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 2nd 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?
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,851 & Silver @ $21.7/oz.
- 30, 60, & 90-Day Treasuries @ 4.4 to 5.1%
- **Bitcoin (BTC = $24,500 / in at $4,310)
- **Ethereum (ETH = $1,700 / in at $310)
- DNN – Denison Mines ($1.31 / in at $1.32)
o SOLD the April $1.50 CALLS
- GME – DRS’d and HODL
- Innerscope (INND = $0.0049 / in at $0.0052)
- MESO – Mesoblast Ltd. ($3.30 / in at $3.60)
o SOLD July $5 CALLS for $0.85
- NFGC – Newfound Gold ($3.59 / 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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