"People who get things done in this world don't wait for the spirit to move them; they move the spirit…" David S.
How important is having ‘Skin-in-the-Game?’
- Would athletes be better teammates and play harder if their salaries were incentivized by the team’s performance, instead of their own?
- Would politicians better represent their constituents and country, if their paychecks were tied to the overall success of the middle-class?
- How much higher would the stock market be if CEO’s and board members were required to own equity in the public companies they work for?
I never understood why ‘Skin-in-the-Game’ wasn’t a bigger topic, as far as business decision-making is concerned. One of the few things I love about private equity and venture firms is that every partner must take a piece of every deal. In my opinion, ownership (which implies monetary and emotional risk) influences decision-making in an extremely genuine way.
Child-ish or Child-like? Childlike involves wonder – the ability to see the world with fresh eyes and create magic. Childish is simply living without consequences. Adults do well when they seek to be childlike, and that is possible without being childish.
The Market:
The BRICS will account for 32.1% of global GDP this year… more than the G7’s 29.9% share. Last week the BRICS announced that Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates will be joining Brazil, Russia, India, China, and South Africa in the alliance. With the additional countries, the alliance will have: ~50% of the world's population, over 30% of the world’s GDP, and the world’s largest crude oil exporter. 80% of international trade still takes place in US dollars, and this expansion will significantly reduce that percentage. This was the first expansion since 2010, and there are plans to allow up to 40 additional countries to enter the alliance.
Thus far in 2023, the top 5 stocks in the S&P 500… (NVDA, GOOGL, MSFT, AAPL, and AMZN) have added more than $3T to their market caps and now account for ~24% of the entire index’s weighting.
InfoBits:
- Kidfluencers like 11-year-old Ryan Kaji… who earned $30m last year using YouTube, Instagram, and TikTok to influence buyers – are prime targets for advertisers like Mattel, Walmart and Target.
- More states are rethinking their recreational-pot-smoking laws… as the rise of high-potency THC strains spark health concerns.
- Meta unveils new ‘in-person policy’... mandating employees to be back in the office three days a week or expect an impact on their performance review.
- ARM, the chipmaker owned by SoftBank… is IPO’ing on the Nasdaq – raising $10B at a $65B valuation.
- There’s a traffic jam in the Panama Canal… 200+ ships are backed up for more than 20 days as a major drought has delayed crossings.
- U.S. existing home sales fell 2.2% in July to a 6-month low… but low inventory pushed prices of the median home sold up 1.9% YoY to $406,700.
- The Richmond FED’s Manufacturing Activity… stayed in negative territory for the sixteenth consecutive month.
- Schwab is downsizing its real estate holdings… and cutting employee headcount to save at least $500m annually.
- In Q2, the average U.S. office lease size was ~20% less… than the average pre-COVID lease.
- The BRICS’ Bank plans to begin lending… in South African and Brazilian currencies – as part of their plan to reduce reliance on the U.S. Dollar.
- U.S. Payrolls were overstated by over 300,000… with the largest adjustments being in transportation. So, does Biden take a ‘reverse’ victory lap?
- Germany’s business activity experienced a steep decline… raising fears that Europe’s biggest economy could be headed for recession.
- Dollar Tree and Burlington shares tumbled… because: “It’s clear that the lower-income shopper is still under significant economic pressure.”
- Petco fell to all-time-lows… as discretionary spending continues to fall.
- Retailers are dreading October 1… as student loan payments begin to repay the $1.75T educational debt.
Crypto-Bytes:
- A 37-page Stablecoin report dropped… and it highlights two main takeaways: (1) stablecoins are incredibly popular globally, and (2) most users appear to be leveraging stablecoins for non-speculation use cases. Some details:
- In 2022, stablecoins settled over $11T in transactions on-chain, dwarfing PayPal’s $1.4T, and almost equaling VISA’s $11.6T.
- ~5m blockchain addresses send stablecoins each week and ~75% of those transactions are less than $1,000/week; therefore, small/retail users represent the majority of stablecoin users.
- Stablecoin usage is mostly driven by non-trading activity.
- Outstanding stablecoin supply has grown from less than $3B five years ago to over $125B today.
- ~67% of stablecoins are in externally owned accounts (not exchanges or smart contracts).
- Tether (USDT) represents ~70% of the stablecoin supply, and YTD has accounted for 80% of the weekly active addresses and 75% of the transactions.
- Most stablecoin activity occurs on the Tron and BSC blockchains, and YTD has accounted for 77% of the weekly active addresses and 75% of the transactions.
- The Ethereum blockchain is used for higher-value transactions – with just 6% of the active wallets and 3% of transactions.
It will be interesting to see how the legacy financial organizations respond when stablecoins eventually flip Visa and other payment processors in annual volume. They will either learn to compete or be disrupted.
TW3 (That Was - The Week - That Was):
Monday: I have no trust in this market. For two weeks, we've seen 400-point reversals and crazy whipsawing.
Tuesday: The 2-day BRICS meeting is underway in South Africa and it's going to be very interesting to see what sort of things come out of that. On one hand they could say: (a) they've got a new gold backed currency they’re using to trade amongst themselves, (b) they're allowing 19 more nations into the bloc, or (c) they could have nothing to say. The BRICS are only 15 years old, but powerful. As they stand, they have ~3.2B in population and because of resources – they don't run trade deficits like the U.S. and Europe. They already make up 32% of global GDP – surpassing the U.S. They also want to be the dominant player in AI technology, led by China. As you can see, this meeting has the power to change the entire global system.
Wednesday: I was looking around this morning and one thing stood out – the miners were all doing well. The miners haven't gotten any love in a long time, but yesterday and today – they’ve woken up with some decent movers: AG, WPM, SILV, PAAS, DRD, NEM, SAND and NFGC. In general, one of my favorite set ups is the 9 and 21-day EMA (exponential moving average). Stocks that are under those 2 are generally heading lower, and above them are probably trending higher. In terms of that criteria, watch: SILV, WPM, AG and DRD. If any of these can go into the close, above both their 9 and 21-day EMA, they MIGHT be worth a shot. Right after 11am the 10-Year dropped 3%, and correspondingly stocks took off! Now, I'm not sure why the 10-Year has weakened – maybe because something leaked out of J. Powell’s Jackson Hole talk tomorrow? Most probably it was yesterday's T-Bill highs (which hadn't been seen in decades) – got the FED / Treasury to buy a ton today.
AMA (Ask Me Anything…)
Takin’ a NAP-Year… Deloitte, KPMG, BCG, McKinsey, and Bain have all delayed their Class of 2023 hires’ start date until 2024 – as the consulting firms wait for business to pick up. The firms have different strategies to keep their hires’ on-the-hook. KPMG is doling out one-time $10k paychecks, while Deloitte is paying $2k monthly stipends. Bain is giving $40k to MBA hires that work for a nonprofit, $30k to those who learn a new language, and $20k to folks who become yoga teachers or learn how to paint.
During Q2, a hidden entity has hoarded… a staggering 118,300 Bitcoin = $3B at today’s rates. The crypto is passing through Gemini and the rumors are that the destination wallet receiving the BTC belongs to BlackRock. However, a new rumor suggests that Robinhood is the wallet hodler. Whomever the owner, they are the third-largest Bitcoin holder – only outpaced by the cold wallets of Binance and Bitfinex.
Next Week: Volatility broke the market.
Has the AI unwind begun? I believe that this two-sided and wild trading environment is here to stay. There is an incredible concentration of liquidity. No one is trading anything – except the favorites = which leaves us wide-open for another sell-off. If Thursday’s negative candle in NVDA is the trigger to additional sell-side activity, we could very well be noticing The Great AI Unwind. And if that’s the case, the S&Ps are doomed – because there’s no way any other combination of sectors can save the index if tech decides to recalibrate its previous out-sized, upside moves.
Bonds are a critical, destabilizing factor. Currently, there is no good move for bonds. If bonds continue to sell-off, then interest rates go higher and stocks go lower. If bonds reverse and move higher, that will be because people are selling out of stocks and buying bonds as a flight-to-quality. Bonds can’t remain calm / stable because next week we get: the JOLTS report, CPI, PPI, GDP and end the week with the Jobs Report. Also, September is the market’s most volatile month.
High correlation is prevalent. The advance / decline line within the S&P 100 hit extraordinarily high degrees of correlation last week. When 90% of the products are either trading higher or lower, the market then turns into one large trade – where the tide either raises or beaches all boats. This leads to out-sized market moves and huge marketplace reversals.
A strong dollar could re-ignite inflation. Our Dollar has exploded from the 100 level to over 104 – in the past month. When inflation as 9%, our Dollar was ~114. If the upward bias of the Dollar continues, we will not only re-ignite our inflation, but also begin to re-export it globally.
SPX Expected Move:
- Last Week = $79
- Next Week = $67
TIPS:
In this type of environment, investors are rewarded for selling volatility and collecting premium. Investors also tend to be rewarded for avoiding the sectors above and looking for other opportunities – in less correlated areas. Semis, Homebuilders, Industrials and Technology are all stuck below their former cycle highs. While this is in place, it's hard to expect the indexes to make much progress. Sideways to lower is still my bet – until these things resolve higher.
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1943/oz. & Silver @ $24.3/oz.
- 17-Week Treasuries @ 5.5%
- **Bitcoin (BTC = $26,200 / in at $4,310)
- **Ethereum (ETH = $1,650 / in at $310)
- Apple (AAPL = $178.6 / in at $177)
- CCJ – Uranium = ($36.4 / in at $33.8)
- DO – Diamond Offshore ($14.6 / in at $15)
- MESO – Mesoblast Ltd. ($1.50 / in at $3.60)
o SOLD Oct $5 CALLS
- NFGC – Newfound Gold ($4.30 / in at $3.75)
o SOLD Oct. & Jan. $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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