RF's Financial News: December 2023

Sunday, December 31, 2023

This Week in Barrons: December 31st, 2023

Sam, I Am: OpenAI’s ChatGPT was undoubtedly the foremost AI company that captured consumers’ mindshare. We can almost track: “Before-ChatGPT” and “After-ChatGPT.” We were also privy to what happens when a nonprofit sitting on a gold mine – is run by your standard, ruthless tech CEO (Sam Altman) with the support of a major investor (Microsoft). When the dust cleared, Sam was still standing – and the board that initially fired him – alas – were not. Follow the money.

Fear of Failure: We’ve evolved into a species that is scared of change. Our understanding is limited, our time is scarce, innovation can be a threat, and the status quo feels comfortable. Per Seth G: A decade from now, the things we’re doing currently will be viewed as dangerous, foolish, and/or selfish. Remember, it’s NOT that any particular habit or technology is dangerous. It’s that giving the benefit of the doubt to the status quo – may be a mistake.

Leverage: It’s almost impossible to remove a screw with your bare hands, but easy with a screwdriver. The handle of the screwdriver demonstrates the power of leverage. If others are succeeding at something that you’re finding difficult, maybe it’s because they’re using the right screwdriver. Looking for the right tool is the first step in finding it.

Hamish M: “AI will commoditize content creation. But content isn't culture. The value of culture will skyrocket in the AI age.”

The Market:

2 elements that should lead any adult decision… and they’re not money, housing, or even the weather. They are:

- #1 WHO: Are the people that this place attracts, the kind of people that I respect and would be honored to spend time with?

- #2 CULTURE: Is the culture here one that pushes and nurtures me to become more like the kind of person I want to be?

InfoBits:

- To be fair:

o A) It was the Camry that hit the Cybertruck – at an ‘unknown speed’.

o B) The Toyota Camry entered the roadway, crossed over the double yellow lines, and into the Cybertruck’s northbound lane of SR-35.

o C) Everyone inside the Cybertruck walked away from the accident. The inhabitants of the Toyota Camry were not so lucky.

- California Pizza Hut franchises… will lay off 1,200 in-house delivery drivers in February ahead of a new state law boosting the fast-food minimum wage to $20/hr.

- Global mergers and acquisitions hit a ten-year low in 2023… as higher interest rates and a weaker deal appetite kept a lid on the market. The last time global M&A activity was this low – was due to the Eurozone Crisis.

Crypto-Bytes:

- VanEck bitcoin ad:

- MicroStrategy’s massive bitcoin acquisition… of an additional 14,620 BTC for an average price of $42,110/BTC – brings their total holdings to a staggering 189,150 BTC. This shows strong, institutional, cryptocurrency confidence despite its recent price volatility.

- Binance founder CZ’s wealth skyrocketed in 2023… by $25B making him the 35th richest person in the world. Despite pleading guilty to U.S. criminal charges and stepping down as CEO, CZ’s wealth has soared and reflects the broader trend in the crypto market.

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

Per Anthony P: My expectation is for the Fed to cut interest rates in the first half of the year, followed by a full return to quantitative easing by year end. The U.S. will return to printing money, and we are all underestimating how much our government will need to print. If the government needs more money, then there will be more money in the system. And when a lot more money is chasing the same amount of financial assets, asset prices must explode higher. That type of tailwind should get investors even more excited about pouring capital into financial markets. The areas where I see the highest returns are:

1. Bitcoin should appreciate hundreds of percent from here, but I would be cautious about the 10x predictions that some are making.

2. Altcoins should be the biggest winner across all financial markets – ETH and LINK come to mind. The further out you go on the risk curve of the “riskiest” asset class (crypto), the more you should be paid for the risk you take.

3. Bitcoin mining stocks (MARA and RIOT) and MicroStrategy, will continue to outperform pure bitcoin exposure on the way up – and on the way down.

4. The major tech stocks will do well during this period, but the real area of opportunity is found in companies that have confused the market. Tesla is an example. The market believes they are a car company, but they are more akin to the most advanced AI and robotics company.

5. There will be big money made by people betting against the world’s weakest fiat currencies.

6. And lastly, bonds are going to continue to be the ‘intellectual’s’ choice for safe investing, but they will ultimately be big money losers. Buying long-term bonds in a money-printing environment usually means you failed the IQ test.

AMA (Ask Me Anything…)

Is there a surprise, tech competitor out there? OpenAI. Jony Ive poached the lead iPhone designer to work on an OpenAI hardware device. Tang Tan (Apple’s lead designer for the iPhone and Apple Watch) is stepping down to join LoveFrom - Jony Ive’s hardware design firm. Tang along with 20 former Apple employees have joined LoveFrom – as Jony assembles an “Avengers-like team” to work with Sam Altman on creating the next era of hardware devices running on OpenAI’s cutting-edge software.

Next Week: Markets are Definitely Ripe…

2024 Market Forecasts go from roses (Fundstrat) to the apocalypse (JPM). There is an incredibly high probability that the 2024 S&Ps will underperform. The average brokerage firm is predicting two-percent 2024 growth in the S&Ps.

Our market is priced to FED perfection. Currently the market is pricing in an 87% probability of a FED rate cut in March of 2024. In May of 2024, markets are 100% pricing in a FED rate cut. And in December of 2024, markets are pricing in a total of seven 25bps rate cuts (down -1.75%) to a final FED 2024 rate of between 3.25 and 3.5%. Tip #1: Unfortunately, our TNX (the 10-Year T-Bill) has already priced-in 1.2% of those 1.75% (2024) rate cuts. If our FED even hints (in January) that they will NOT be cutting rates as fast as the market believes – we will have market-mayhem on our hands. The way to position yourself for that situation is to:

- Tip #2: SELL the March 15 $105 / $110 TLT CALL Spread, and

- BUY the March 15 $92 / $87 TLT PUT Spread.

Bonds vs Bitcoin vs Metals…

- Tip #3: I’m looking for Bonds (/ZB) to sell-off from $124 down to $115.

- As our FED begins to cut rates later in 2024, the dollar will begin to rise.

- The fate of WHEN Bitcoin - currently resides in the political hands of the SEC.

- Metals will continue to rally in 2024, and I would be a buyer if GOLD if it dips below $2,000/oz.

TIPS:

HODL’s: (Hold On for Dear Life)

- 13-Week Treasuries @ 5.3%

- PHYSICAL COMMODITIES = Gold @ $2071/oz. & Silver @ $24.0/oz.

- **Bitcoin (BTC = $42,400 / in at $4,310)

- **Ethereum (ETH = $2,310 / in at $310)

- **MARA – Marathon Digital = ($23 / in at $12)

- **ChainLink (LINK = $15.4 / in at $7.78)

- **RIOT – Riot Platforms = ($15.2 / in at $12.5)

- **COIN – Coinbase = ($172 / in at $125)

- UEC – Uranium Energy Corp ($6.4 / in at $4.8)

- AAPL – Apple = ($192 / in at $181)

** Crypto-Currency aware

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, December 24, 2023

This Week in Barrons: December 24th, 2023

Sometimes I tap things with a hammer… and sometimes I actually whack them with a bigger hammer. Almost always – I get a better outcome by taking my time, and gently applying more pressure. Persistent, gentle pressure almost always outperforms sudden, violent blows.

AI is a paradigm shift… We sleep through the future creeping up on us, but when it leaps – we tend to notice. Per Seth G: one spam phone call a day is an irritation, but 1,000 of them destroy the utility of the phone. One cheaper-faster alternative is a threat, but 1,000 of them drive you out of business. The most obvious 1,000X’er is AI. Entire systems are going to be replaced. New careers will develop and old ones will go away - overnight. When an AI unit can read a standard x-ray 1,000 times faster, cheaper, with increased accuracy than a radiologist – things will change rapidly. Change promotes change, and widespread change compounds exponentially.

The Market:

Most governments are broke. Some will try to rectify the issue by printing money until they fail. Others will continue hiking taxes until all the wealthy people leave. These strategies are so simple that the short-term oriented politicians will pursue them with energy and passion. After all - in their eyes, a bad solution is better than doing nothing. Instead, Why don’t governments create products and services that taxpayers are willing to pay for? Why don’t they turn some of their non-profit businesses into ‘for-profit’ entities? You could then measure them by top-line and bottom-line growth – with the added bonus of further understanding your customer / the taxpayer.

InfoBits:

- U.S. bankruptcies are up over 30% YoY… as interest rates rise.

- Drill, baby, drill… The U.S. is now producing more oil than any other country in the world - ever.

- Costco sold about $100m in gold in Q3… but their advantage wasn’t price. A Costco bar sold for $2,069.99 when the spot price was $2,020.58. Combine that with the restriction of only 2 bars per customer, and Costco seems to have found a product where price is not the issue.

- Amazon is considering upping its sports bet… as they are talking with Diamond Sports Group. Amazon would make an investment and sign a multiyear streaming partnership, and in return would become the streaming home for all of Diamond’s games across their 40 professional NBA, MLB, and NHL teams.

- The merger between Adobe and Figma is off… due to pressure from regulators in the UK and EU. The breakup is particularly bad news for Adobe that must pay a $1B break-up fee to Figma.

- At least 18 publicly traded EV and battery startups… are at risk of running out of cash in 2024. Most of them went public in 2020 via SPAC – and their stock prices are at least 80% lower than their market debut.

- Student-loan payments started back up in October… but 40% of borrowers (9m people) refuse to pay because: ‘They’d have to cut back on other essentials.’

- Buy Now, Pay Later (BNPL) lender Affirm… teamed up with Walmart to offer loans at the retailer’s self-checkout kiosks. Black Friday BNPL loans were up 43% YoY.

- Apple’s Vision Pro is in production… and likely to launch in February ’24.

- The Humane Ai Pin will start shipping in March.

Crypto-Bytes:

- Coinbase and others gave $78m to crypto-friendly super PACs. This spend is designed to support pro-crypto candidates in next year’s elections.

- A spot ETF will bring billions of dollars into the bitcoin market. Per Anthony P, about $100B will flow into a liquid market cap of $255B. That will cause a 40% price increase in bitcoin. But, there are two other factors at play:

o First, bitcoin halving is planned for early Q2 of this year. That will reduce the amount of incoming bitcoin from 900 to 450 / day. Increasing demand via the ETF, combined with decreasing incoming supply via the halving – should lead to higher prices than the ETF could produce by itself.

o Second, our FED and central banks around the world are going to be forced to loosen monetary policy over the next 18 months. Interest rate cuts will not be enough; therefore, our FED will have to restart the expansion of their balance sheet. As we saw during the COVID market boom, loose monetary policy increases the speculative nature of humans – which drives free-market assets like bitcoin hundreds of percent higher.

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

Tuesday: Two Fridays ago, the S&P 500 ETF (SPY) saw its largest, single-day inflow on record: $20.8B. Last week, the SPY ETF saw total inflows hit $35B in 6 trading days, and a Santa Claus Rally was born.

Wednesday: The daily RSI indicator on the S&Ps is now trading at one of the highest prints on record. There have only been 2 times that this indicator was higher: (a) January 26, 2018 and the S&P subsequently fell 11% in 2 weeks, and (b) September 2, 2020 when the S&P fell 11% in 3 weeks. This market is terribly stretched and while they may try to keep it moving – it’s getting more dangerous by the day.

AMA (Ask Me Anything…)

‘NO DEAL’… for Adobe and Figma: Per Sam L.: The lesson from the Adobe / Figma non-deal is that: Strategic Value is NOT as valuable as you think. You need to build more than a FEATURE. You need to build a successful business. Figma will be just fine and so will Adobe. Others will talk about regulatory overreach that will squash innovation by cutting off a path for startups to cash-out, but I actually appreciate getting back to old school discipline and success measured by real capitalism. This new reality requires you to build a profitable and sustainable business. As a tech platform, you can't count-on acquiring features to fill weak spots, but rather you need to internally build the processes to win consistently. Yes, the entrepreneurial ‘finishing-move’ is harder without a feature driven exit. Yes, the cost of capital for entrepreneurs will increase because of it. And yes, that means entrepreneurs will need to strap on the big-boy pants and do battle in order to win customers. Figma will have to actually unseat Adobe, and this battle will be fun to watch.

Next Week: Where did Risk Management go?

Risk Management has gone out-the-window… The S&Ps are up ~25%, the QQQ is up 55% - predominately due to the Magnificent-7 (MSFT +56%, AAPL +55%, AMZN +80%, META +183%, TSLA +134%, GOOGL +59%, and NVDA). Unfortunately, portfolio managers are groomed to not own the SPY and to believe that their ‘active management’ will out-perform any specific grouping of stocks; therefore, they’re coming into year’s end dramatically under-performing the S&Ps. In the past 2 weeks, these same portfolio managers have thrown caution-to-the-wind in search of yield, and are desperately trying to ‘game’ their end-of-year performance stats – throwing caution-to-the-wind.

An Economic Slowdown is in everyone’s forecasts (NKE, FDX, …) Nike and FedEx’s forecasts show a dramatic slowdown, but markets continue to cheer-them-on. Businesses that cool-off will cause both economies to slip and inflation to slow. If the data becomes too bad, our FED will cut interest rates.

The Rate-Cut Projections are ridiculous… but only if our economy doesn’t fall off of a cliff. Currently, our markets are projecting ~90% chance of at least a 25bps rate cut in March, 2024. That’s chaos in the making, because everything good has already been priced into this marketplace – including an interest rate cut in 90 days. If Q4 data doesn’t produce Goldilocks results, then all of the inflated P/E ratios and overhyped AI forecasts are going to come home-to-roost with a recessionary hard-landing. If rate cuts are coming, then Q4 data is going to be incredibly weak, and the S&Ps are going to tumble downward.

Two-Sided Trading returned… and our Options Markets are beginning to price in risk. The VVIX jumped over 110 on Wednesday. News-wise we have a quiet week coming up (between Christmas and New Year’s) – but our options markets are pricing in more risk next week than last – with only 4 trading-days.

SPX Expected Move (EM):

- Last Week = $55 (5-day week)… and we ended-up gaining 40 points (after first losing 80).

- Next Week = $58 (4-day week)… ‘keep ur hands ‘n feet inside the vehicle’.

TIPS:

Tip #1: Ethereum (ETH) resistance for next week is: $2,386. The Crypto Composite Index is coming off its highest levels since January 2021, and that’s causing me to look for a pause and potentially a pullback. However, the RSI is giving off bull market signals. Keep an eye on Ethereum’s weekly chart for a test of support, and if that happens and the RSI is between 40 and 50 – bulls will push prices higher in ETH.

HODL’s: (Hold On for Dear Life)

- 13-Week Treasuries @ 5.4%

- PHYSICAL COMMODITIES = Gold @ $2064/oz. & Silver @ $24.4/oz.

- **Bitcoin (BTC = $43,500 / in at $4,310) +911%

- **Ethereum (ETH = $2,280 / in at $310) +638%

- **MARA – Marathon Digital = ($26.7 / in at $12) +123%

- **ChainLink (LINK = $15.70 / in at $7.78) +102%

- **RIOT – Riot Platforms = ($17.7 / in at $12.5) +41%

- **COIN – Coinbase = ($175 / in at $125) +40%

- UEC – Uranium Energy Corp ($6.6 / in at $4.8) +38%

- AAPL – Apple = ($193 / in at $181) +7%