[Click image to listen to Neil's talk... https://www.youtube.com/watch?v=HgmeoDQWGLQ]
It’s your journey – enjoy it… I was happily pedaling along on a trail on my old Schwinn bicycle when three spandex speedsters blew by me on their handmade carbon bikes. For a moment, I was disheartened. What’s the point: they’re speedy and I’m not. Then I realized that it’s not a bike race, it’s a bike ride. There is no winning a ride. Enjoy the journey – it’s yours’ alone.
Factually, computers are better at solving CAPTCHA puzzles than humans. So how long before CAPTCHA goes away? Per Seth G, the process will go like this:
- 1st: Someone has to decide that it’s their job to worry about this.
- 2nd: They have to assemble a quorum to approve the radical shift away from something that was status quo, and didn’t seem to be broken.
- 3rd: Then they have to take responsibility for what happens next.
- 4th: Finally they will need to manage a tech-intervention with all that have grown to embrace the status quo, and need to sign off on this.
- WOW: It’s just easier to be a bystander than a leader.
U.S. homes are only affordable again, if:
- The average person earns ~70% more,
- The average home price falls by ~40%, or
- IF mortgage rates fall by ~60% (from 7.26% to 2.96%).
The Market:
- Charlie B. says: The 10-Year T-Bill is down 0.4% in 2023… on pace for its third consecutive negative year. Going back to 1928, that's never happened. The good news is that all bear markets do end. The bad news is that if this bear market ends with long rates near 8-10% - why would an old fart like me ever buy another stock?
- The Federal Reserve Bank of Atlanta’s GDPNow model… forecasts our real Q3 growth rate at 5.0% - primarily driven by our over-spending consumer. That’s too hot for our FED’s liking. A stronger-than-expected economy means the Fed may have more rate hikes in its toolbelt. Minneapolis Federal Reserve President Neel Kashkari continued that narrative by saying the FED is not finished hiking.
- 3 Tells for the market:
o Credit: If we're entering into a new bear market or an aggressive period of high volatility, you’re likely to see increased stress in the bond market. If Treasuries begin to outperform High-yield bonds, that's evidence of that stress.
o High Beta vs Low Volatility: If you start to see a bid in Low Volatility stocks (such as utilities and defense) relative to High Beta stocks, then this correction is likely to be more severe.
o Consumer Discretionary vs Staples: If consumer staples continue to outperform discretionary, then we’re seeing a rotation into more defensive areas of the market.
InfoBits:
- WeWork rents nearly 20M square feet of office space… more than any other U.S. business. Its collapse could serve as a systematic shock to major cities’ commercial real estate markets.
- The U.S. homeless rate has jumped by 11% YoY… the largest 1-Year rise since 2007.
- Michael Burry, the famous "Big Short" hedge fund manager… has bet close to $1.6B on a stock market crash.
- It's a Circle-of-Life moment for a lot of founders… as entrepreneurial startups are dying and VCs are not saving them.
- The median price of a starter home in the US… is $243k – up 45%+ from pre-pandemic levels.
- Cleveland-Cliffs, America’s second-largest steel maker… announced an un-solicited offer to purchase U.S. Steel for over $7B.
- Streaming was a record 38.7% of TV usage in July.
- Breakfast is becoming over 21: Kellogg’s is making an alcoholic Eggo ‘brunch-in-a-jar’ sippin’ cream, and Dunkin’ is rolling out a boozy line of iced coffees called ‘Dunkin’ Spiked.’ Shoulda named ’em Drunkin’s.
- VinFast a Vietnamese EV automaker that listed via SPAC… with an $85B valuation. That put it ahead of Volkswagen ($69B), Ford ($48B), and GM ($46B).
- Blue Shield of California dropped CVS… as the company’s pharmacy benefits manager, and partnered with Mark Cuban’s Cost Plus Drugs and the Amazon Pharmacy to deliver more savings to their 5m members.
- The Smartphone market is expected to drop by -6% to 1.147B units.
- Wendy’s opened the first of a planned 200+ ‘next-gen-restos’… with fast food dining rooms changing into drive-thrus and to-go areas.
- Mortgage rates rose to 7.09% - the highest in 20 years. Sales of existing homes dropped by ~19% YoY – though the median price increased to $410k – almost an all-time high.
- May AI approach the bench?... as a federal judge upheld a U.S. Copyright decision that a piece of art created by AI is not open to protection. Copyright law has “never stretched so far as to protect works generated by new forms of technology operating absent any guiding human hand.”
- WeWork shares fell 11% to fresh all-time lows… after announcing it will perform a 1-for-40 reverse stock split to avoid being delisted from the NYSE.
Crypto-Bytes:
- There are now over 1m addresses on the bitcoin network… with at least 1 bitcoin. That is a growth of more than 100,000 addresses in less than a year.
- The percent of bitcoin not circulating in the past 2 years… is now at a new all-time high of 56%.
- Over 70% of all bitcoin addresses are “in profit”… meaning that they acquired theirbitcoin a lower price than today’s price point.
- SBF is back to being On-Chain… as a judge revoked Sam Bankman-Fried’s bail – sending him back to jail. SBF tried to interfere with trial witnesses.
- Singapore finalizes rules for the $125B stablecoin market… The framework includes: reserves held in low-risk and highly liquid assets – to equal or exceed the value of the stablecoin circulation at all times. Audit results, financial disclosures, and 5-day redemption period are the other requirements.
- PayPal & Ledger join forces… so that users can directly buy ETH, BTC, BCH, and LTC using their linked PayPal accounts. This collaboration ensures secure and seamless transactions, with crypto purchases sent directly to Ledger hardware wallets. And if you have PayPal crypto, you can easily transfer your funds to your Ledger wallet.
- The Crypto market ended the week… with the worst pullback since FTX’s collapse in November ’22. The weekly total market cap fell over 10% and is now at risk of losing the benchmark $1T level.
o BTC is looking for support @ $25,600 … then @ $20,500.
o ETH is looking for support @ $1,477
TW3 (That Was - The Week - That Was):
Tuesday: China’s Central Bank unexpectedly cut rates to stimulate its sputtering economy. U.S. Treasury yields surged as the 10-Year climbed to levels not seen since 2009. In quarterly filings:
- Warren Buffett's Berkshire built stakes in homebuilders DHI, NVR, LEN and in COF and OXY. AAPL remains 51% of their overall portfolio.
- Ray Dalio's Bridgewater sold: NFLX and HD while adding: T and MU.
- David Tepper's Appaloosa Management added to positions in AMD, AAPL, INTC, QCOM, AMZN, META, and BABA.
The last time the NYSE FANG+ Index was this high, prices got cut in half. A good rug-pull for those ‘late to the party’ is the perfect way for the market to behave. For the ‘casual investor’, initiating a new long-term hold in a market such as this one right now – would not be my recommendation.
Wednesday: The market didn't like the FED minutes and faded deeper into the red. Then came the 10-Year, at 3:45 pm it was yielding 4.266%. Could the BRICS meeting next week be a part of this? The S&P and NASDAQ are under their 50-day’s. The DOW is only 200 points away from losing its 50-day. If all three of them lose that, things could snowball lower, and then we’ll definitely have the BRICS to contend with.
Friday: The S&P 500 comes into Friday with its worst 3-day stretch since March, and falling to its lowest level since June. The Leading Economic Indicators came out this morning and once again they were red. That makes 16 straight months where the indicators have fallen. That hasn’t happened since the financial meltdown of 2008 / 2009. All three major indexes are now below their respective 50-day moving averages. How far can this drop go? I think that the market smells a ‘credit event’, and if that occurs – this correction will turn into a crash. There's a little support for the S&P at the 4285 area, but it's weak, and below that you have to look at 4140. Word out of China is: ‘One of China’s largest property developers Evergrande – has just filed for bankruptcy protection in U.S. Court.’ So, China’s economy is on the ropes, the indicators tell us that ours is in the toilet, and the 10-Year is simply fanning the flames.
AMA (Ask Me Anything…)
What’s so special about this coming week?
First, the BRICS (Brazil, Russia, India, China and South Africa) are meeting in Johannesburg. Will they announce Saudi Arabia as a new member? Over 40 nations have said they’re interested in becoming members of this trading block. And/or will they announce their gold backed currency for use in trade between member nations? Why is this so important? The U.S. Dollar (being the world’s reserve currency) has allowed us to live high on the hog – although bankrupt, and create dollars out of thin air – spending them as we see fit. What happens, if a significant portion of the world says: “We’re done with the U.S. Dollar. We’re going to trade amongst ourselves with a stable currency, backed by gold, not by a printing press in D.C.?“ What happens is all heck breaks loose because it will usher in the ‘credit event’ the world has been waiting for. The ONLY reason the U.S. has been allowed to run up trillion-dollar deficits and multi-trillion-dollar debt loads, is because of our global reserve currency status. If the BRICS make a move away from the dollar and more nations are involved – our lifestyle becomes a thing of the past.
Secondly, next week is our Federal Reserve's Jackson Hole Economic Symposium. It’s a 3-day annual, international conference put on by the Federal Reserve Bank of Kansas City at Jackson Hole, Wyoming. It’s attended by central bank leaders from around the world, and is a forum for the economic policies we all have to live under. And on Friday Chairperson Powell will be speaking, August 25 at 10:05am ET – one day AFTER the BRICS have ended their meeting.
Now, there may be no official press release from the BRICS meeting and J. Powell’s speech may be a snooze-fest, but rest assured – the world is watching very closely.
Next Week: Volatility – I’m back!
We smashed thru the lower edge of the expected move… to close an almost 2-Sigma move to the downside in the S&Ps. The NASDAQ however, closed barely outside its expected move – so it’s tech that’s still holding our markets together.
China’s economy is taking a hit… and how far that spreads globally remains to be seen. This week, China’s largest property developer Evergrande – filed for U.S. bankruptcy protection. Watch the $25 level on the FXI, because it could give us a clean-shot down to ~$20.
Be careful on any rally… Yes, we’re officially in over-sold territory, but if we rally the market will squeeze the volatility right out of the options market – reducing option prices. So, if you’re buying options this week – only buy short-term ones or use spreads. Tip #1: Markets do not tank from absolute highs – they tank from very low levels.
Tech is ‘down’, but certainly not ‘out’… Currently tech has taken about a 7% hit. Apple, MSFT, Tesla, and Meta have taken significant reductions, while Google and Amazon have not even blinked. So, if you’re playing the downside – watch GOOGL and AMZN for the opportunities. FYI: Nvidia has earnings next week on Aug. 23.
Volatility backwardation is close… The Sept. volatility futures are trading at $18.35 and the October ones are $18.86. These should be further apart. Tip #2: September volatility futures ‘flipping’ over October volatility, that will cause sell-side activity to increase across the board.
Could we rally in bonds? Bonds are now down ~9% YTD (decimated), and interest rates have gone parabolic – this should calm down. I think we could see a bit of a ‘fear trade’ as bonds rally when investors sell stocks and buy bonds.
Trades:
- Tip #3: In a directionless market, think about selling a strangle around a commodity driven company such as FCX: Sold the Oct. $45 Calls / Sold the Oct. $35 Puts.
- Tip #4: Bonds: In TLT: BOT the Sept $93.5 Calls / SOLD the Sept $95.5 Calls.
- Tip #5: Index: In MES/SPX: BOT the Sept 29 $4280 Puts / SOLD the Sept 29 $4180 Puts
- Tip #6: Tech: In GOOGL: BOT the Nov $120 Puts / SOLD the Nov $110 Puts
SPX Expected Move (EM):
- Last Week = $66… and we moved ~2X that amount to the downside.
- Next Week = $79… which is one of the larger EMs that we’ve seen.
TIPS:
Overall, there are some signs that the market is short-term oversold, but these are not particularly convincing as of yet. And it seems ‘higher rates for longer’ is finally bad for your health if you’re an overbought, overhyped tech stock. A more logical base-building point for the index looks to be around ~4300. This ‘buy-the-dip’ point would only work if this correction remains calm and orderly and the next shoe doesn’t drop – such as: China macro or Commercial Real Estate or a new Global Reserve Currency? If we rally next week, it could be a good time to put on some hedges / trades to the downside.
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1918/oz. & Silver @ $22.8/oz.
- 17-Week Treasuries @ 5.5%
- **Bitcoin (BTC = $26,050 / in at $4,310)
- **Ethereum (ETH = $1,650 / in at $310)
- Apple (AAPL = $174.5 / in at $177)
- CCJ – Uranium = ($34.7 / in at $33.8)
- DO – Diamond Offshore ($16 / in at $15)
- MESO – Mesoblast Ltd. ($1.26 / in at $3.60)
o SOLD Oct $5 CALLS
- NFGC – Newfound Gold ($4.43 / 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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