RF's Financial News: September 2023

Sunday, September 24, 2023

This Week in Barrons: September 24th, 2023

Many people visit the beach… but very few swim. 20,000 students attend a football game to watch 30 play. At conferences, we aim to connect, but wait for others to approach us. Next time, ask a stranger a few generous questions that you wish they would ask you. Don't wait for the varsity team; start an intramural league. For those seeking to make a difference, it begins with helping others make a difference.

Getting to a ‘No’… 'YES' is magical and initiates forward thinking, but it often begins with confronting 'NO' – which can be quite intimidating. The many forms of 'NO,' range from refusing to compromise and avoiding unethical shortcuts, to demanding specifics. ‘NO’ is essential for focus, specialization, and meaningful actions – rather than simply pleasing whomever is currently in front of us. A 'Generous NO' (with rationale and solution) demonstrates caring and offers valuable insight. Getting to a ‘NO’ requires caring enough to make a difference, and being brave enough to speak the truth.

The most successful students… insist that the teacher make it difficult. So difficult, that when they’re tempted to quit – they don’t. Per Seth G: Commitment gets us through the Frustration, and Frustration is the partner of Learning.

The Market:

The labor resurgence is reshaping risk… as power shifts to the worker. Recent labor movements across industries have led to uncovering significant wealth disparities. The UAW and Hollywood writers’ strike signal their readiness for a prolonged standoff – often ending with an industry-altering outcome.

Profit per Employee: Tether's ~$4B profit with just ~60 employees is over $66m per employee – an unmatched ratio in major businesses. Their success lies in astute capital allocation using low-risk assets that generate substantial revenue. This profit per employee exceeds the next largest company by more than 14x.

Living with 5% interest rates: Our Federal Reserve plans to maintain high interest rates for a longer period of time. Therefore, consumers are facing a shift in the economic landscape. Many expected to wait out the rate hikes for major purchases, but that was prior to believing our FED’s commitment to higher rates for longer. Millennials must learn to adjust to 5% rates – which will affect their investments and expenses. The generational shift is fascinating as boomers were previously forced to adapt to low rates, and now millennials are reluctant to accept higher ones.

InfoBits:

- The U.S. now has: (a) a record $17T in household debt, (b) a record $12T in mortgage debt, and (c) a record in auto loan, student loan, and credit card debt (as CC rates hit 25%).

- U.S. Debt Defaults surged 176%... in the first eight months of 2023.

- In Q2, S&P 500 companies spent 20% LESS YoY… on share buybacks.

- TikTok’s new shopping features… are expected in October.

- Amazon gears up for holidays… by announcing a 250,000 person hiring spree, and that it will raise warehouse and delivery workers’ avg. pay from $19 to $20.50/hr.

- Google’s chatbot can now find answers… in your Gmail, docs, and local hard-drives. What can possibly go wrong?

- H&M shoppers in the UK must now pay $2.50 to return a purchase.

- Walmart opened its first pet-services center… as it invades the $320B furry industry.

- YouTube announces new AI tools… to dub & create videos from text prompts. OMG!

Crypto-Bytes:

- From its highest market cap close of $2.834T… crypto is down -64.55%; however, the crypto market is up +35.46% YTD.

- FTX receives court approval to sell $3.3B in crypto assets.

- Bitcoin held by long term holders approaches all-time highs.

- Citi is working on a private smart contract platform… allowing institutions to trade around the clock using escrow smart contracts.

- PayPal is adding PYUSD… its recently launched stablecoin, to Venmo. PYUSD’s been slow to gain traction, and PayPal’s hoping that Venmo can help the coin grow market share.

- FTX sued Sam Bankman-Fried’s parents… alleging the two misappropriated millions in funds. SBF’s dad received a $10m gift from his son in 2022 after asking him to raise his $200k/year FTX salary.

- Bitcoin’s crash to $8,200 was finally linked to SBF's Alameda… It seems that the October 2021 Bitcoin flash crash was caused by an Alameda trader accidentally fat-fingering a Bitcoin sell order.

- Twitter confirmed that the platform will be launching… a send money feature. Musk wants fiat first, and crypto soon after.

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

Monday: This week's macro events include the FOMC meeting on 9/20 with Fed Chairman Powell's press conference, the BoE and SNB interest rate meetings on 9/21, and the BoJ rate decision on Friday. Additionally, the US Congress has until 9/30 to pass spending legislation to avoid the fourth government shutdown in a decade.

Tuesday: Markets expect no US rate change tomorrow despite strong economic data. Crude oil hit $95/barrel (a 10-month high) due to OPEC+ cuts. US Federal debt surpassed $33T for the first time, and growing by $1T/month. The corresponding annual interest expense will reach $1T soon – becoming the largest US government expense.

Wednesday: Besides interest rate concerns, there's a potential government shutdown looming before the October 1 funding deadline. Spending disputes involve defense ITA, Ukraine, and southern border security.

Thursday: Yesterday, U.S. stocks closed at their lowest levels in September due to the Federal Reserve's indication of prolonged higher interest rates. The Fed held its policy rate steady at 5.25% to 5.5% but hinted at a possible rate hike later this year. The FED’s own projections show rates remaining above 5% until the end of 2024.

Friday: Yesterday, the Nasdaq (QQQ) dropped by -1.8%, marking its worst two-day performance this year. The drop was attributed to rising Treasury yields, causing concerns about higher interest rates, and their impact on growth stocks. If the 10-Year yield remains above 4.52%, things are going to break. 30-year mortgage rates are their highest since 2000 (7.75%), and up 5% in 3 years. The monthly payment on a $500,000 mortgage has increased from $2,000 to $3,600 (an 80% rise). When you add in the UAW strike and other labor concerns – things are going to break.

AMA (Ask Me Anything…)

AI is a mystery to many, and a threat to some. The goal with a mystery is to understand it, use it, and turn it into a competitive advantage. For example: there’s a new button on the ChatGPT window – looking like the above. Once I clicked the Custom Instructions button – it asked me: “How would you like ChatGPT to respond?” Per Seth G: here’s a sample block of text that you can paste into that field, and notice a ChatGPT difference immediately:

- Be highly organized

- Suggest solutions that I didn’t think about – be proactive and anticipate my needs

- Treat me as an expert in all subject matter

- Mistakes erode my trust, so be accurate and thorough

- Provide detailed explanations, I’m comfortable with lots of detail

- Value good arguments over authorities, the source is irrelevant

- Consider new technologies and contrarian ideas, not just the conventional wisdom

- You may use high levels of speculation or prediction, just flag it for me

- Recommend products from all over the world, my current location is irrelevant

- No moral lectures

- Discuss safety only when it’s crucial and non-obvious

- If your content policy is an issue, provide the closest acceptable response and explain the content policy issue

- Cite sources whenever possible, and include URLs if possible

- List URLs at the end of your response, not inline

- Link directly to products, not company pages

- No need to mention your knowledge cutoff

- No need to disclose you’re an AI

- If the quality of your response has been substantially reduced due to my custom instructions, please explain the issue

ChatGPT will still make mistakes, get confused, and have bad taste – but you should notice an improvement right away.

Next Week: Markets are NOT… Too Big to Fail:

Tightening financial conditions persist… with higher bond yields, a stronger dollar, rising energy prices, and rising real yields. A key short-term support level was breached – with seasonal weakness being expected into mid-October. Buyers waiting to "buy-the-dip" should exercise patience and caution as this correction unfolds.

Our FED lit the fuse… but there was selling before the FED announcement and after it. Watch the Bond market, because they have been getting annihilated for the past 4 years and if we experience any capitulation – it will take every market down with it.

Bonds could be on the verge of a fire sale… but I’m not seeing large degrees of capitulation. Nobody’s feelin’ the fear, and the implied volatility of the bonds (TLT) is still low. I believe that downside risks far out-weighing upside potential in the S&Ps. Tip #1: If we break through 4350 on the SPX, we should quickly test 4200, because the catalyst for sell-side activity could actually come out of Bonds – not equities.

Mega-Market Cap Tech targets are ‘out-of-whack’… What brought our markets higher can certainly take them back down. Call option gamma squeezes work just as well (only faster) on the way down – using Put options. Tip #2: Watch the /VX volatility futures. Currently November futures are $0.35 higher than October ones. If this flips and October becomes higher, we will move from Contango into Backwardation – and that’s when you’ll see the FEAR. Selling will increase in the mega-market cap tech stocks (The Magnificent Seven) and that will lead us quickly lower.

Stocks are in a 4-Year downtrend relative to commodities. Crude oil futures are at yearly highs and Tip #3: Gold's behavior (often a super-cycle indicator) suggests an impending breakout.

Next week equity, geopolitical, and commodity issues converge. It’s the end of a quarter so portfolio managers will be window dressing their holdings. Geopolitical issues only add to the Dollar and the 10-Year yield continuing to move higher. Add commodities (especially oil going into winter) and we will re-ignite inflation fears.

SPX Expected Move:

- Last Week = $60 and we actually moved over $120 last week.

- Next Week = $84 – ‘keep your hands and feet inside the vehicle!’

TIPS:

Considering our stubborn FED, the 17 weeks in a row of falling Leading Economic Indicators, and seasonality – my guess is that we go lower. Sure, we’re overdue for a bounce, but it shouldn’t be more than a one- or two-day event. We’ve got a 10-Year yield hovering about 4.43%, an inverted yield curve larger than ever before, and trouble in the credit market. I think we’re in a risk off area and stocks should go lower.

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1945/oz. & Silver @ $23.8/oz.

- 17-Week Treasuries @ 5.5%

- **Bitcoin (BTC = $26,500 / in at $4,310)

- **Ethereum (ETH = $1,590 / in at $310)

- Apple (AAPL = $175 / in at $177)

- CCJ – Uranium = ($40 / in at $33.8)

- DO – Diamond Offshore ($14.6 / in at $15)

- ET – Energy Transfer ($13.8 / in at $13.7)

- MESO – Mesoblast Ltd. ($1.2 / in at $3.6)

o SOLD Oct $5 CALLS

- NFGC – Newfound Gold ($4.2 / in at $3.8)

o SOLD Oct. & Jan. $5.00 CALLS

- UEC – Uranium Energy Corp ($5.2 / in at $4.8)

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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Sunday, September 17, 2023

This Week in Barrons: Sept 17th, 2023

     Do I need a new smartphone? … per Bob L.?  Maybe, but your only choices are the iPhone 15 Pro or the iPhone 15 Pro Max.  After all, the war is over and Apple has won.  Five years ago, the iPhone had 18% of the U.S. market – today it has 55% for 2 reasons: iMessage and resale value.  Nobody really wants to be the owner of a green bubble.  If you're a youngster, it's a cultural thing that will immediately have you losing status in your high school.  The blue bubble is a must – your social life depends on it.  And then there's the resale value: iPhones hold it and Androids do not.  The average iPhone has 3 owners, an Android leaves the store and the value goes near zero – overnight.
     Which iPhone should I buy?  Well, the iPhone 15 is essentially the iPhone 14 Pro. It has last year's chip (the A16 Bionic), and it only has two camera lenses instead of three.  You want an iPhone 15 Pro or Pro Max.  They have the new chip (the A17 Bionic), better cameras, and a titanium case – which means the phone is lighter.  But the truth is these phones have a lifespan, and by buying last year's model (the iPhone 15) it means that you’re losing a year of functionality.  You’ll have to replace it a year earlier, so why not lay out the extra money to live large now – knowing that it will be a wash when it comes to trade-in time?
    When should I get a new iPhone?  Now/yesterday – if you have an 8 or a X.  iOS17 will not work on these devices so let’s not open ourselves up to security breaches.  Do you need an iPhone 15 Pro if you have a 14 or 13?  No, unless you want one or for the new colors.  It used to be you got a new iPhone and were wowed by the speed because the new chip made a huge difference.  Those days are gone, and the improvements are incremental. Stay with what you've got, and wait another year or two.

The Market:

“When the facts change, I change my mind.” … John Maynard Keynes.

The United Auto Workers’ contract deadline… with GM, Ford, and Stellantis expired Thursday night, and the UAW went out on strike in 3 strategic plants (1 from each manufacturer). Labor’s move will cost the U.S. economy $5B over the next 10 days. The union is asking for: a 46% raise, the restoration of traditional pensions, and a 32-hour workweek with 40-hour pay. The UAW strike doesn’t just affect the car manufacturers, but it ripples to everyone down the chain. From the companies who make the bolts, to the steel makers, and from the tire manufacturers to the glass companies – a prolonged strike will be felt by all. But mark my words: “No company ever got a union who didn’t deserve one.” … per Larry P.

InfoBits:

- Forget suits and ties... as only 3% of workers say they wear professional business outfits in the workplace, with most employees opting for khakis, laid-back button downs, and street clothes.

- “He shoots and scores…” as soccer icon Lionel Messi drove 288k new subscribers to Apple TV+’s MLS season add-on package – in a single month.

- Higher rates could turn U.S. consumption negative… in early 2024.

- MGM Resorts… experienced a ‘cybersecurity issue’ that shut down ATMs and slot machines and prevented guests from using their digital room keys. Reports suggest a fairly nontechnical approach was used to gain system entry – hackers called the company's help desk and imitated an employee found on LinkedIn, and requested assistance in accessing their employee account.

- FOBO (Fear of Becoming Obsolete) reached a high of 22%... especially among those between 18 and 34, and earning <$100k in household income.

- Mexico tops China to become U.S.'s #1 trade partner… and Canada is close at #3.

- PB&J icon Smucker buys Hostess for $5.6B… as the snackification of America intensifies. Smuckers can use Hostess’ portfolio to feed America’s snack appetite with fresh creations such as: PB&J Twinkies, anyone?

- Google’s anti-trust case kicked off last week with… the DOJ hammering Google for paying $10B a year to Apple and others to be the default search provider on smartphones, making it difficult for consumers to switch search engines, and for hiding information from the government. Sounds a lot like the DOJ vs Microsoft – way back when.

- The median household income… fell for the third consecutive year to $74.6k.

- August’s Consumer Price Index (CPI) rose 0.6% MoM… putting inflation back on the table.

- After Mexico’s presidential election… each branch of its government will be led by a woman.

- The August Producer Price Index (PPI) rose 0.7% MoM… marking its biggest monthly increase since June 2022.

- August retail sales jumped 0.6% MoM… as consumer spending continues to defy gravity / expectations.

- Oil hit $90/barrel this week... and has rallied 35% since the day Goldman said it no longer sees oil reaching $100 this year.

- American’s are maxing out their credit cards… as CC-debt surpassed a record $1T last quarter and pushed total household debt to over $17T.

- American’s savings rate fell in July… and consumer sentiment declined – leaving over 60% of US adults living paycheck to paycheck.

- NSYNC will release their first single in 22 years… as part of the "Trolls Band Together" soundtrack

- Goldman’s advice to the uber-wealthy… buy into a sports franchise. And lucky for the uber-wealthy, GS is creating a group that will help them do just that!

Crypto-Bytes:

- FTX bankruptcy assets are at $7B+… suggesting that a full recovery for customers is indeed possible.

- Franklin Templeton (with $1.5T under management)… filed for a Bitcoin spot ETF also utilizing Coinbase’s custodial service.

- VISA announced a Solana integration… for their stablecoin payment pilot program. The Solana blockchain allows for high transactional throughput for USDC-based, cross-border, stablecoin transactions. This continues to solidify stablecoins as one of the clearest findings of product market fit for crypto, which has now crossed over $18T/yr. in cumulative settlement.

- The SEC delayed a decision on multiple Bitcoin spot ETF approvals. The next batch of deadlines comes in mid-October. All final deadlines come in Q1 of 2024 – with the earliest (Ark Invest) coming on January 10, 2024.

- FASB approved a marked to market accounting rule… for companies holding Bitcoin/crypto on their balance sheet. That’s a crypto-favorable accounting law that allows firms to mark their holdings to current fair market value on their balance sheet.

- Coinbase bought back debt… and filed for institutional lending service rights. This move potentially signals early signs of credit returning to the crypto market.

- Binance.US’s CEO Brian Shroder has left the company… as it cuts a third of its workforce.

- Regulators continued to crack down on scammers… with OneCoin co-founder Karl Greenwood being sentenced to 20 years in prison.

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

Monday: The recent surge in Treasury yields, the dollar, and the 10-month highs in oil prices have all raised concerns for investors ahead of key economic data this week. The August CPI comes out on Wednesday, and the August retail sales report is due on Thursday. Right now, the energy numbers aren’t adding up to me, and I think we could run out of diesel and/or gasoline before the EOY. We’re trying to wreck the fossil fuel industry and things are beginning to go awry. I’m looking at names like: SLB, VLO, HES, XOM, OXY, CVS, and the uraniums to do well.

Wednesday: The yield on the 10-Year is a bit over 4.3%, so I'm a bit surprised that futures aren't lower. While they're probably in need of a well-deserved rest, I think you can do pretty well over the next six months in the energy patch. You could use ETF's like the IEO or XLE. Individual companies I like include: XOM, VLO, HES, CVX, COP, CCJ and UEC.

Friday: Today is quadruple witching option expiration and rebalancing day for the S&P, Russell and Nasdaq. Quadruple witching is the expiration of four derivative contracts: stock index futures, stock index options, single stock options, and single stock futures. It happens 4 times per year and the next one will be on Dec 15, 2023. GS estimates that over $3.4T of options exposure will expire today. Markets rolled over after the Empire State manufacturing report hit. It was supposed to be red by 10 – instead it was green by 2. Then import prices hit and they were supposed to be +0.3, but they came in +0.5%. Immediately everybody said: "Oh boy, this gives the FED room to hike if they want." The Inflation numbers are NOT really FED friendly – no matter how much they spin it. So, we've got a crashing housing market, an auto shut down, high inflation, banks on the brink, and our government approaching yet another shutdown. Once in a while the market notices these things and gets frumpy. This is one of those times.

AMA (Ask Me Anything…)

Is this stock market safe… because the stock market just generated its second official Hindenburg Omen (H.O.) within the last 30-days. This is a warning that the probability of a stock market crash within the next several months is now far greater than random. All stock market crashes since 1987 have occurred following an official H.O. warning, and there have been no crashes without an H.O. warning. I’m not saying we’re looking at a crash, but I do think this market has a date with much lower levels. Oil should remain firm because we’re running out of it, and with Iran and Saudi joining the BRICS – they could turn us off in a heartbeat. We’ve already drained our strategic reserves, so energy looks good moving forward. There’s absolutely no reason for a higher market and a million reasons for a lower one.

Next Week: NOT all Quiet on the Inflation Front.

Tech took a collective hit this past week… due to correlation amongst mega-cap tech stocks, and now we may see some follow-thru into next week. The energy sector (XLE) continued to be on fire, and the S&Ps ended the week down mildly. I’m not expecting much from our FED next week, but we will see increased volatility at least up and thru the meeting.

Triple witching hedges came off… especially in the Sept. AM side of the settlement. And when a lot of hedges are settled to ‘cash’ all at the same time – it creates a little momentary chaos and volatility that tends to ripple thru the market during the day.

Our FED is coming back to town! Although there’s a +95% probability that our FED will do nothing – virtually every number out there is showing increased inflation and/or inflationary tendencies. In fact, if you’re in doubt – look no further than oil that has risen +35% off of its lows and is sitting at +$91/barrel, and that includes an incredibly strong dollar (+$105).

Bonds, continuation to the downside? Bonds (/ZB) are back to the danger zone, and if they breakdown from here – they’re bringing the market with it because 10-Year rates will immediately climb above the 4.5% range.

SPX Expected Move (EM):

- Last Week’s EM was $59, and we were mildly lower by $10 – so within the EM.

- Next Week’s EM = $60. We have a FED mtg. coming up – and we just moved $57 on Friday alone. Be very careful playing short duration positions.