Remember the Roadrunner and the Coyote… The coyote was always: (a) Looking for a quick win, (b) Feeling entitled to play by his own rules, (c) Constantly picking the wrong goal, and (d) Never pausing to consider what would happen if he actually took the time to create something of value.
Nobody wants to pay EXTRA: People buy things at a fair price. That means if someone wants to charge a premium – they’re going to have to offer increased quality, service, and/or design. Honestly, it’s tough to make a living selling things that don’t cost extra. On the other hand, the real work is in keeping the promise that your EXTRA – is truly worth the additional money.
What does ‘being Smart’ mean? Smart no longer means memorization, or being able to access the right information. Being smart requires: (a) situational awareness, (b) clarity of goals, (c) good taste, (d) empathy, and (e) decision-making ability. That makes being smart both a choice and a trainable skill-set.
The Market:
Economists are talking… about how we’re entering a new paradigm. They believe a new business cycle will emerge after this bear market, and we'll be off to the races – again. That's an easy story to sell to asset gatherers, skeptics, and a new generation of passive believers. I’m not onboard. I think that the current business downturn and subsequent market sell-off will help to re-center the current distorted wealth curve. Everyone knows that it's not okay to pay a CEO $50m just because the stock market went up, but BODs continued to do it. 2022 may serve to level the playing field. This market pullback is likely not-over, and potentially just in the early stages. My 2 Cents: Remember that cash + precious metals + commodities == a strategy to conserve principal and take advantage of inflation.
Inflation 101: The Consumer Price Index (CPI) hit on Friday and it wasn't pretty. It showed: +8.6% YoY inflation. You have to figure that they actually schmoozed that number a little, and it still came out butt-ugly. To separate out a few of the price increases: Fuel oil: +106.7%, Gas: +48.7%, Utilities: +30.2%, Used Cars: +16.1%, New Cars: +12.6%, Electricity: +12.0%, Food at home: +11.9%, and now $5 gas is the norm. Some of the numbers make little (or no) sense. Shelter is being reported at a 5.5% YoY increase – but rents are up 15% and real estate is up over 20%. The last time inflation was this high, our government decided to change the way they calculated inflation. Wages (once again) have failed to keep up with inflation. In fact, inflation-adjusted average hourly earnings for American workers have been negative for over a year. Economists are hoping that our FED’s tightening (higher rates and reduced money supply) will cool demand for food, shelter, and vehicles. Friday’s numbers extinguished any hopes that inflation was behind us. Our FED sees accelerated inflation, constricted supply chains, and the lowest EVER level of consumer confidence. At this point, they’re just hoping for a positive Q2 GDP print. They are out of options. Inflation reports may start to look better, but that’s only as a result of being compared to already high numbers. Remember, it was our FED’s undisciplined monetary policy that helped to create this mess. And now, no consumer, market participant, and/or business leader has any confidence in our FED’s ability to orchestrate an economic soft landing. My 2 Cents: Learn how to play the short side, practice buying PUTs in a ‘paper’ account, or at minimum consider the SDOW as a good contra-market option.
InfoBits:
- Treasury Sec. Janet Yellen warned… that the U.S. is likely to face a prolonged period of elevated inflation. She also thinks we can avoid a recession, and previously said: “Inflation is transitory”. Sorry Janet, my Econ. Prof. would fail me with only 33% correct.
- Just the Facts… the Atlanta FED’s GDP tracker is now pointing to a small annualized productivity gain of just 0.9% for Q2. Following a -1.5% drop in Q1, our economy doesn’t have much further to go before it slides into a recession.
- The law is on Twitter’s side, but… time is on Elon's side. If Elon takes Twitter to court, it will result in a pricey, drawn-out lawsuit that will scare off employees, users, and investors. Best to avoid a legal battle with the world’s richest man.
- It’s a miracle… that a small cancer-drug trial reported that all 18 patients went into total cancer remission after taking their treatment.
- Kohl’s is talking sale... to Vitamin Shoppe owner Franchise Group for $8B.
- The 1st Starbucks that voted to unionize… is closing due to excessive costs.
- PayPal will now let you… transfer crypto from PayPal to other wallets & exchanges, and send crypto to other PayPal users instantly. Welcome to 2022.
- Bitter enemies Waymo and Uber are partnering on autonomous driving.
- Mortgage Applications fell 7% last week… and were 21% lower YoY. Refi’s dropped 6% for the week and was down 75% YoY.
- Jim Farley (CEO of Ford) explained… with the new Electric F-150 comes an adapter that will allow you to ‘jump-charge’ a stalled Tesla.
- Out with the new, in with the seasoned... as high-growth tech companies are now underperforming the market by the widest margin since 2000 (the dot-com era). Bring on the corporate execs who have experience generating cash flow.
- Tesla announced a 3 for 1 stock split… joining other heavyweights like Apple, Amazon, and Alphabet, who have all split (or are planning to). We’ll have to see if the stock experiences a pre-split rally, as we’ve seen in some of its peers.
- Robinhood, the Citadel, and Schwab are nervous… because under the SEC’s proposed changes, brokerages would have to compete in auctions to execute certain stock trades – thereby eliminating payment for order flow.
- Roku shares jumped 10%... because it may be a takeover target for Netflix.
- 8% could be… Social Security’s 2023 cost-of-living adjustment.
- U.S. gasoline prices topped $5/gallon nationally.
- Apple is opening its own buy now, pay later lending site… where the loans will be entirely funded from Apple’s own cash hoard. Can you say: Bank?
- Tesla’s autopilot is under Federal investigation… as to whether it’s a safety risk. Its status is now ‘engineering analysis’ – one step before ‘mandatory recall’.
Crypto-Bytes:
- AMEX will team with ABRA to launch a US Crypto rewards card: Their sweet spot is the client who already owns over 6-figures worth of crypto.
- Mike Novogratz (Galaxy Digital CEO) thinks… bitcoin will bottom before equities, and prices will start to climb again in Q4. Mike also said: “Nothing will trade well before the FED takes its foot off the break.”
- Mastercard (MA) cardholders can now buy NFTs… without first purchasing crypto. With 2.9B Mastercard holders, this changes a lot. Mastercard surveyed a group of 35,000 holders in 40 countries and found that 45% had purchased or would consider purchasing an NFT via MA.
- Lithuania is the latest impatient member of the EU… that is creating its own crypto licensing regime ahead of the EU’s landmark regulatory package.
- Crusoe Energy - using waste natural gas to mine Bitcoin… announced an expansion into the Middle East via an investment from the sovereign wealth fund of Abu Dhabi.
- Senators K. Gillibrand and C. Lummis have introduced… a crypto bill favoring the Commodity Futures Trading Commission (CFTC) as a watchdog and seeks to eliminate tax worries associated with crypto payments.
- BlockFi is looking to raise new funding… that would value the company at about $1B. BlockFi (a year ago) raised money at a $3B valuation.
- Grayscale Investments has strengthened its legal team… as it continues its mission to convert GBTC into a spot bitcoin ETF.
- Citadel Securities is building a cryptocurrency trading ecosystem… with the help of high-frequency trading and market-making firm Virtu Financial, as well as VC firms Sequoia and Paradigm.
TW3 (That Was - The Week - That Was):
Monday: The futures are higher mostly due to China easing COVID restrictions and pushing out better economic news than feared. I don’t believe China’s numbers, but I don’t believe our inflation or economic growth numbers either. Today Amazon starts trading post its 20 to 1 split. I’m watching CHPT.
Tuesday: This Friday, we get the May Consumer Price Index (CPI). A strong CPI report on Friday could solidify expectations that our FED will keep aggressively hiking rates as it tries to bring down price pressures. Commodity indexes are making new highs daily – driven by gasoline and wheat. This IS a bear market. Every good run up, is sold, and the people that are telling you the ‘consumer is flush with cash’ are somewhere else. Target just came out and said their margins (due to supply issues, soaring costs and logistics) are about 2% instead of 5.5%. There will be a price for fuel – at which point ALL other spending stops. We don't know where that is yet – because we've never had nationwide +$4.50 gasoline. At that point, gassing up for work will cost you ALL of your disposable income. Currently, holding anything but energy (day-to-day), is a good way to get shot in the foot. Watch DO. Back-in-the-day, the big three were SLB, RIG and DO. When COVID hit – DO was actually delisted. It’s back, and it looks like they are cleaning up some issues with maintenance and downed rigs.
Wednesday: In Europe, Credit Suisse Group AG (CS) warned that it was likely to post a loss for Q2. Oil prices are looking at fresh highs, rising above $120/barrel for WTI crude. Yesterday, uranium stocks were on fire. Biden suddenly requested $4B in funding to buy Uranium. Why? Because we get our uranium from Russia, and the push is on to buy more domestically. UUUU, UEC, URA, CCJ, URNM, and UROY all put in great sessions. Goldman is saying that $160/barrel oil is on the horizon. I could take CCJ over $27.90, and could see UUUU over $7.77. BSM looks pretty darned good, but it’s well above its 50-day. Keep an eye on it.
Thursday: I don’t have a good feeling about today given tomorrow brings us the CPI report, and that report will influence our FED. One stock I was looking at yesterday was DRQ – that is in the energy patch. They were working on getting over their 50-day, but folded up when the overall market rolled over. Keep an eye on them. Did you notice the move in the 2-Year and in the 10-Year? They’re both up big from yesterday. Lots of chatter about how ugly our CPI could be tomorrow.
Friday was Butt-Ugly, and will cause: Margin Call Monday.
AMA (Ask Me Anything…)
Beware of the Tipping Point… According to a report commissioned by the Federal Reserve, over 12% of U.S. adults held or used crypto in 2021. That seems like the kind of technology adoption that both the private and public sectors would happily get behind - right? Instead, the NY Attorney General decided to issue an investor alert to her constituents warning about the ‘dangers’ of digital assets while using inaccurate information. Even the SEC mocked investors who chose their own path of investing, and went over to the digital asset side. They need to be aware, as crypto-utilization approaches 15% to 18% – Global Adoption will occur, and once again our government will be helplessly behind-the-curve.
Payment for order flow… refers to the payments brokerages (like Robinhood and Schwab) receive from wholesale market makers (like Citadel and Virtu Financial) when they route their trades to them instead of directly to real exchanges. Firms like Citadel and Virtu argue they provide market liquidity and better pricing than routing directly to the exchange. Skeptics say this payment arrangement creates a conflict of interest in brokers’ best trade execution obligation. If you’re making your money by routing orders to a wholesale firm, how will you ever be incentivized to send orders to other venues that may give your clients better fills? Answer – you won’t. It appears that the SEC thinks that the answer is NO as well. The chairman has made it clear that increasing market competition and leveling the playing field for retail is a key part of his agenda. He has his staff: “considering requiring brokerages to route individual investors’ orders to buy or sell stocks into auctions.” The change would be a significant shakeup of market structure and virtually eliminate the “payment for order flow (PFOF)” that brokerages like Robinhood and Schwab rely on for a large share of their revenues.
Next Week: Going into Uncharted Territory…
Inflation, Stagflation, Recession, and Rising Rates:
- Sellers Return with a Vengeance… The S&P has returned to its historic self over the past 2 weeks. On Friday, the S&Ps fell 50 points in 1 minute. We broke through 3931, with the next resistance levels being 3250 and 2984 after that.
- Can we fall any further? We could be headed back to pre-COVID levels – before our FED-induced rally. There are still some marquis players out there, that haven’t taken the hit. If investors decide to sell: MSFT, AAPL, GOOGL and a few others – we will be down at that 3000 level in no time. Why 3000? Because that was the level from which our FED poured on the juice – aka = pre-COVID. If you believe that most of post-COVID was FED-induced, then the unwinding of this would go all the way back to the S&P 3,000 level. For example: Amazon is currently at its pre-COVID mark. Facebook is below its pre-COVID mark. The financials (XLF) are very close to their pre-COVID level. Tip #1: Continue to think risk vs reward. There remains more downside risk than upside potential; therefore, keep your hedges on.
- Expected Move and the 2-Sigma beast: Two weeks ago, we had a 2-Sigma move to the upside – aka the bear-market rally. This past week, we experienced that same 2-Sigma move (aka = 2 times the Expected Move) to the downside. The last time we had a pair of 2-Sigma moves within 2 weeks of each other was during the COVID-crash. Our marketplace is NOT performing efficiently right now. Tip #2: Do not SELL any short-duration premium right now.
- Bonds = 2-Yr vs 10-Yr Yield curve inverting: On June 1st the 2-Year Note was about 0.3% below the 10-Year Note. On June 10th, the 2-Year Note is less than 0.1% below the 10-Year Note. They are in the process of inverting. The 5-Year has already inverted vs the 10-Year. Our markets are preparing for a recession. Tip #3: We have raging Inflation, leading to a Yield Curve Inversion, and a hard landing into a Recession == ultimately leading to Stagflation.
- But, we are NOT seeing large jumps in volatility. We just went down 200 S&P points in 2 days and the VIX barely moved. Nobody is panicking, which is why I believe we are headed lower – into uncharted territory.
- Metals are being Bid Higher in the face of a strong dollar. Tip #4: I’m looking for a continued bid higher in the precious metals (SLV and GLD).
- This Week: (a) we have Triple Witching Options expiration with Trillions of dollars riding on our market’s efficiency, (b) an FOMC meeting that really doesn’t even matter at this point, and (c) the S&Ps being first pulled up into the 3931 level, but eventually being drawn lower.
SPX Expected Move (EM):
- Last Week’s = $102 (EM) produced a $200 downside (2-Sigma) move.
- Next Week’s = $132 (EM)… really? We just moved $110 on Friday alone? Is this marketplace asking to be proven wrong … again? The upside of the SPX EM is 4032, and the downside move takes us to 3770 = new lows for the year.
- Tip #5: It would make a lot of sense for our markets to start out short-covering, then dive lower (maybe with a couple earnings warnings) – forcing market makers to sell into this selling.
Tips:
HODL’s: (Hold On for Dear Life)
- CASH == Nexo & Celsius == @ 8 to 12% yield on USDC
- PHYSICAL COMMODITIES == Gold @ $1,875 / oz. & Silver @ $21.93 / oz.
- **BitFarm (BITF = $1.59 / in at $4.12)
o Sold Dec ‘22: $5 CCs for income,
- **Bitcoin (BTC = $29,150 / in at $4,310)
- CDEV (CDEV = $9.25 / in at $7.83)
- CostCo (COST = $463)
o Bot the July, +$465 / -$460 PUT Spread
- CPG (CPG = $10.27 / in at $6.44)
o Sold Jul $7.50 CCs for income,
- Energy Fuels (UUUU = $6.35 / in at $11.29),
o Sold June $8 CCs for income,
- **Ethereum (ETH = $1,675 / in at $310)
- GME – Holding
- **Grayscale Ethereum (ETHE = $10.64 / in @ $13.44)
- **Grayscale Bitcoin Trust (GBTC = $18.68 / in @ $9.41)
- Hudbay Minerals (HBM = $5.88 / in @ $5.04)
o Bot the October 22, $7.50 CALLs,
- Uranium Royalty (UROY = $2.95 / in at $4.41)
o Sold July $5 CCs for income
** Denotes a crypto-relationship
Trade of the Week: Sold my SPY PUTs on Friday. CDEV == bought in at $7.83 and will sell some $10 Covered Calls at the $9.50 level.
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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