RF's Financial News: February 2023

Sunday, February 26, 2023

This Week in Barrons: Feb. 26th, 2023

The top 4 reasons that 233 eventual millionaires quit their jobs were:

- They were bored / under-utilized.

- They disliked their bosses.

- They dreaded the office culture.

- They had a draining commute.

Imagine your public side… being even more rumor-driven than it is now. Per SG: the ease with which someone can invent and spread lies is going to take most of us by surprise. It will require an entirely new posture for understanding the world and to separate fact from fiction. Here’s hoping that we: ‘Won’t get Fooled Again’.

In the last 40 years, the amount of promotion has gone up astronomically, but the success rates have not increased. The answer = do NOT focus on the promotion – simply create something that users will want to tell others about. Let your users do your promotion, because when they do it – it’s called: passion, generosity, and caring. Being Better always beats Being Louder.

The Market:

In June, Hong Kong will legalize crypto buying, selling, and trading. It will be legal for its citizens and for all mainland China’s institutions. A fully crypto-open Hong Kong gives the Chinese a way around their digital asset ban. I’m expecting some interesting times over the next 3 months.

Currently you can purchase a 1-Year T-Bill and earn 5%. That’s the highest, no-risk interest rate since 2007. It’s a great way to sleep at night for those of us over 60 that really don’t want to put up with the near-term market volatility.

Thursday is the new Friday? The results of the 4-day workweek UK trial are in:

1. +90% of the studied companies said that they will continue with the 4-day week after seeing productivity hold steady, and major reductions in turnover / absenteeism.

2. Most workers slept better, were less stressed, and had more time to care for their loved ones (childcare / elderly).

3. It’s spreading to pilots in the U.S., Canada, Australia, Spain and Brazil.

4. At minimum, a 4-day week could become a new perk, and a new way to attract and retain talent.

InfoBits:

- Google went before the U.S. Supreme Court this week… to defend Section 230 of the 1996 Communications Decency Act. Section 230 gives internet platforms legal immunity over almost all 3^rd-party content hosted on their sites.

- VC Fundraising hit a 9-year low in Q4… falling 65% YoY.

- Food inflation accelerated from Dec. to Jan… and will jump another +7% this year.

- Uber and Lyft are seeing their ad businesses boom (think an Expedia ad en route to JFK).

- Remote work is costing Manhattan $12B+ a year… as residents cut back on weekly happy hours and $25 salads.

- There’s been a 46% drop in investor home purchases YoY… the largest decline on record.

- Home Depot’s transaction volume was down 6% YoY… offset by their average ticket size rising 6% YoY.

- US home sales fell for the 12th consecutive month… down 37% YoY – to their lowest level in 28 years. U.S. homeowners have lost $2.3T in value since the June peak in home prices.

- McKinsey & Co. is eliminating 2,000 jobs,… Ericson is cutting 8,500, and Intel cut its dividend by 66% - to its lowest level in 16 years.

- Retirees lost 23% of their 401(k) savings in 2022.

- Artwork produced using AI tools… cannot be copyrighted.

- Per HL: WeWork (WE) is currently worth $1B… proving you can easily turn $22B raised from investors into $1B – in less than 2 years!

- Personal incomes rose 0.6% MoM in January… while personal spending rose 1.8%.

- Goldman Sachs expects potential legal losses of +$2.3B… as its gender bias female payment lawsuits begin to be settled – not in their favor.

Crypto-Bytes:

- FTX’s former head of engineering is nearing a plea deal… and it would make him the 3^rd senior exec. to cooperate with authorities over the exchange’s collapse.

- Coinbase is in talks with the IEX stock exchange… to create a new, federally approved digital asset marketplace.

- FTX Japan resumed withdrawals of crypto and fiat on Tuesday.

- Binance.US’s plan to buy Voyager Digital’s assets… looks like it will proceed.

- SBF (crypto’s greatest villain) … was hit with 4 additional criminal charges including bank fraud, operating an unlicensed money transmitter, and conspiracy to make unlawful political contributions. That’s 12 charges total.

- NFTs could be serious ‘fun-and-games’ says the SEC. A ruling saying that Top Shot Moments (NFTs) are securities could pressure some crypto businesses to register their NFTs with the SEC and shake up the entire nonfungible industry.

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

Tuesday: This week we get a glimpse of our FED’s favorite inflation gauge – the PCE Price Index comes out on Friday and the last FOMC Minutes on Wednesday. Ideas of our FED pivoting have evaporated as 2 FED officials supported a larger rate increase at the February meeting.

Wednesday: Yesterday was rough as Wall Street posted its worst performance of the year with the S&Ps and Nasdaq dropping for the 3^rd session in a row. The decline in the DOW wiped out its gains for 2023. The Global Purchasing Manufacturer's Index returned to expansion for the first time in 8 months – painting a picture of a robust economy that continues to perform. “Higher for longer” remains the mantra pertaining to interest rates by the FED as Treasury yields and the dollar climb. The SPX closed at 3997. The 50-day is at 3978. The 200-day is at 3941. The FOMC minutes were not dovish so the market went from being up – to going red. NVDA’s earnings are after the bell, and they will move techland tomorrow.

Thursday: NVDA’s earnings were a disaster if you look YoY. NVDA’s Q4 revenue was down 21% YoY, and GAAP earnings were down 52% YoY – but up 111% from the previous quarter. For fiscal 2023, revenue was $26.97B = flat YoY, and earnings were down 55% YoY. But NVDA beat their earnings estimates so it’s up $17 a share. Is NVDA now expensive – you bet. Is business booming – not really. As the 10-Year continues to rise, the market continues to be a jumbled mess.

Friday: This morning is not looking good. The DOW is off 214 and the S&P is down 29 – because the 6-Month treasury is over 5%. Why buy stocks, when you can make 5% risk-free in six months? The PCE (our FED’s favorite inflation measure) came in HOT. This gives the FED the green light to go 50bps at their next meeting. The 200-Day moving average on the S&P is at 3939. So, it’s conceivable that they put in a bounce next week, simply because we've fallen almost 300 points in a month. But that said, our FED has free reign to continue hiking rates, and they will. At some point the effects of the existing rate hikes come into play, and along with the current ones – will further collapse this market. Over time, I think we retest the most recent lows.

AMA (Ask Me Anything…)

Why is Saudi is building a crypto HQ in Dubai? Recently Saudi Arabia has shown interest in joining the BRICS (Brazil, Russia, India, China, and South Africa), and has said that they’d be open to trading oil in currencies other than the U.S. Dollar. Most economists expect a large portion of the world to abandon the U.S. Dollar, and as a result – cause a tsunami of inflation. With more inflation, our FED’s interest rates will continue to rise – and a collapse in asset prices will soon follow. That will be followed by the Great Reset – with central bank digital currencies (CBDCs) being ushered in. All it would take would be for Saudi Arabia to stand up and declare: “We’re going to consider accepting other currencies for oil.” At that point, all of the countries that had to hold U.S. Dollars for the last 50 years, would no longer have interest in holding them – and the inflation would begin upon their sale. Asset prices would then collapse, and in comes Bitcoin along with the CBDCs. THAT’s the reason Saudi is building a crypto hub in Dubai, and THAT should be everyone’s reason to hold crypto.

Next Week: The Bears R Back-in-Town…

The Bulls fold under the reality of inflation… and that started on Tuesday and continued the downside action thru the end of the week – being down a total of 110 S&P points. Honestly, the Bears aren’t back in town – they never left. At this point we’re on track to face some very key levels.

SPX 3931 … it’s back! Right now we’re trading about 3970 – so we’re close to the 3931 gravity point. If/when we lose the 3931 level, we should see an immediate increase in volatility (VIX).

It’s the Financials: We’re seeing some very interesting sector rotations. The key to a broader selloff in the S&P 500 – is the financials (XLF). The financials were slaughtered earlier in the week, but at the end came back to the lower edge of their expected move – lifting the S&Ps out of eminent danger.

It’s Interest Rates: The 10-Year note has risen from 3.35% to 4% inside the month of February. If/when the financials sell off due interest rates being too high, we will get a rotation out of stocks and into the bonds (/ZB). And once investors start to buy bonds, the financials will be the sector that immediately suffers.

It’s the Dollar: There’s no question that interest rates are rising and investors are using the U.S. Dollar as a flight-to-quality protection mechanism. The only question is whether it’s sustainable. The Dollar closed at YTD highs, but the S&P is not at YTD lows – so that’s worrisome.

Trades:

- SOLD: 45 to 60 day out-of-the-money Premium Sales in /ES, SPY and QQQ.

- TIP #1 = BOT: JPM PUT Spread = 31 MAR 23: +142 PUT / -140 PUT

SPX Expected Move (EM):

- Last Week = $73 EM for a 4-day week, and we moved over $110.

- Next Week = $76 EM for a 5-day week – it’s impossible. In an inefficient market:

- TIP #2: SELL = long-dated, out-of-the-money premium, and

- TIP #3: BUY = some 5% yield.

Tips:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,818 & Silver @ $20.9/oz.

- 30, 60, & 90-Day Treasuries @ 4.6 to 5.1%

- **Bitcoin (BTC = $23,200 / in at $4,310)

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

- DNN – Denison Mines ($1.20 / in at $1.32)

o SOLD the April $1.50 CALLS

- GME – DRS’d and HODL

- Innerscope (INND = $0.0044 / in at $0.0052)

- MESO – Mesoblast Ltd. ($3.22 / in at $3.60)

o SOLD July $5 CALLS for $0.85

- NFGC – Newfound Gold ($3.34 / in at $3.75)

o SOLD the April $5.00 CALLS

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, February 19, 2023

This Week in Barrons: Feb. 19th, 2023

Armageddon was a movie… about a group of officials who ignored the truth – until it was staring them (and the world) in the face. By simply walking through a grocery store – you’ll learn that inflation is higher than the 6% that we’re being told. The U.S. hitting all-time-highs in credit card debt – tells me that J.Q. Public remains incapable of managing personal finance. And continued layoffs – tell me that the 2^nd shoe is about to fall. Last week we had higher inflation readings, but our politicians spun that into: “Our economy is in such great condition that it’ll withstand higher interest rates for longer” – until it won’t. Traders are now concentrating on short-dated options (0DTE = Options that Expire today). They’re moving them in quantities not seen since the 2018 volatility implosion. It’s the rise of Vol-mageddon 2.0. The name was coined not only for the movie, but also for the VOL-atility that obscenely large amounts of Zero-Day Expiring Options cause. In a nutshell, we are one piece of bad news away from a +3-Sigma trading event to the downside. Janet, could you try Harry Stamper’s number again?

Our Learning Curves hi-lite milestones… Learning curves may be steep, but organizations (and people) work their way up them, one step at a time. Most learning curves are not smooth, but rather step functions that require leaps by the participants. The moment when both feet leave the ground in order to get to the next step – is the exact point when you need to speak or forever your peace. Those who succeed – look at these leaps as opportunities and not as doomsday events.

The Market:

Can you sue the VC’s? It was only a matter of time before frustrated customers of FTX went after its deep-pocketed VC backers. The most surprising thing about the class-action lawsuit that accuses Sequoia Capital, Paradigm, and Thomas Bravo of promoting FTX to the detriment of its users – is that the group waited this long to file it. Every VC had better hope that nothing comes of it, or the entire venture industry is in trouble. A trial (even a settlement) could have widespread ramifications. The complaint accuses the firms of bestowing upon FTX an ‘air of legitimacy’ via their actions including: Sequoia’s piece titled: “The Unstoppable Rise of FTX,” and Thomas Bravo’s: “Bankman-Fried combines being a visionary with being a phenomenal operator . . . That is rare.” None of this is new information. All of it makes the investors look foolish because they actively promoted a potentially criminal investment. But, is their promotion a crime? If it is, fair warning: the entire industry is guilty of it.

Tesla is opening up its EV Charging Network… in order to get a larger piece of the $7.5B federal charging network program. This could help turn Tesla into the universal gas station of the EV era. While they may lose a competitive advantage, Tesla will gain billions in gov’t funding and extra charging revenue from non-Tesla owners. As long as they can out-innovate their competition, there is no bad ending here for TSLA.

InfoBits:

- Credit card debt hit the highest level EVER recorded … and delinquencies are accelerating along with it.

- Some FED heads are talking about a 50bps hike in March.

- AI of the Tiger… officially kicked off as Google and Microsoft are racing to crank out genAI features even though concerns about their language models generating false info and biased answers abound.

- Corporate buybacks hit a record $1.2T last year… and are on pace to top that this year.

- Mastercard measured 8.8% growth… in consumer spending in January.

- What happens in Vegas… has not stayed in Vegas. FanDuel alone processed over 50,000 bets/second during the Super Bowl.

- Twillio is laying off another 17% of its employees… as another round of job cuts is starting everywhere.

- When was last time you could earn 5% on a 1-Year Treasury Bill? Answer: July 23, 2007, but we’re almost there – says CB.

- EU lawmakers approved a law that will ban the sale… of new gas and diesel-fueled cars starting in 2035 within its 27-member countries.

- 60% of all U.S. workers are living paycheck-to-paycheck... and 2022 was the second lowest personal savings rate on record.

- U.S. Industrial Output was flat in January and fell -0.7% in December. This confirms that the manufacturing sector is in contraction territory.

- Twitter will allow cannabis ads… in states where cannabis is legal.

- The Social Security Board of Trustees reported that… “Social Security will run out of money in 2034. Anyone 55 or younger today won’t receive a single full benefit.”

- January’s PPI had the largest increase since June. The latest housing starts fell -4.5% MoM and -21.4% YoY.

- Susan Wojcicki is resigning as YouTube CEO. She rented her Silicon Valley garage to Google co-founders Larry Page and Sergey Brin in 1998, and joined the company as its 16th employee a year later.

Crypto-Bytes:

- No one’s sleeping on crypto (regulation) anymore. Bankruptcies at Celsius, BlockFi, and FTX left some lawmakers asking if crypto regulation was asleep at the wheel.

- NEXO is officially ending their Earn Interest Product for all of the U.S.

- The EU is asking banks to restrict crypto activities… before expected laws are passed.

- Celsius has reached a deal with Nova Wulf… to purchase and restart its operations. People with claims of +$5,000 can opt for some of their liquid cryptos back OR get equity in the new company.

- Bitcoin NFTs (code-named: ordinals)… are picking up steam with +126,000 being added since their blockchain debut last month. It allows users to store audio, images, and videos directly on the bitcoin blockchain.

- The SEC accused Terraform’s founder Do Kwon… of transferring millions worth of bitcoin to a Swiss bank account following the collapse of LUNA in May 2022,

- The two largest Mt. Gox creditors… have opted to receive 90% of their recovery payments in BTC.

- Bitcoin is back over $25k… the Altcoin market cap is almost $600B, and the total Crypto market cap is close to hitting $1.1T.

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

Monday: FED Chair Jay Powell will deliver his semi-annual monetary policy testimony on March 7 at 10 am. That’s directly prior to the next set of job and inflation data – diminishing some potential shock factor. According to MS strategist Mike Wilson, US stocks are ripe for a selloff after prematurely pricing in a pause in FED rate hikes.

Tuesday: The CPI came in as +0.5%, and YoY we’re at 6.4%. Yep, we’re still running hot. The initial reaction to the numbers was that we plunged red, but then they decided that somehow – it’s all okay. If I'm right and Mr. Market is going to be funky for a couple weeks, trying to find long positions in a falling market will be difficult. Inverse ETFs may be a better option. SQQQ is an ultra-short play on the Q's. DOG is a short for the DOW. Our market is rigged to go higher and only goes down begrudgingly. Watch 4095 on the S&P, that’s the first level to break if it falls.

Wednesday: Yesterday’s boost to inflation shifted Fed funds futures higher, and now imply a peak rate of 5.25% in July and remaining above 5% throughout the year. Several Fed officials said on Tuesday that they will need to keep raising rates, with two signaling that borrowing costs may eventually need to go higher than is currently expected – but some markets still extended gains.

Thursday: Remember, every ‘official number’ comes with a catch. For instance, yesterday's retail sales were NOT inflation adjusted. So, are people really "buying more", or are they buying the same number of things but at a higher price? The real data suggests the later. Markets tend to trade on the official numbers, not the realistic numbers.

Friday: Yesterday FED head Bullard came out and said that he wouldn’t rule out a 50bps rate hike in March. Shortly after that, the market’s wheels came off. Yesterday, Art Cashin (who’s been a wise and trusted market mainstay for +60 years) said to keep an eye on 4090: “If the S&Ps lose 4090, we could see some serious selling.”

AMA (Ask Me Anything…)

How bad is inflation – really? Per CB, here are some price changes over last year: Utilities Gas = +27%, Transportation = +15%, Electricity = +12%, Food at Home = +11%, Food away from Home = +8%, Housing = +8%, New Cars = + 6%, and Medical Care = +3%. Fair Warning: the official CPI number (measured in YoY change) will continue to fall during 2023, but that doesn’t mean inflation is improving. It just means that inflation will be growing at a slower rate than it was in 2021 and 2022; therefore, don’t think we’re out of the woods when you see the CPI falling.

Next Week: Zero-Day Options Expiration Day Risk?

The S&Ps finished the week Unchanged: This past week (on the surface) nothing happened. Except, we had to move a long way – to get nowhere. Because every single day we are seeing an increasingly larger number of traders – gambling on the S&P Index via options (1 contract = 100 shares) and futures (1 contract = 500 shares). Every day there is a new options / futures contract expiring – so in essence – every day is Ground Hog Day for this new breed of S&P trader. My fear surrounding the S&P trade is the shear volumes that are being exchanged – and their potential for obscene amounts of ‘market-crashing’ gamma risk.

Zero DTE (Days to Expiration) Risk == the talk of the Trading Town: Looking at Friday’s SPY action (above), over 400,000 new options contracts were opened (and closed) on Friday’s $406 SPY option strike alone. That’s beyond huge volume and that’s not even including the SPX (10X the SPY) or the /ES futures. JPM estimates that Zero DTE Risk is now over $1T every single day. That is why you’re seeing these huge 40 to 70-point swings in the S&Ps – on an hourly basis.

The SPX, SPY, and the /ES are all trading what is directly in front of them: Traders no longer care about anything in the future (or the past) – if it’s more than 2 hours away. It’s a feeding/trading frenzy like we have not seen since Vol-mageddon 1.0 - the volatility collapse of 2018.

Dynamics of the Hedge: The scary part of Vol-mageddon, is not what happens on the trading side, but what happens on the Market-Making side. Market Makers (such as Citadel) take the ‘other side’ of every trade that’s out there, and they shelter their risk via stock and/or S&P futures. The goal of the Market Maker is to remain ‘net neutral’ on every trade – all the while taking a tiny percentage out of the middle as their fee (similar to Vegas – fyi).

What If… a Market Making firm (like Citadel) starts loading up on some ‘serious’ inventory positions due to its clients buying a ton of CALL options (400,000) on the SPY. [FYI: most Market Makers will be hedging in the same direction as the marketplace.]. The fear is: (a) What if unexpected bad news hits the marketplace? (b) Traders will begin to sell their positions, and Market Makers will respond in kind by selling their positions. (c) If this selling breaks thru 1 and then 2 standard deviations of a move – we could witness a collapse that our own marketplace created.

It’s coming… because we’ve seen this movie before. Vol-mageddon 2.0 will be a repeat of Vol-mageddon 1.0 back in 2018 – let’s just hope we’ve gotten smarter and faster in terms of recovery.

SBX Expected Move (EM):

- Last Week was $104 (5-day week)…

- This Week is $73 (4-day week)… Know your risk, and keep your hands and feet inside the vehicle at all times.

Tips:

For Oil (/CL):

- The former 2018 Resistance levels are now Support.

- Are they temporary or actual Support?

- Do energy prices move higher from these depressed levels, or is this a continuation of a downtrend?