From Goldilocks to Bar Bells… Remember when people compromised – aka ‘met in the middle’? If half the people wanted one thing, and half wanted another – you met-in-the-middle because it was the right thing to do. That worked because we had limited choices, and a ‘normal distribution’ of preferences. The goal was to find a ‘middle ground’ - aGoldilocks solution. Fast forward to having many choices and personal preferences no longer being normal – people now demand what they want / when they want it. Goldilocks went from being a solution – to being a trap. While it may reduce criticism, it will also reduce sales due to the rarity of the middle-of-the-road consumer. In most cases, the middle-of-the-road is vacant. Currently we’re dealing with a Bar Bell concentration and companies are being forced to choose where they want to compete.
I want Answers… When there is more money than ideas, there’s a lot of pressure to be the one who has all the right answers. But often what comes first, is finding that person who is asking the right questions. Certainly, a perfect score and 20/20 vision are irreplaceable. But where is that individual, with the humility and confidence to sort thru all the noise – and come up with not only the set of question(s) worth answering, but also their corresponding timeframe?
I finally bought a TESLA: It's been a long time since I've been anywhere, and I needed something that would take me there – in the privacy of my own room. The more I think that we’re getting back to ‘normal’, the more I realize that the ‘old normal’ is never coming back. I continue to see a financial system that’s embracing regulated legacy markets along with non-regulated decentralized ones. It doesn’t matter what time the over-seas markets close, when coffee stops trading, or whether there are options listed for Solana. If the market is there – great. If not, then you get to play: ‘Let’s Make a Deal’. If you need to borrow money, then borrow it from another trader rather than JPM. As I continue to learn new ways of getting from place to place autonomously, I realize that the new financial games are just beginning as well.
The Market:
Per HL and SS: Last week we finally got a major resolution in the US 10-year as it reclaimed that critical 1.40% level. This begs the question: What will a rising rate environment mean for investor portfolios? One thing we know for sure is we want to stay away from bonds – unless you’re shorting them.
How do we want to position ourselves if yields are breaking out? In general, certain sectors perform better with rising/higher rates. If we’re seeing a fresh move higher in yields, and if the global growth, reflation, and reopening trade is on – then it’s cyclical and value stocks that should outperform. Which means that growth and tech stocks should come under some pressure.
But before lining up behind cyclical and value stocks, watch for moves higher in areas such as: small-caps, financials, crude oil, and international indexes. I personally like: energy, financials, and small cap value stocks.
InfoBits:
- Disruptor in Aisle 2: Amazon’s expanding into physical clothing stores. Amazon’s costs are in returns and delivery. Their high-tech dressing rooms equipped with Alexa, QR codes, and their own clothing brands – should work to reduce those costs.
- S&P companies are spending more on buybacks… than on capital expenditures. Share repurchases in 2021 are up 30% as they hit $370B. With that, Democratic senators recently proposed a 2% tax on corporate buybacks to help fund their $3.5T infrastructure bill.
- Twitter will pay over $800m… to settle a class-action securities lawsuit alleging the social-media company deliberately misled investors about its monthly active users and timeline views in 2015.
- WeWork will begin trading on Oct. 21st… on the NYSE. Shareholders in a blank-check company are set to acquire WeWork, and will meet virtually on Oct. 19 to vote on the plan.
- Aurora (the autonomous tech company that’s going public via SPAC)… has begun receiving product from Toyota and Uber for a commercial robotaxi service set to launch in 2024.
- Sam Adams' new beer is sooo strong… that it’s illegal in 15 states (28% ABV). What should be illegal is the price = $240 / bottle.
- Apple is working on a technology… to help diagnose depression and cognitive decline – aiming for tools that will expand the scope of its burgeoning health portfolio offering.
- Volkswagen launched an EV subscription service in Germany… as it moves from car manufacturer to "mobility services provider." For $600/mo – you get access to all of VW’s EVs. “You get everything but the electricity.”
- Shell is selling its holdings in America’s largest oil field… to ConocoPhillips for $9.5B – as pressure to get out of fossil fuels mounts.
- That "new car smell" doesn't just happen: A team of trained noses sniff your leather seats and steering wheel to curate that intoxicating scent.
- Apple is waiting until their legal battle ends… before allowing Epic Games’ Fortnite back into the App Store.
- Cheerios-maker General Mills says to expect higher prices… as inflation and labor shortages continue to squeeze operations.
- The global semiconductor shortage of auto chips is worsening… as new coronavirus infections halt chip assembly lines in S.E. Asia – forcing more car companies to suspend production.
- In Q2, U.S. household net worth surged to new highs… thanks to a soaring stock market and the largest-ever increase in real estate values.
- Last month, the number of single-family home sales dropped 1.9% and condos fell 2.8%. Although home sales feel, the median selling price is up 14.9% YoY – while housing inventories have tumbled 13.4% YoY.
Crypto-Bytes:
- On Friday, three U.S. states issued cease-and-desist orders… on Celsius’ ‘Earn Rewards’ program for violating state securities laws.
- Coinbase will open its Prime crypto brokerage to all institutional investors. Their suite of trading tools is already used by 9,000 institutions, including hedge funds and family offices.
- El Salvador purchased more BTC… but since El Salvador adopted BTC as legal tender – the price has fallen by almost 14%.
- Robinhood is testing a cryptocurrency wallet… where users can transact with digital currencies without converting them to dollars.
- Cornell Univ. Prof. Saule Omarova will be the next Comptroller of the Currency (OCC). Prof. Omarova has advocated for central bank consumer banking options and has criticized the idea that cryptocurrencies or fintech may “revolutionize financial services.”
- Stablecoin issuer Circle is partnering with financial data aggregator Plaid… to make it easier to move money out of banks and into USDC.
- Enterprise blockchain provider Ripple… is partnering with Bhutan’s central bank to pilot a CBDC.
- DÉJÀ VU all over again… as Chinese authorities ordered a fresh crackdown on crypto mining and outlawed virtually all crypto trading activities.
- Twitter rolled out BTC tipping on Apple’s iOS… allowing users to link Bitcoin and Lightning Network addresses to their profiles, and to easily send ‘n receive the cryptocurrency.
Last Week:
Monday: World markets are puking because of Evergrande – China’s construction bank that can't meet its obligations. While the direct effects on U.S. banks will be fairly limited, our pain will come from all the nations that are intricately involved. For instance, Australia's got a ton of their pension plans invested in these Chinese banks. We also have our own issues with the looming debt ceiling and Janet Yellen screaming: ‘the sky is falling’. Yes, we may get ugly in here and even see a 10% drop, but I’m not calling a top on a +10-year bull market just yet!
Tuesday: Did you know that only 31% of the S&P 500 are above their 50-day moving average? So, while a handful of stocks pull the averages higher, if you're not in that special club, you may very well be red on the year. It means that the market is inherently weak, and despite years of a "buy the dip" mentality, there's some out there that think profits in the pocket are more valuable than buying more stock. In other words, it's not a great time to think that all is well.
Wednesday: Chairman Powell punted the ball. Our FED: (a) did not change rates and (b) did not announce a taper. What about inflation? They're saying inflation is 4.2% and will be "over 2% through 2022." First, inflation is at 15% and second – it’s NOT transitory. But Powell mentioned that they'd be finished tapering by the end of 2022. That's next year. How much tapering is he looking at? There's NO way this economy survives if they were to remove all of their accommodation by the end of next year. So, I’m skeptical of the rally, but I’m more confused by Powell’s remarks.
Thursday: Either our FED keeps printing and buying up everything in sight forever – or they do a robust taper and kill off what's left of the economy. I'm siding with the idea that a taper is just bravado talk, and they're still far away from yanking the rug. The initial jobless claims are in, and they rose another 16k to 351k. Each week we see more and more people filing for unemployment. Yet all the reports say that there are jobs everywhere and companies are begging for workers. So, people don’t want those jobs? The market is reacting positively as the S&P is back over its 50-day moving average, and it would appear we're back on track for more all-time highs. The printing presses are still running and it begs the question: “Where else can we put the money other than the stock market and/or real estate”?
TW3 (That Was - The Week - That Was):
Evergrande has a $30B market cap… but it owes $300B to partners. With $83m in payments due, analysts worry that Evergrande could default and affect the global economy. If a big fish like Evergrande goes belly up, its lenders and investors (including HSBC, BlackRock, and UBS) could lose big money. A couple Evergrande numbers:
- 1.4M buyers are waiting for their pre-purchased apartments to be built.
- 85% is the decline in Evergrande’s stock over the past 6 months.
- $8B is how much Evergrande raised this year, and that’s ONLY $292B shy of its debt obligations.
The Emmy’s: For the first time, streaming services won the most coveted categories:
- Netflix won a whopping 44 Emmys for its original shows including “The Crown" and “Queen’s Gambit.” That tied a record last set over 40 years ago.
- AppleTV+ became the first streamer to win Best Comedy for “Ted Lasso.” It was only their second-ever Emmy appearance.
- Disney+ received primetime gold for “Hamilton.”
- HBO snagged wins, including four for their crime series “Mare of Easttown.”
The FED wants to see more progress with employment…. before raising interest rates or beginning robust tapering. Over the last few months, jobless claim numbers are increasing – suggesting that the employment recovery is all but over. According to Bank of America, over the next weeks 7m people will lose enhanced unemployment completely, and 3m more will lose their supplemental income ($300 per wk.). You’d think people would be more concerned about finding a job.
Next Week: Will Rising Rates Pressure Markets?
Market Update:
- This week produced a 160-point S&P point range, and we actually finished higher on the week. Who would have thought that after an early week sell-off – we’d be talking about finishing the week mildly higher. Congrats to the ‘buy-the-dip’ crowd.
- Bonds are Down so Interest Rates are moving Higher, and a break above the 1.5% level is cause for concern moving forward. Bonds are doing what (in effect) our FED would not do this week – which was to raise interest rates.
- Currently the market is viewing China’s Evergrande risk as contained, but certainly something to pay attention to over the coming weeks.
Get your Volatility Game Face on:
- China will ‘take care of business’ in so far as Evergrande is concerned, but bonds continuing to sell off and interest rates moving higher is worrisome. That move will quickly be reflected in the QQQ’s and the SPX over the coming weeks.
- Interest Rates and Technology are going to battle it out going forward. Back in early 2021, rates started to rise and tech immediately tanked (see chart). Tip #1: We are in a very similar position today – only the QQQ’s (+20% YTD) are much higher and can therefore move a lot lower.
- A rising rate environment would show its hand first via: NVDA (+68% YTD), GOOGL (+64% YTD), MSFT (+37%) and FB (+32%). Tip #2: If technology were to decline – the hi-fliers would get hit first and hardest. I’m not all that worried about AAPL (+13%), AMZN (+7%), and/or TSLA (+5%). If you’re going to hurt the QQQ’s – you’re going after the top 4 listed above.
- Also consider focusing on the top DOW performers such as: Tip #3 Home Depot (HD). HD is a primary DOW constituent. The DOW is a ‘price weighted’ index. HD is the 3rdhighest priced stock in the DOW, and is sitting at all-time-highs. If the DOW goes down, HD is moving with it.
- Financials bounced back nicely this week (see chart), and if bonds continue to sell-off, the financials will move higher – for a while. BUT, if the selling continues – it will take down the financials as well. Therefore, as a hedge, Tip #4: Buy an October, In/Out XLF Put-spread (+ (buy) $39 Put and – (sell) $37 Put).
- Tip #5: I would also promote that same type of inexpensive, In/Out Put-spread, in October for: NVDA, GOOGL, and HD.
SPX Expected Move (EM):
- Rising interest rates are the issue right now.
- Last Week’s SPX EM = $95.29, and we moved $160 points from low to high.
- Next Week’s SPX EM = $70.88, and we’re going to see every inch of that. We’re in the midst of some decent volatility, and if volatility continues it will be on the back of rising interest rates.
Tips:
HODL’s: (Hold On for Dear Life)
- AMC – Holding
- Bitcoin (BTC = $42,600 / in at $4,310)
- B2Gold (BTG = $3.45 / in at $4.16)
o Waiting to sell CCs for income,
- Englobal (ENG = $2.28)
o Sold Dec. $2.50 Calls for income,
- Ethereum (ETH = $2,900 / in at $310)
- Express (EXPR = $5.26)
o Sold Oct $5’s and $6’s
- GME – Holding
- Grayscale Ethereum (ETHE = $28.64 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $34.23 / in @ $9.41)
- Grayscale Trust (GDLC = $29.30 / in @ $22.75)
- Hyliion (HYLN = $8.68 / in @ $0.32)
o Sold Oct. $10 CCs for income,
- Infinity Pharma (INFI = $3.55)
o Sold Oct $3 and $4 Calls for income,
- Transocean (RIG = $3.42)
o Sold Nov. $4 Calls for income,
- Exela Tech (XELA = $2.00)
o Sold Oct $2 and $3 Calls for income,
- Yamana Gold (AUY = $3.98)
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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