Negative Marginal Cost: A company’s marginal cost is how much extra they will need to spend in order to serve one more customer. The marginal cost of a custom-made suit is high, because the labor and materials are expensive. The Internet introduced the ‘zero marginal cost’ economy. For example, it doesn’t cost me anything to add another person to this blog. And with the network effect (readers communicating to others on someone else’s behalf) – the marginal cost actually turns negative. Meaning that others sell your product for you at their expense – not yours. It moves the needle from expensive, to cheap, to free – to “it’s a bonus to add one more person”. This changes the customer acquisition / retention solution completely.
GETTING what you WANT vs GETTING what the Business Model NEEDS. The media model in the 60’s was one of: 3 major networks being supported by mass advertising. Shows were often made – just to keep viewers from watching the other 2 channels. When subscriptions defeated advertising as the predominate business model, services like Netflix raced to gain market share using real-time customer knowledge and ‘speed to market’ as their differentiator. Subscriptions have also changed: for news, healthcare, and gossip – often causing their content to be manipulated to better service the business model. If you’re NOT getting what you want, look at what the surrounding business model needs – because there lies the issue.
Great Ideas always sound ‘Way too Early’. It’s funny because great ideas and lousy ideas get a very similar pre-launch response == ‘Way too early.’ And, if you wait until the market tells you to do something – you’re too late. So, in both cases you need to find the resources to stick it out through the trough of skepticism – to resolve whether your idea was any good. It’s yet another case of where the best shortcut – is the long way forward.
Sub-Brands are the money-makers: It started when Amazon Web Services took Amazon to profitability. Now, Aerie is the earnings star for American Eagle, Movement for Urban Outfitters, Hollister and Gilly Hicks for Abercrombie, and Old Navy for GAP. The theme here reminds us to look ‘under the covers’ in order to find the real gems.
The Market:
Remember SPACs? They have accounted for 70% of all IPOs in 2021, and have raised a record-breaking $129B. Along with that: lawsuits against their companies have tripled, short-selling is causing CEO’s to resign, and SPACS lose (on average) 1/3 of their value – post merger. Clearly a SPAC is a cheaper and faster way to go public. Whether a SPAC is a ‘better’ path is always resolved by the buyer.
Or Die Buyin’ Not COVID, rising inflation or our FED tapering can scare investors. The large-cap indexes (SPY and QQQ) hit all-time highs. The small-caps continued to remain above their 50-day moving average, and the IWM is increasingly nuzzling up against resistance at 230. The stock market is hitting on all cylinders in the middle of what should be a seasonally weak period. We can’t be surprised by the strength and relentless dip-buying given the money supply has gone up by 40% in the past two years – which is the fastest increase in financial history. There will be 56m new millionaires this year. With NFTs, we’ve invented an entirely new asset class to bet on. COVID cases, hospitalizations, deaths, and restrictions are all rising but our financial markets continue to fixate on a recovery 6 months down the road. At least technology continues higher while financials and energy take a pause = so that makes sense. This market scares me as I continue to lean long.
InfoBits:
- Gen Z’ers… I hate to break it to you, but grand-fluencers (63 and up) are the new influencers – in terms of reach and dollars spent. Millennials move over!
- 45% of bars and restaurants… were unable to pay their August rents.
- Consumer Sentiment for August was down 13.4%… from JULY – recording the least favorable economic prospects in more than a decade.
- Telegram has joined the… over 1B downloads club.
- China has barred children under the age of 18… from playing video games on weekdays, and allows them just 3 hours on weekends.
- China’s manufacturing PMI showed economic contraction… with total new orders and new export orders all dropping into negative territory.
- German Retail Sales for July… declined -5.1% MoM.
- Intuit is trying to buy Mailchimp… for over $10B.
- Social Security will run out of money… in 12 years.
- Allbirds (the wool sneaker company) filed to go public… at a $2B valuation. It’s not all that tough to grow sales while you continue to lose more money.
- Americans are stocking up on toilet paper… and Procter & Gamble is running factories 24/7 again to meet demand.
- Ida’s insured damage is in the $15 to $20B range… compared to $65B for Katrina. The uninsured damage could top $200B.
- Virginia Tech disenrolled 134 unvaccinated students… cracking down on COVID violations. Other universities and businesses will follow suit.
- Amazon needs 40,000 and Walmart needs 20,000… new workers as the labor shortage continues.
- Apple had a change of heart… creating in-app links to company websites – allowing Spotify and Netflix to bypass Apple's cut of their subscription fees.
- Reddit, the online message board platform… is hiring investment bankers for a $15B IPO.
- Ford’s August new U.S. vehicle sales… plunged 33% YoY, as the global chip shortage continues.
- Lithium Americas (LAC) rose 10% this week… as they opened new mines. But the price action really highlighted a Cowen analyst that said lithium’s demand will exceed supply in the very near future.
- 15 companies could IPO in the next 10 days… including sports betting firm Sportrader, tech consultancy Thoughtworks, identity mgmt. platform ForgeRock, drive-thru coffee chain Dutch Bros., and eyeglasses retailer Warby Parker.
Crypto-Bytes:
- How Do you Buy an NFT? Here’s an excellent step-by-step by Chris Cantino: https://twitter.com/chriscantino/status/1432454650884616195
- Solana’s SOL token crossed the $100 mark… pushing it into the Top 10 crypto assets by market cap.
- The9 Limited announced… that it was getting into NFTs by launching a trading and community platform called NFTSTAR in Q4.
- PayPal will launch a stock-trading platform… that some are comparing to Robinhood. Realistically it’s likely to take after Square’s Cash App feature set.
- Robinhood tumbled… after SEC Chairman Gary Gensler said: “Banning payment-for-order-flow is on the table.” HOOD makes 48% of its revenue from payment-for-order-flow, and the other half from crypto.
- FTX.US is acquiring crypto derivatives firm LedgerX… a move that could pave the way for FTX to offer crypto futures, swaps, puts and calls to U.S. retail traders. It will also allow FTX to go public in 2022.
- MetaMask is the non-custodial digital wallet… that has become a key gateway to the world of DeFi. Its monthly active users hit 10m in July with Asia leading the way.
- United Talent Agency has signed… CryptoPunks, Meebits, and Autoglyphs in what appears to be the first time crypto-native IP will be represented by a big-time Hollywood agency.
- Ethereum can’t stop going higher… since it implemented its new deflationary ‘coin burning’ economics. Ethereum burned 12,000 ETH on Tuesday, and has destroyed 160,000 ETH (> $600m) since the new update.
- The SEC filed charges against BitConnect… and its founder and promoter – alleging fraud along with operating a $2B ponzi scheme.
- Twitter’s new tip jar will allow Bitcoin tipping… by using Strike’s services to generate Bitcoin invoices through the Lightning Network.
Last Week:
Monday: I heard a rumor this morning that AAPL may be teaming up with satellite phone outfit GSAT, to allow satellite phone calls from one of its upcoming phones. Sat phones are indeed an important piece of the communications puzzle.
Tuesday: XELA is a cheap stock that’s holding-up nicely above its 21-day EMA.
Wednesday: I'm watching PLUG hold above its 21-day EMA, and I’m there if it can get over $27.50. Tomorrow is the initial jobless claims and then Friday is the jobs report. I have a feeling both are going to miss the mark by a mile. Potentially, that bad news is good news for Powell as it gives him a reason to punt on tapering.
Thursday: We just got some economic reports that weren't good. Our trade deficit came in at a negative $70B. The initial jobless claims came in at 340,000. And next week a ton of supplemental unemployment benefits go away. Potentially we could see a dip in retail sales, as it will take some time between when the benefits go away and they replace that money with a job. NEE got my attention a couple days back and today it is breaking out. I could see taking a shot at that over $86.35. I could also be persuaded to join the party if LTHM exceeds $27.
Friday: The jobs number is out and it sucked. We only added 235,000 jobs in August. And if J. Powell’s criteria to taper includes more jobs, this gives him cover. But it’s actually worse than 235k new jobs because 142,000 are ‘fake jobs’ created by the birth/death model. So, if we subtract those jobs, we created less than 100k jobs in August. That number is Powell's get out of jail free card as far as tapering. Yes, next week a lot of people who were making $780/week eating McDonald’s and watching Netflix are going to have to make a choice. Either go back to work, or cut back on their buying habits. So next month should show a better result than this.
TW3 (That Was - The Week - That Was):
Stuck Between an NFT Rock and a Hard Place? Overheard at an ‘expensive’ gym:
Citi Bro.: Finally, they bumped our salaries to $120,000 base.
Goldman Bro.: Dope, I might clear $200,000 total comp. this year.
Art Degenerate: I flipped this rock NFT for $3,000,000 in a week.
GS to Citi Bro.: While we’re workin’ 90-hour weeks, this 12-year-old is makin’ $3m in a week trading freakin’ pixel whales. Somethin’ ain’t right.
Remember 2014… it was the year the 1st NFT hit the blockchain. Since then, people have sold NFTs of tweets, songs, and even Nobel Prize patents. Over the past year, NFT sales have seen a 20X increase from $13.7m in the first half of 2020 to over $2.5B in 2021. Celebrities like Snoop Dogg, Paris Hilton, and even Edward Snowden, have all launched NFTs. NFTs may be the new ‘merch’ of the fan economy. NFTs offer everyone from Shawn Mendes to Naomi Osaka a new way to monetize their followers via digital product sales. OpenSea (the largest NFT marketplace) takes a 2.5% cut on all NFT sales – which is a great deal versus YouTube’s 45% and Apple’s 30%.
The alcohol industry is thinking… that for the remainder of 2021: The movement toward ready-to-drink (RTD) cocktails will continue. RTD sales are gaining traction with bars / restaurants as consumers view those to be ‘safer’ beverage options. The winter holidays will pose a prime opportunity for spirit-based cocktails. And the e-commerce channel will continue to gain in importance in the RTD space. FYI: 78% of searches are ‘unbranded’ searches looking for: inexpensive, low-calorie and/or gluten-free drinks. This market is ripe for: cheaper – faster – better.
Next Week: September = More Volatility … What me Worry?
Market Update:
- Holiday trading drove the S&Ps to a low volume, low volatility slop-fest.
- Step 1: The Non-Farm Payrolls (Jobs) Report took a nose dive due to weak Chinese data. The estimate was for 720,000 jobs created in August, and we hit 235,000. The markets tanked, and then meandered higher throughout Friday. This market should be loving weak data (to a point), because it keeps our FED’s foot on the money creation / QE side of the ledger. Interestingly, interest rates tipped higher on the news.
- Step 2: So, Bonds are back in play. The weird news is that they saw some sell-side activity (driving rates higher) on extremely weak economic data. Aren’t rates supposed to go lower when economies stink?
- Step 3: Also, financials tanked as interest rates moved higher. It’s rare to see financials and bonds move lower simultaneously.
- Step 4: As the financials were closing lower, technology was ripping higher. So, for the week tech (QQQ) moved higher (AAPL & AMZN), the financials (XLF) moved lower, and all the while the S&Ps (SPX) meandered down the middle.
- Step 5: Bonds are at an inflection point. If they sell off, financials will react positively, tech negatively, and that will drive the entire marketplace lower.
September is normally not a month for the ‘faint of heart’:
- In September, I’m always looking for a spike in volatility. Going back 3 years, the VIX seems to have found a floor around 16. Tip #1: Anytime the VIX drops between 16 and 14 – it’s an Oct./Nov. Call-Spread Buying opportunity.
- The VVIX (the volatility of the volatility index) is also telling us that we’re at a point of lower volatility. Tip #2: When I see the VVIX below 110, I look at it as reinforcing my previous VIX Oct./Nov. Call-Spread Buying opportunity.
- The 9-Day VIX is 11.66. The 90-Day VIX is almost double at 22.32. So, the market is telling us that we’re potentially in the ‘eye of the up-coming storm’. The market is warning us of a catastrophic event – that never seems to arrive.
- The SKEW has been relentless in its warnings, and the world is listening as it’s buying back-month volatility like there’s no tomorrow. Tip #3: There is great money to be made, selling out-of-the-money, SPY October Puts. That means that the market would have to fall from SPY = 454 to SPY = 334 before you’d lose any sleep over this type of trade.
- At this point, the world is very well hedged. I could remain in a low volatility, low volume marketplace for the month of September. The jobs report removes the risk of Powell announcing any form of taper, and that alone should keep this market buoyant. But to get out of all of the open volatility interest – we will need some kind of vol-spike. The vol-spike would force a small correction, and then Powell would come on and tell us that the jobs situation requires our FED to stay the course. I would be a buyer of that dip.
SPX Expected Move:
- We were expecting a $57 move last week, and we only moved $25. Next week we’re expecting a $50 move in the SPX. The risk next week is if the Bonds begin to sell off – and cause tech to decline, volatility to spike and the S&Ps to decline.
Tips:
HODL’s: (Hold On for Dear Life)
- AMC – Holding
- Bitcoin (BTC = $49,900 / in at $4,310)
- B2Gold (BTG = $3.99 / in at $4.16)
o Waiting to sell CCs for income,
- Englobal (ENG = $2.10)
o Sold Dec. $2.50 Calls for income,
- Ethereum (ETH = $3,900 / in at $310)
- Express (EXPR = $5.40)
o Sold more Sept. $5.5, $6, $6.5 and $7 CCs for income,
- GME – Holding
- Grayscale Ethereum (ETHE = $38.50 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $40.73 / in @ $9.41)
- Grayscale Trust (GDLC = $45.45 / in @ $22.75) & buying
- Hyliion (HYLN = $8.85 / in @ $0.32)
o Sold Oct. $10 CCs for income,
- Infinity Pharma (INFI = $3.79)
o Sold more Sept $3 Calls / Oct $4 Calls for income,
- Transocean (RIG = $3.71)
o Sold Nov. $4 Calls for income,
- Exela Tech (XELA = $2.57)
o Sold Sept. $2.50 Calls / Oct $2 and $3 Calls for income,
- Yamana Gold (AUY = $4.41)
o Waiting to sell CCs for income.
Thoughts: 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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