This Week in Barrons: October 20, 2024:
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- With the markets at all-time-highs, why is volatility ~20% higher than average?
- Why have real interest rates moved even higher than before our FED cut rates?
- Why is everyone suddenly fading the FED?
One of the cool things about being a contrarian is that you’re generally standing alone – as an outsider looking in. When skepticism and pessimism become the norm – something just smells wrong.
It’s not easy seeing time … A snapshot is a useful way to capture the moment, but moments rarely offer as much insight as seeing how something moves over time. Time intentionally obscures the details. I often think of time in the same breath as I think of forecasting ‘n strategy - always knowing that the: “Devil is in the Snapshots”.
Per Charlie B: Over the last 30 years, the purchasing power of the US dollar has been cut-in-half by inflation. All the while, the S&Ps have gained ~1,000% - after adjusting for inflation. On paper, the average hourly wage has risen $5.30 since Jan '21, but has actually fallen ~50 cents – after adjusting for inflation. In our minds, we’re getting paid a lot more, but in reality – we can buy substantially less.
The Market:
Tesla had a PR event last week … where its Optimus humanoid robots were walking around, dancing, mixing drinks, and talking to guests. The attendees were amazed at how advanced the bots were. But after pulling back the curtain, it seems that the robots relied on humans to do just about everything. Yes, the robot magic was all just ‘Smoke n Mirrors’.
Apple tested over 20 Large Language Models (LLMs) … (from OpenAI to Google to Meta) and found that their ‘intelligence’ was a result of "sophisticated pattern matching and NOT true logical reasoning." Meta’s chief scientist concurred: “Current models can spot patterns, but can't yet understand complex real-world situations.” [FYI: There’s a high probability that current LLMs can only answer questions correctly – because they have been pre-trained on the answers.]
Per Anthony P: Bitcoin is starting to price in its own scarcity. Interest rates are moving lower and the M2 money supply is expanding – causing investors to become more bullish. All political parties are enacting policies aimed at pushing asset prices higher. But with the US dollar LOSING ~50% of its purchasing power over the last 30 years and the inflation-adjusted hourly wages being DOWN, it’s easy to see why Bitcoin and Gold are solid trades going forward.
[ Gain access to Med-X here… ]
InfoBits:
- Bombs away … EV prices (old and new) are coming down.
- Going Nuclear … as Amazon and Google are investing big bucks in nuclear small modular reactor projects – to supply the massive needs of their cloud computing divisions. [FYI: Let’s watch the cash-rich, AI tech sector – single-handedly revive the nuclear power industry.]
- ‘Terrifier 3’ topped the box-office last weekend … It cost only $2m to make, and still beat the ‘Joker’ which cost +$200m. [FYI: Both flicks are about killer clowns, but only one of them is laughing now.]
- A federal judge rejected Meta’s bid to dismiss lawsuits … from more than 30 U.S. states accusing it of engineering Facebook and Instagram to be addictive to teens.
- Per the Financial Times: Elon Musk has "given nearly $75m … to influence the outcome of next month’s U.S. presidential election."
- Uber is considering bidding $20B for Expedia… which is a bit tricky, given that the current Uber CEO ran Expedia for 12 years, remains on the board, and probably has equity in BOTH companies.
- Is smaller better? While NVIDIA’s chipmaking triumphs are well-known, their software LLM models are off-the-charts. NVIDIA’s showing that smaller, more efficient models can compete with the giants.
- Remember Netflix’s password-mooching crackdown… well, this week NFLX reported that its profit increased 41% YoY. They also gained +5.1m subscribers QoQ – with over half coming from its new: ‘ads included tier’
- LVMH falls from grace … as the owner of: Dior, Louis Vuitton, Fendi, and 70+ other luxury brands – saw its sales FALL 3% (for the first time) last quarter.
- Tesla owners can test drive Full Self-Driving software… for the next 30 days free of charge. [FYI: Tesla’s FSD software is being investigated for its role in four low-visibility crashes – including one that killed a pedestrian.]
Crypto-Bytes:
- Web3 Gaming is the next big mover in crypto … As 8,000 gaming employees are being laid off and +40 gaming shops are closing their doors, Web3 gaming is gaining popularity by using blockchain tech & tokenization. Web3 players can actually buy, sell, & trade their very own in-game assets.
- I’ve been hurt before … This week’s rally was exciting as Bitcoin broke through resistance at $68,000. [FYI: I want to believe that this time is different.]
- Reaching a coin-sensus… The Harris’ campaign finally announced support for a “regulatory framework” surrounding crypto and other digital assets.
- D. Trump is hawking the World Liberty Financial token … but it cannot be sold or traded – which is dumb because that’s the point of owning a token. [FYI: This is like selling snake oil to imaginary friends, or debating how many magic beans your fairy dust is worth. This is fake wrapped in crazy.]
[ Learn about VaultCraft - here… ]
TW3 (That Was - The Week - That Was):
Tuesday: WOLF makes chips here in the U.S. for vehicles. They just secured $750m in grants to expand their factory, and another $750m in funding. FOMO if you must.
Thursday: We are going to open up-big today - because of Taiwan Semi (TSM). After ASML scared the chip sector with a lousy outlook earlier in the week, TSM just said the opposite. Not only did they crush earnings, they say demand is so strong they can't even keep up. So following the plot: with TSM making more chips – they will need more chip-making machines (SMCI & DELL). They (in turn) will require more cyber security software (CRWD, ZS, PANW, ANET & NET), needing more memory chips (MU) – which triggers a need for more equipment (AMAT, KLAC & LRCX). The whole space will be going crazy today. Also, the ECB has cut interest rates by 25bps. This market is going a lot higher – as wild as that sounds considering where we are.
Morgan’s Moments…
“Let it go … Let it go …” Props to James Howell who for years has been trying to get permission to dig up a landfill. It seems James discarded a computer hard drive into that landfill – that held over 8,000 Bitcoin (+$500m). Even after offering the town a hefty cut, the town-council is said NO due to environmental issues. [FYI: James, lately direct bribery seems to work for everything else in the world – just sayin’.]
Fidelity are you trainable? You just had your second data breach inside of 8 months. I would have thought that the first data breach would have been a cyber-security wake-up call. Well Fidelity, the good news is that your latest hack of +77,000 client accounts has triggered a class-action lawsuit against you. [FYI: The loss of $ billions has a way of causing change.]
Mom & Dad (OpenAI vs MSFT) – Please don’t fight:
- It seems that OpenAI’s finances and instability have strained the relationship.
- MSFT engineers downloaded the OpenAI software without going thru channels.
- MSFT paid Inflection (an OpenAI competitor) $650m to train on the software.
Next Week: Inflation vs Election Risk
Bkgd: The Nasdaq has broken through resistance, and Bitcoin is scheduled for a seasonal boost. However, volatility season is not over yet as the election is scheduled to deliver a binary corporate tax outcome (up = Harris vs down = Trump). There is a market optimism as there has been no major bad news since our FED cut rates. Do NOT sell your hedges just yet, as there remains unfinished business.
We had an Upside Breakout in the S&Ps … admittedly on light ‘n fluffy volume – even with Friday’s $5T worth of options expiration. Financials were the main driver of last week’s move higher with the NASDAQ (QQQ) and Energy (XLE) finishing the week unchanged and lower respectively.
The U.S. Dollar (DXY) and the VIX … The Dollar is screaming higher, and one theory is because Wall Street believes that a Trump presidency with its tax breaks and higher tariffs is inevitable. I believe the Dollar’s gains are due to geo-political factors and our volatility (VIX and VVIX) moving lower. Currently, we have the lightest VIX Call option buying that we have had in the past 2.5 years. However, the high SKEW is telling us that traders are simply moving their hedges from the VIX over to the S&Ps (SPX).
Tip #1: Oil could be a buying opportunity … if it gets down to the $65 to $66/barrel range. I would then look for a bounce in oil that would be playable using a mid-November, In/Out Call Spread.
Tip #2: Gold is smashing to the upside … now that inflation is making a comeback. Every market is at or near all-time-highs, and precious metals (GLD, SLV) and the Dollar (DXY) are being used as liquid hedges. Interest rates are self-regulating back above the 4% level – in spite of our FED rate cuts. The only commodity that is not inflationary is oil.
Tip #3: Look for the SPX to dip back below 5800 … only because we did NOT expel all of its pre-rangebound energy. I was looking for us to blast ourselves out of the 5700 / 5800 SPX range, and instead we came out in an extremely orderly fashion. These past 4 weeks were the first time since 2017 that our S&Ps have remained inside their weekly respective moves without touching their upper or lower boundaries.
SPX Expected Move (EM):
- Last Week’s EM = $88
- Next Week’s EM = $69 which is ~22% below the previous week’s EM.
Tip #4: Consider BUYING inexpensive Butterflies around SPX (CALLs) ~$5,950 and/or SPX (PUTs) ~$5,800.
TIPS:
HODL’s: (Hold-On for Dear Life)
- 13 to 17-Week Treasuries @ 4.75%
- Physical Commodities = Gold @ $2,736/oz. & Silver @ $33.9/oz.
- **Bitcoin (BTC = $68,600 / in at $4,310)
- **Ethereum (ETH = 2,640 / in at $310)
- HROW – Harrow Health = $57.5 / in at $12
- INDA – India ETF ($56.6 / in at $50)
- **IBIT – Blackrock’s Spot Bitcoin ETF ($39 / in at $24)
- GLD – Gold ETF ($251 / in at $212) // Jan ‘25: +$260 / -$265 CALL-Sp.
- SVM – Silvercorp Metals = ($5.06 / in at $4) // Jan. ’25: +$5 Calls
- DSVSF – Discovery Silver = ($0.7799 / in at $0.62)
- BRK/B – Berkshire = ($464.8 / in at $439)
Options to Reduce Risk:
- XLU – Utilities: Jan ’25: $85 / $89 CALL-Sp.
- WEC – Wisconsin Power: Jan ’25: +$100 / -$105 CALL-Sp.
Options as Hedges:
- SPY – S&Ps: Jan ’25: +$520 / -$500 PUT-Sp.
- SPY – S&Ps: Jan ’25: +$500 PUTs
Options for Income: **RIOT – Riot Bitcoin Mining
- Bi-Weekly: BUY the Stock
- BUY Puts 1 Std. Dev. OTM for protection
- SELL Covered Calls ½ Std. Dev. OTM for income
** Crypto-Currency aware
Please be safe out there!
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