas.
- OpenAI’s ChatGPT has people scared: educators are worried that it will destroy homework and take-home assignments. Its art generating cousin (Dall-E) thinks it will begin to eliminate copywriting and design.
- The most searched term on Google this year is… “wordle”
Crypto-Bytes:
- USDC issuer Circle cancelled its plans to go public via SPAC.
- Genesis may owe creditors over $1.8B.
- FTX’s Alameda Research lost over $1B… due to its ‘crack’ OTC trading desk.
- Crypto exchange Bybit will reduce headcount by 30%... again.
- Nexo will soon stop offering its services to U.S. users…. and called the country’s regulatory scheme "an impossible environment.”
- When the going gets tough – big money goes shopping. Goldman Sachs will spend millions investing and buying crypto firms whose valuations have normalized post-FTX implosion.
- Tony Fadell, the creator of the iPod… has designed a new crypto hardware wallet.
- Jim Cramer is urging investors to exit crypto… “It’s never too late to sell.”
- Sber (Russia's largest bank) has announced… that its blockchain network is now compatible with Ethereum's blockchain. The move signals the bank's intention to join the DeFi and Web 3.0 movement.
- Last year, over 60% of US adults were planning on buying crypto… that number is now 8%. FYI: If you’re a believer, now’s the time to buy… not sell.
- Grayscale Bitcoin Trust (GBTC – the world’s largest bitcoin fund)… traded at a record 50% discount to bitcoin – as bankruptcy fears resurfaced.
- Sam ‘Bank-Run’-Fried tweeted that he’ll testify at a Dec. 13 hearing… of the House Financial Services Committee looking into FTX’s implosion. It’s unclear whether he will show-up in person.
- John Ray (FTX’s current CEO) said that… FTX has hired forensic investigators from AlixPartners to trace billions of dollars that have gone missing.
TW3 (That Was - The Week - That Was):
Monday: We’re in full-on grumpy mode today. You can cut the tension with a knife. I remember talking about the quadrillions in derivative debt that's circling the globe. The BIS (Bank for International Settlements) just warned that pension funds and other 'non-bank' financial firms now have more than $80T of hidden, off-balance sheet debt – in the form of FX swaps. Does anyone know the extent of the counterparty risk associated with that debt? Nope – but I bet we will.
Tuesday: This DOW chart looks pretty ugly, and the stochastics appear to be rolling over. The S&P also lost its 200-day moving average yesterday. So, if I were asleep for 20 years and just woke-up, I’d think that we’re in the beginning of a fairly impressive sell off. But, there are silent hands behind these markets, and if they don’t want it to fade – it won’t fade. But what about the fact that analysts expect S&P 500 companies to report a drop of 0.6% in Q4 earnings – after posting a 4.4% rise in Q3? Well, Wall Street wants their end-of-year bonuses – so we definitely have a tug-of-war going on here.
Wednesday: Today we remember Pearl Harbor. The NASDAQ is working on its 8th out of the past 9 trading days being red. We're overdue for a reversal bounce. I’m liking MMM over $126.80 and LOW over $208.30.
Friday: Okay, today is the Producer Price Index inflation number. Yes, the CPI is the consumer inflation index, but the PPI is also important. Whoa – the Producer Price Index came in hotter than expected. With our FED on tap next week, traders were hoping for a tame PPI (and CPI) so that our FED could put the rate hikes on pause. This did not help things as wholesale prices are up 7.4% YoY. This sets up a pivotal CPI number and FED meeting next week.
AMA (Ask Me Anything…)
Will SBF go to jail? Sam ‘Bank-Run’-Fried’s punishment is no small potatoes. According to U.S. sentencing guidelines, considering the number of victims, size of the FTX fraud, and its close/fraudulent relationship with trading shop Alameda Research – he could go to prison for life. But those sentencing guidelines are often bent to give softer penalties to white-collar criminals. That’s based on the implicit belief that elements like financial fraud and embezzlement are not real crimes. SBF’s youth, combined with his ongoing scheme to paint himself as an incompetent buffoon – could sway the courts to show mercy. It will take real political donations, and sustained public and political pressure to put SBF behind bars. I’d bet that SBF walks – just sayin’.
Next Week: Is Catastrophic Risk Imminent?
- Very seldom do I say… that this week’s price action doesn’t matter one bit in terms of what’s going to happen next week. The S&Ps dropped 60 points in a minute when the PPI came in hot. If the CPI comes in hot and our FED ‘tells it like it is’ concerning inflation, it could be ‘look out below’ for the market – and nobody will care that this week’s action was 2X the expected move lower.
- Oil is screaming that a recession is imminent… even though China is re-opening and letting COVID be damned. Oil’s screaming global slowdown when its price drops over $20/barrel in 2 months. Correspondingly, the energy sector (XLE) has fallen 20% as well.
- Reality sets in with a hot PPI – are you scared? Last week at this time we thought that the S&Ps would move $66 – and we got a $120 move lower. Next week we’re anticipating a $127 move – so put on your ‘big-boy pants’ because the move is binary and big.
- A moment-of-truth will occur next week with the CPI and our FED occurring before COB on Wednesday. The last several CPI prints have come in a little softer than anticipated – and we exploded for +200 S&P points. If this one comes in hot AND our FED speaks its mind – we could go down to 3700 quickly.
- Place your bets – it’s binary… Your goal is to be comfortable with your own risk. If you have directional risk on, make sure you can stomach it if every trade moves against you. The expected move (EM) in the SPYs is $13, but the probability of ‘touching’ is twice that of the EM – so be comfortable with a $26 SPY move either way. If that move scares you, then SELL your positions down to where you can sleep at night, let the move happen, and buy them back when we have calmer seas.
- New Trades:
o BA: The DOW and BA have out-performed the S&Ps for some time, with a recession the DOW will go lower and take BA with it.
§ BOT Jan / +$185 / -$180 PUT Spread
o AAPL: BOT Feb / +$135 / -$125 PUT Spread
- SPX Expected Move (EM):
o Last Week’s $66 EM… and we moved $120 (almost 2X) lower.
o Next Week’s $127 EM… youza. This coming week is going to be binary and big – so make sure you understand your risk.
Tips:
GOLD: Gold is holding support above $1,800/oz. as wholesale inflation pressures rise more than expected. Gold is standing its ground even as inflation and the U.S. dollar push higher. Some analysts believe that although rising inflation pressures could force our FED to maintain its aggressive monetary policy stance, the economy is close to a breaking point. Our FED’s monetary policy could push the U.S. into a recession, and that would be good for gold.
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,809 /oz. & Silver @ $23.68 /oz.
- AGG – BOT bonds (AGG = $98.8 / in at $93)
- AAPL (Downside PUTS):
o BOT Feb / +$135 / -$125 PUT Spread
- **Bitcoin (BTC = $17,100 / in at $4,310)
- **Ethereum (ETH = $1,250 / in at $310)
- 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 = $0.007 / in at $0.0052)
- NFLX (Downside PUTS):
o BOT Jan / +$275 / -$265 PUT Spread
- SBUX (Downside PUTS):
o BOT Jan / +$85 / -$75 PUT Spread
- SPY (Downside PUTS):
o BOT Dec 16 / +$357 / - $347 SPY PUT Spread
o BOT Dec 16 / $285 DIA PUT
- VTV ($142 / in at $143)
- 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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