Speculation = Entertainment. Never has it been easier to speculate, and be entertained. Never has the world been smaller, capital so abundant, and filled with so many storytellers ‘n platforms. I remember Morgan Housel saying: “It’s not the best idea, or the right answer. It’s the story that catches the most people’s attention, and gets them to nod their heads.” Heck, millions of people believed Orson Welles when he told them that the Martians had landed. So, to assume a stock’s value is determined by corporate earnings discounted by the relevant interest rate – is to ignore history. Crypto and NFTs have emerged as their own heavily funded areas that are growing increasingly distinct from the rest of the market. VC funding into crypto startups last year totaled more than $21B – far outstripping the $3.7B invested in 2020. More than 30 new crypto unicorns were minted last year, accounting for 75% of all the billion-dollar startups. Crypto will continue to grow this year with investment dollars leaning toward infrastructure, compliance, analytics, and understanding.
If the CES (Consumer Electronics Show) is the window into tomorrow, then:
- GM just showed us a completely hands-free-driving system.
- Daimler demo’d a Mercedes EV with a record-breaking 648-mile range.
- Amazon ‘n Google launched new operating systems for your car’s dashboard.
- John Deere showed off its first self-driving tractor.
- Sony showed us how its EV will feature PlayStation games.
- Movano demoed a ring that monitors heart rate and oxygen levels.
- Vivoo presented a system that monitors nutrient levels through urine samples.
- Withings’ WiFi-connected scale measures heart rhythm and nerve activity.
- Mojo Visions’ display-connected AR - can help athletes track their performance.
- Kohler introduced a $3,000 voice-controlled bathtub.
- Samsung rolled out a remote that recharges wirelessly via sunlight or WiFi.
- Amazon is allowing Alexa to control smart Google / Apple devices (#hijacked).
The Market:
How do you spell higher rates & higher oil? The market spells it: “F-E-A-R”.
Since the 2008/2009 crash, our FED has gone to insane lengths to keep multiple plates spinning in the air. They've redefined inflation, injected trillions into the banking system, driven rates to zero and kept them there, bought mortgages, bought corporate paper, did ‘the Twist’ and everything associated with it. But in the last few months, their narrative has changed.
- They’re talking about 3 rate hikes in 2022.
- They’re starting to ‘taper back’ their bond and mortgage buying programs.
- And they’re talking about reducing their $8.5T balance sheet.
The phrase: “Don’t Fight the FED” wasn’t invented yesterday, a decade, or even 20 years ago. The wisdom is simple. If our FED is printing and cutting rates, you go with the flow and buy equities. If our FED is hiking rates and trimming its balance sheet (especially in a crippled economy), you sell equities. Where the confusion comes from, is that we don't know what is really on our FED’s mind. All past attempts to taper or trim the balance sheet have resulted in the market puking – and our FED quickly reversing course and pushing more stimulus. Will they (once again) just talk-the-talk about taper and rate hikes, or are they finally going to say: “To heck with it, we’re going to respond to this inflation and the market will just have to deal with it.” IF they’ve decided to walk-the-walk and they’ve truly changed their entire playbook – then the market will NOT hold up.
This market was built and will fall based upon the actions of our FED. Chairperson Powell could come out next week and say that all this talk about accelerating hikes and trimming the balance sheet is nothing but speculation and back room chatter. If that happens, everyone will rush back into stocks and we will make new highs. If he moves forward with tapering and hikes, the market will not like it one bit.
First and foremost, our FED members are politicians. The FED can never be seen as the reason for a bad economy or a bad market. They always have to have something to blame – which currently is COVID. Secondly, they are masters of verbal manipulation. All of this most recent action could be just a head-fake to take some froth off the market, and then they end up doing nothing. The good news is – we will learn quickly.
InfoBits:
- “Fake it till you make it…” maybe not so much. Elizabeth Holmes was found guilty and faces 80 years in jail – with her new baby. Remember when she was confronted by an employee about the fraud at Theranos, and she said: “I’m too pretty to go to jail.”
- In 2021, U.S. job openings soared to record highs… as workers eyed better options == more flexibility. 75% of employees want to continue hybrid or remote work, and 25% say they’d quit if they had to return full-time.
- ‘Free Work’ may be here to stay… as less than 40% of employers plan to require full-time presence post-pandemic.
- 50% of those ages 18 to 34 feel… like they are drowning in debt. Only 17% say that their wages have kept pace with inflation.
- November’s Jobs numbers showed a ‘quit’ rate… 8.9% higher than October’s previously highest quit rate. Strangely, the number of ‘job openings’ were DOWN from October.
- Why are UNIONS on their way back? You need look no further than Google who after telling employees that they would NOT boost salaries to compensate for inflation – is raising executive salaries from $650K to $1 million/year.
- Some phrases that are no longer ‘cool’ in 2022 are: “Wait, what?" followed by: “New normal,” “You’re on mute,” and “Supply chain”.
- DNA-personalized healthcare… could allow for a customized health plan based upon your genes. DNA-testing company 23andMe is buying Lemonaid Health to help doctors tailor treatments to genetic data.
- In 2021, the median valuation of an early-stage U.S. startup was $26m… but in2020 that median valuation was barely half that.
- The U.S. dollar/yen rises above 116 for the first time since Jan. 2017… as the greenback jumps on expectations that the Fed will raise rates 3 times in 2022.
- Fanatics just acquired Topps trading cards for $500m: Last year Topps had plans to go public via SPAC for $1.3B. That deal fell apart when Topps lost MLB (Major League Baseball) to (yep – you guessed it) Fanatics. Fanatics just bought Topps for 60% OFF. Now THAT’S how the game is played!
- Tesla delivered an expectation-beating 936k cars last year… nearly double its 2020 deliveries. Does that make Tesla worth over 10X the next 10 most-valuable automakers – combined?
- Ford plans to double production of its all-electric F-150 Lightning truck: The truck hasn’t even been delivered and it already has 200,000 reservations.
- In Sweden, a drone carrying defibrillator… saved its first heart attack patient.
- Rivian dipped below its IPO price today… after Amazon announced a partnership with Chrysler owned competitor Stellantis.
- Amazon accounts for almost 50% of all wedding registries.
- Reddit, is working on going public in March… with a $15B valuation.
- Habitat for Humanity is 3-D printing houses.
Crypto-Bytes:
- Samsung announced new TV models that will enable NFT trading: Their “intuitive, integrated platform for discovering, purchasing and trading digital artwork” – brings the TV into the metaverse.
- Convex Finance now has over $20B in total value locked (TVL)… making it the 2nd largest in decentralized finance (DeFi).
- China has processed more than $5B in e-renminbi transactions: The U.S. has fallen woefully behind in plans to develop its own central bank digital currency (CBDC).
- OpenSea, an NFT marketplace… is in talks to acquire Dharma Labs – a digital wallet for cryptocurrencies.
- Large Australian and Spanish banks are letting customers trade / save crypto: The global crypto market has grown 5X since 2020, and is valued over $2T.
- Quentin Tarantino is moving forward with a ‘Pulp Fiction’ NFT auction… in spiteof a lawsuit filed by Miramax, which produced the film.
- According to JPM, by Ethereum delaying the scaling of its network… it allowed competitors like Terra, Avalanche, Solana, Tron and Polygon to take a greater market share. ETH’s share has fallen to just over 70%.
- Kazakhstan’s bitcoin mining industry, 2nd behind the U.S. in hashrate… has been severely disrupted by a nationwide internet blackout.
- Brave announced more than 50m monthly active users… for its crypto-pegged web browser. That’s doubling YoY growth for the 5th year in a row.
- GameStop (GME), the original meme stock… surged 31% after announcing it will build an NFT marketplace and get deeper into crypto.
- The Turkish Lira is now more volatile than bitcoin. As inflation soars, the President has pursued an unorthodox monetary agenda featuring: interest rate cuts, rebates to lira holders, and firing central bankers.
Last Week:
Monday: It's the first trading day of 2022, and the futures are up strongly across the board. With last week being tax year-end selling, this week they get to rush in and buy it back up. We also get the Jobs Report this week. TSLA is up on reports that it built and sold more cars than expected. This morning is the perfect example of why I hate ‘gap ups’. Stocks gap and run a bit, and then for the most part spend the rest of the day getting soggy. Or, stocks pop at the open ‘n fade back, and try another pop-n-fail, and then fade off. At any other time of the year, I’m trading momentum stocks that are close to their 52-week highs. At least then you can trade with the established trend (giving you an edge) and offering much better risk/reward opportunities.
Wednesday: The NASDAQ didn't do so well yesterday and there's a lot of pundits trying to tell us why – but they’re avoiding the elephant in the room. Banks and energy love rising rates – mega-cap tech = not so much. Today we'll get the minutes from the last FED pow-wow, and see what they were scheming. Names to watch today are: X, PLUG, CLF, CRK, TECK, UTZ, RIOT. But, the DOW has been almost “too hot” these first days of the new year. I’m liking LAC, and if it gets over yesterday's high of $34.07 – it could make a run. FED minutes just hit, and they’re talking about trimming their balance sheet. It's one thing to taper bond buying, and do a couple small rate hikes – but our FED has almost $9T on its balance sheet. If they start unrolling that, all heck could break loose. IF they've decided to run the table and cut buying, hike rates, and cut the balance sheet – this market will NOT hold up. Chairperson Powell will be speaking next week and he may refute all this. But right now – this market is confused and in ‘risk-off’ mode.
Friday: Yesterday they tried to hold the market up, but in the last hour the wheels came off. Heading into today's jobs number, I saw estimates of 440k jobs, but the number came in at 199k. There’s a ton of conflicting news in this report. The JOLTS, the household survey, and the participation rates – do NOT line up. We’re in for increased volatility – potentially thru when Chairperson Powell speaks next week. After all, some will think that this data throttles the FED and will want to buy. Others will say: "The economy must suck, so I'm selling." That push/pull won't be solved immediately. Over the past couple of days, only energy and financials have been working.
TW3 (That Was - The Week - That Was):
Allow me to paraphrase something that FW wrote:
The stock and crypto markets have started off the year in selloff mode, with the Nasdaq down almost 5% and big crypto down almost 10%. But this selloff has been going on since early November when the Nasdaq peaked at $16k and BTC hit $67k. Since then it’s been downhill with the biggest carnage coming from the highflying “cloud” stocks. Even at these newly discounted prices, none of these stocks look cheap. Most are still trading in excess of 10x revenues which has always been my baseline for a subscription-based software business. I don’t know where they will bottom out, but it certainly could be lower. Or they could have already bottomed. Nobody can pick a bottom until you’re well on the way back up.
Capital markets have been awash in money for the entire pandemic and it has resulted in some crazy prices being paid for public stocks and for growth rounds in high-performing privately held companies. The optimist in me sees this selloff as a return to normalcy – maybe even in the world we live in. It’s hard to see a return to normalcy when offices remain closed, and when events are being postponed or moving to virtual. Markets tend to see things first, and I do wonder if the capital markets are coming back to earth in anticipation of things getting better this year.
It also makes me wonder when the IPO / M&A markets will stop paying more for business than the private markets are paying. The current model is unsustainable.
Next Week: A FED Induced Asset Implosion…
The Bond/Tech Dynamic:
- Short-duration option markets are becoming inefficient / manipulated – which explains why we’re spending 67% of our time ‘OUTSIDE’ the expected move.
- The moment bonds sold off and rates exploded higher – the mega-cap techs collapsed. Higher rates put a real ‘crimp’ on stock buy-back programs – aka AAPL and MSFT.
- Tesla (on the other hand) is out there borrowing money to pay bills, and our FED just increased their borrowing rate by 20% (from 1.5% to 1.8%) in a week.
- If bonds continue to sell-off next week, everything mega-cap tech will begin to come into question because of the way they’ve been propped up.
- Next week’s economic reports suddenly matter. Bad news = Bad news – because it causes investors to worry about the economy. Good news = Bad news – because it could mean that our FED will accelerate all of its intervention timelines. Everyone is fearful of our FED ‘running off its balance sheet’.
Critical Market Levels:
- The S&Ps still remain at the upper edge of their 4500 to 4800 channel.
- Tip #1: If we hit 4500 on the S&Ps, then ‘duck-n-cover’ because you will experience shear market carnage. The 4500 level will trigger the VIX to go thru the roof. That will cause professionals to buy VIX Calls, buy Vol Futures, and buy SPY Puts. This will create a Gamma Put Squeeze and an immediate S&P drop of a couple hundred points.
- Tip #2: If the Nasdaq breaks the 15,500 level, then it will be carnage for the QQQ’s which will further drag down the S&Ps. Also, the QQQ’s are approaching their lower bound for the 3rd time, and hopefully that’s ‘NOT the charm.’
- There’s a general lack of movement in the VIX because we’ve ‘seen this movie before’. The FED bit-players are talking the ‘bad cop’ game, and Chairperson Powell comes in and talks the ‘good cop’ game starting on Wednesday.
- Everybody’s looking for the bounce in the QQQ’s because they are indeed oversold. But, if bonds continue to sell-off, the QQQ’s have NO SUPPORT below the 15,500 level.
- Tip #3: If Google (GOOGL) goes below 2700, then the Nasdaq and the entire market is going with it. Watch MSFT, AAPL, NVDA and TSLA – but none as much as GOOGL.
- This week any correlation was non-existent. That tells me that if correlation ever took hold – this market would move a lot lower / a lot faster.
- Therefore, thus far we are just witnessing a mega-cap technology re-leveling.
Bitcoin / Crypto Sell-Off:
- This week, /BTC became a risk asset like everything else. Bitcoin, the Nasdaq, and the S&Ps are all marching to the exact same drumbeat.
- In some part due to Robinhood. A large percentage of the retail traders on Robinhood do NOT meet the $25k day-trading margin requirement. So, they will have a limit on the # of day trades that they can do in a week. As they see trades in NVDA, TSLA etc. going south – they will step over into crypto (which is also traded on HOOD) and satisfy their trading needs / margin requirements by selling crypto.
- The largest percentage of crypto hodlers are doing just that – hodling (holding on for dear life). They are selling, and in fact adding to their existing positions at lower prices. We’re seeing a crypto market controlled on the surface by retail traders – as institutions take the other side of their ‘sale’.
- The good news is, during this downdraft – the entire retail buying of call options and self-induced Gamma squeeze has cooled off considerably.
Enter Earnings Season:
- JPM (+3% YTD), C (+4% YTD), and WFC (+8% YTD): Because of how far financials run thus far, I’m having difficulty getting exciting for the financials moving higher after next week’s earnings. How do you get bullish when a stock is up 8% in the last couple of days, and the rest of the market is getting its clock cleaned?
SPX Expected Move (EM):
- Last week’s SPX expected move was $62.48. We smashed thru that to the downside by over $25. Currently the SPX is showing an un-realistic number of EM breaches. Remember the options market is supposed to predict these moves correctly – 68% of the time. Lately, 8 of the last 12 weeks have ended in moves outside the EM. Something has gone terribly awry.
- This coming week has a $76 EM. I believe that the EM for next week is low, and once again we will breach it. It is only because the selling in mega-cap tech has not proliferated to the rest of the marketplace that the expected move is this low.
- BUT – don’t be surprised if bonds were to continue to sell off, and Big Brother comes in and buys bonds / lowers interest rates / and rallies the market.
Tips:
HODL’s: (Hold On for Dear Life)
- *BitFarm (BITF = $5.44 / in at $4.12)
o Sold Feb, May, Dec ‘22: $5, $7.50 CCs for income,
- **Bitcoin (BTC = $41,600 / in at $4,310)
- Energy Fuels (UUUU = $8.35 / in at $11.29),
o Sold Apr $11 CCs for income,
- **Ethereum (ETH = $3,150 / in at $310)
- GME – Holding
- **Grayscale Ethereum (ETHE = $26.72 / in @ $13.44)
- **Grayscale Bitcoin Trust (GBTC = $30.74 / in @ $9.41)
- Hyliion (HYLN = $5.82 / in @ $6.01)
o Sold Jan, Feb, April $6 and $7 CCs for income,
- **Loopring (LRC = $1.61 / in at $1.94)
- **Solana (SOL = $145 / in @ $141)
- Uranium Royalty (UROY = $4.05 / in at $4.41)
o Sold Jan $5 Calls for income,
** Denotes a crypto-relationship
Thoughts: Buy inexpensive insurance:
- Buy the VIX Feb OTM Call Spread and/or
- Buy the XLB March OTM PUT Spread.
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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