What separates good companies from bad ones is that the good ones have learned how to: ‘Feed the tuna fish mayonnaise’. Good companies continue to sell their existing customers more products and services that will lower their customer’s costs, and/or increase their revenues – immediately. In a world where ‘customer acquisition costs’ have skyrocketed, good companies have figured out that your existing customers are so much easier to reach, communicate with, and sell. Good companies learn how to increase the perceived value of their existing offerings. Entrepreneurs often try and ‘squeeze the air’ out of every customer conversation, when (in fact) they should be extending its life – further listening to and cementing the customer relationship.
In 2012 PG posted: “As I look back, the unsuccessful entrepreneur was NOT less intelligent, but was just NOT eager to listen and follow advice. Unsuccessful startups are killed by: (a) entrepreneurs that lack resourcefulness (money is no substitute for: vision, passion, and speed-to-market), (b) entrepreneurs that refuse to ‘go the extra mile’ (small companies exist to serve customers - period), and (c) entrepreneurs that mis-calculate where all of the dominos will fall. The key is listening, closing sales, and delivering product – urgently. The rest is secondary.”
The Market:
There are a lot of headwinds out there. Consider that in 2022, Amazon, Tesla, Netflix, and META – all lost over half their value. It’s called a ‘recession’, and it’s a natural part of the economic cycle. ‘Recessions’ result in a stronger, leaner, and more productive economy. Bear markets have their own ways of building wealth, and when this one ends – it will present a generational opportunity to those who have the capital to take advantage of it.
As HM writes: “In my 53 years in the investment world, I’ve seen many economic cycles, pendulum swings, bubbles and crashes – but I remember only 2 real sea changes. I think we may be in the midst of a 3rd one. Declining interest rates gave birth to: (a) investor optimism, (b) aggressive investment vehicles, and (c) 40 years of stock market growth. I believe that declining interest rates played the greatest role in: (a) the economic growth of the U.S. (b) gains in technology, productivity and management techniques; and (c) globalization. Lately we’ve gone from the low-rate world of 2009-21 to a full-rate world. Investors can now get solid returns from credit instruments, and no longer have to rely on riskier investments to achieve their overall returns. Given the current environment is very different from what it was over the last 40 years, then the investment strategies that worked the best over those periods may not be the ones that outperform in the years ahead. That is the 3rd sea change.”
The 'sea change' is real. Everyone is hoping for a short-mild recession, but what if the ‘hangover’ lasts as long as the party – 40 years? Most investment professionals only began their careers after 2009, and have limited experience on how the credit, equity, and currency markets are all interconnected. Don’t fear, as people didn’t stop investing in energy because of Enron - crypto won’t collapse due to the ‘House-of-Cards’ that SBF built. But for the first time in 40 years, you will need to learn how to fish out of a new pond – the ‘debt pool’. It’s a place where shiny objects are replaced by: time, discipline, and dedication.
InfoBits:
- The Philadelphia FED claims… only 10,500 net new jobs were created in Q2, instead of the +1m that our Govt’s Jobs Reports told us.
- Auto repos are on the rise… loan defaults are flirting with record numbers, and 26 nations have inverted yield curves.
- The CFPB ordered Wells Fargo to pay $3.7B… for “widespread mismanagement of auto loans, mortgages and deposit accounts.”
- Zimbabwe’s Minister announced a ban… on exporting unprocessed lithium.
- Netflix's early numbers suggest… cheaper (ad-supported) options will cannibalize existing premium customers. Be careful what you wish for.
- USPS is spending $9B for 66K electric vehicles. So the strategy is, if you can’t run your business profitably … get new, shiny stuff to play with?
- David Tepper told the world that because of all the rate hikes… he's "leaning short" equities.
- Disney is on track for its worst performing year since 1974.
- TSLA is on track for its worst-performing… Mo, Qtr, Yr - ever.
- GasBuddy reports that gasoline will be over $4/gallon by May.
- Pending home sales fell -4% in November. The pending home sales index is near the 2010 low – following its 6th consecutive monthly decline.
Crypto-Bytes:
- Binance.US has agreed to buy Voyager Digital’s crypto assets… for +$1B and “aims to return crypto to customers in kind.”
- Coinbase is now worth LESS… than the total market value of dogecoin.
- FTX co-founder Gary Wang and Alameda Research co-CEO Caroline Ellison… plead guilty to federal charges and are cooperating with prosecutors.
- SBF met with the writer of ‘The Big Short’ at his parent’s house.
- Bitcoin underperformed stocks and gold for the first time since 2018.
- FTX co-founders SBF and Gary Wang… borrowed $546m from Alameda Research to buy an ownership stake in Robinhood (HOOD).
- Gemini is being sued by investors… for offering interest-earning crypto products that should have been registered with the SEC.
- The Bahamian Securities Commission… has taken custody of $3.5B of FTX deposits – due to the fear of hackers and/or former employees taking control of the funds themselves.
TW3 (That Was - The Week - That Was):
Monday: My theory has been that they've realized the year has been crap, and instead of pushing it higher in the last two weeks, maybe they just take the tax losses and wait on next year. Investor sentiment has finally shifted to bad news is actually bad news for the markets and the economy. Some of the miners are catching a bid in here. Keep an eye on AGI – over $10.45 and SAND over $5.60.
Tuesday: Japan, our biggest U.S. debt buyer, is now worried about inflation, and they are widening their interest rate bands to take that into account. So, all the people thinking that Powell is going to pivot and cut rates in ‘23 – just got nuked. Secondly, after years of not needing our FED’s overnight lending window, our banks have been lining up for handouts for a few weeks now – which suggests that our banks are more stressed than what they’re letting on.
Wednesday: The real tell will be the S&P 3800. If by any chance we lose that, this market pukes. An awful lot of derivatives are based on that 3800 S&P floor. If they don't come out with guns blazin’ tomorrow morning, and get us back up and over that level – they’ll probably sell us hard right into Friday's close. The DOW had been defending its 50-day moving average for a week, but it lost it in a big way today.
Thursday: Last week David Tepper was on CNBC and said that because of all the rate hikes, he's "leaning short" equities.
Friday: 2022 was a rough year that sent the S&P 500 down -19% YTD, the DOW down -8.5% YTD, the Nasdaq down -33% YTD, and the Russell 2000 down -21% YTD.
AMA (Ask Me Anything…)
Forecasts for 2023:
1. A recession is inevitable… for the U.S., U.K. and E.U.
2. Precious Metals (+Copper) will go +20%... due to green energy and China.
3. Oil will go +$100/barrel… and +$110 in 2nd half of 2023.
4. Banks will turn conservative… after loan defaults hit 5%.
5. Unemployment will hit 5.5% in Q2… and that will curtail retail spending.
6. On-shoring will continue… keeping CapEx strong.
7. China will ‘really’ re-open… in the 2nd half of 2023.
8. The S&P will end ’23 at 4,000… and our FED will peak in mid-2023.
9. The 2-Year and 10-Year Notes will end 2023 lower… at 3.25%.
Next Week: Volatility will continue…
Can markets handle another YEAR of Extreme Volatility:
- Coming out of the 2009 Financial Crisis… We received legislation (Dodd Frank), economics directives (Volcker Rule), and all of the 0% interest + QE programs that followed for the next 13 years.
- For real market making to work… market makers will need to borrow money in order to buy or short stock. Previous to 2022, the cost of carrying/borrowing was low (0%), but not anymore (+6.25%). This will cause market makers to NOT hold as much stock as they did before – which is going to allow for increased volatility going forward because that ‘dealer protection buffer’ will be gone.
- Our FED is swinging a big, non-0% bat… higher rates are causing market making firms to NOT hold as much stock (specifically over weekends and holidays) – and that’s going to cause a volatility storm. As long as the FED’s rates are above 4%, you can’t escape continued volatility and a 2023 market roller-coaster.
What will work going forward:
- You’re going to want to SELL ‘back-month’ PREMIUM… due to the massive number of weekly breaches and 2-Sigma moves. That simply means that you need to sell premium 90 to 120 days out, hold it for about 30 to 45 days, and buy it back (for 50% less) – all due to option decay.
SPX Expected Move (EM):
- Last Week’s $71 EM (for a 4-day wk)… and we only moved $5.
- Next Week’s $84 EM (for a 4-day wk)… but our markets remain data dependent and we have CPI, FED minutes, and the Jobs Report on Friday.
Tips:
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,830 & Silver @ $24.18 /oz.
- AGG – iShares Bond Fund: (AGG = $97 / in at $93)
- BIV – Vanguard Bond Fund (BIV = $74.32 / in at $74.54)
- 90-Day Treasuries @ 4.6%
- BA (Downside PUTS):
o BOT Jan: +$182.50 / -$180 PUT Spread
- **Bitcoin (BTC = $16,500 / in at $4,310)
- **Ethereum (ETH = $1,195 / 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
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
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