Remember the word ‘metaphor’? It means that if you understand ‘A’, and you see something that looks like ‘A’ but a little different - your metaphor skill set will help you to understand that new thing. Spending your life duplicating ‘A’ is limiting, but creating something ‘like A’ only cheaper–faster–better – is creating a metaphor that scales. Metaphors can not only help us create that next new thing, but also allow us to understand something new. Work on your metaphor skill set, it will pay off.
What does curiosity do?
- It gives power back to the people.
- It’s democratic, and doesn’t care about your age or level of education.
- It’s a more exciting way to live.
- It’s Job #1 of a good storyteller – inspiring curiosity.
You do not need habits. It’s easy to think of habits as needs; however, when others begin to thrive without the habit that we seem to need – it’s an awakening. For example: it is very possible to become a successful entrepreneur / professional – without spending time on social media.
The Market:
Per HL: “For the first time in history, it has become easier to turn attention into capital than capital into attention”… Amjad Masad. Apple via its new privacy policy raised the cost of customer acquisition, and stunted the growth of companies like Facebook and Amazon. Amjad’s quote reinforces the fact that currently customers and a working technology can be turned into capital – faster than the other way around.
The 1st takeaway from the massive tech recalibration that is going on – is that leaders grossly overestimated tech’s pandemic-fueled boom. Even as COVID-19 shut down much of the economy, it never truly replaced ‘face-2-face’ or ‘work-from-office’.
The 2nd takeaway from this tech recalibration is that the mistakes cannot be blamed solely on strategic missteps. For the past 10 years, tech companies have been working from a different playbook. They were minting and spending money like drunken sailors. They were massively overpaying for talent. They were acquiring companies at high prices because they needed something to do with their excess capital. But suddenly, reality, the economy, and investor fears have hit with a vengeance. And the part that nobody talks about, is that competition has caught up with them. I’m hearing about a large expense category called: ‘Coordination Costs’. The term category stems from getting too big, too fast, and being too inefficient. The good news is that tech will finally be evaluated on fundamentals. That was a long time in coming.
InfoBits:
- Elon eliminated about 50% of Twitter’s head-count… and also intends on reversing the company’s work-from-anywhere policy to work-from-office. Musk comes from the ‘rip-the-band-aid-off’ school of management.
- U.S. wages increased by 5.1% YoY... but adjusting for inflation – wages declined 3%.
- The TreasuryDirect website crashed… as investors secured over $3B in Series I bonds with a 9.62% interest rate.
- JPM is testing a digital, rent-paying platform… JPM is the largest lender to U.S. landlords, and now wants a piece of the $500B/year rental payment market.
- US apartment demand has fallen to its lowest level in 13 years.
- Taylor Swift with her ‘Midnights’ album… became the first artist to claim all top 10 spots on Billboard's Hot 100.
- Hong Kong’s economy shrank 4.5% YoY in Q3… which is scary for China and APAC-region economies.
- Eurozone inflation hit a record of 10.7%... as its preliminary Q3 GDP was marginally positive +0.2%.
- Homebuilders warn the worst is yet to come... citing high interest rates and poor affordability as our FED targets higher levels of unemployment.
- Abiomed soared 50%... after J&J confirmed that it will buy the heart pump maker for almost $17B.
- Netflix's $7/mo. ad-supported tier is rolling out… featuring 4-5 minutes of ads per hour of content – compared to $10/mo. without ads.
- Delta and United Airlines’ pilots rejected a new contract proposal… ahead of the busy holiday travel season.
- Our FED hiked rates another 75bps… and we learned that rates will stay higher for longer.
- Airbnb continues to be one of the best post-pandemic comeback stories.
- Google searches on ‘excuses to skip work’… have gone up 700% in 5 years.
- The ISM non-manufacturing PMI slowed to its lowest level in 2.5 years.
- Growth companies continue to layoff… Lyft (-13%), Opendoor (-18%), Stripe (-14%), Chime (-12%), Twitter (-50%), and Morgan Stanley (TBD).
- Miller Lite is selling a Christmas tree stand… that doubles as a beer keg.
- Sean “Diddy” Combs will purchase marijuana operations in 3 states.
Crypto-Bytes:
- HongKong is “open to the possibility”… of having crypto-based exchange-traded funds (ETFs) and will no longer classify tokenized securities as complex products just because they are issued on the blockchain.
- Crypto island is a ‘crypto-native’ luxury island in the Bahamas… complete with NFT villas. The island previously hosted Fyre Fest. What could go wrong?
- Last week marked the 14th anniversary of Bitcoin’s white paper.
- Increased adoption of Ethereum staking is pushing yields down.
- Central Banks are attempting to automate foreign exchange markets… using DeFi protocols to cut the cost of cross-border payments.
- Galaxy Digital eyes layoffs… as crypto is still viewed as an investment and not a transactional currency. Crypto has to deal with today's rising interest-rate reality, and that is dampening demand.
- A Crypto 401k? A survey of millennials and Gen Z’ers found that 50% wish they could incorporate crypto into their retirement account.
- E.U. lawmakers won’t vote until February… on the Markets in Crypto Assets regulation (MiCA) – citing the length and complexity of the text.
- Recently Amazon dropped below the $1T market cap… while the total crypto market cap broke back above $1T.
TW3 (That Was - The Week - That Was):
Monday: I think that they're going to try for more gains this week, so maybe picking up some DIA or SPY or even QQQ's makes sense. If you're nimble you could try the DIA's over $327.45 and see if it gains enough to push over $327.66 which is the high. OXY over $74.15 could see a nice run. OMG, this is how well our economy is doing: Dallas Fed Reading == -19.4 == ouch.
Tuesday: Today is day one of the two day fed meeting. We hear from Powell himself tomorrow afternoon and his 75bps interest rate hike. Keep an eye on the small caps as the IWM chart looks interesting. This party is so large that even the beaten down little guys are waking up. I'm in the camp that says after the midterms, things go south in a hurry. I believe that something is going to knock this market back down. So, get what you can now. The market doesn’t seem to like the 10-Year over 4% again. This dump has changed my agenda for the day. I'm back to being a spectator.
Wednesday: Our FED is expected to deliver a fourth consecutive 75bp rate hike, bringing rates up to 3.75-4.0% - the highest since Q4 2007. The focus remains the forward guidance. My guess is that Powell will indicate that 50bps is likely in December, he will maintain maximum flexibility, and stress that their policy will remain data dependent as we head into the New Year. FYI - almost 400 tons of gold were scooped up by central banks in the third quarter, more than 4 TIMES the amount YoY. That takes the total this year to the highest since 1967, when the dollar was still backed by the metal. The money people hate gold because it competes with fiat, yet in the dark – they’re buying all they can get (kinda like crypto). Maybe it’s NOT such a bad investment.
Thursday: Yesterday, our FED boosted interest rates by 75-bps for a 4th straight meeting. Fed Chair Powell provided a bit more clarity, saying the ultimate interest rate level will be higher than previously expected, and it is “very premature to think about pausing rate hikes.” The point that many seem to be missing is that the world has changed – forever. For 80 years, if the market or economy got in trouble, the Central Banks would rush in and save the day – not anymore. They are going to jam rates higher than anticipated, and they're not going to pivot and start cutting them. The Bank of England just put in the largest rate hike in 30 years, and warned that the country faces a 2-year slump. They will reduce wage inflation and that will be accomplished via a ‘doozie’ of a recession. This rally has been stabbed in the heart, and is on a glide path down from here. The 10-Year is back to 4.13, and the 5-Year is inverted over the 30-Year. None of that is normal.
Friday: AMZN has lost $760B in market cap (down 45%) in 2022. That’s more than the market cap of 495 of the top 500 S&P companies. Credit Suisse (that already cut 2,700 people) just extended its job cuts to include their Wealth Department. The U.S. 30-Year Mortgage just hit 7.3% - its highest level since 2000. The Jobs Report just showed that there was an overall gain of 261k Non-Farm Payroll jobs last month. But of those 261k new jobs … 455,000 of them were created via the ‘birth/death’ model == fake jobs. So, we really LOST 194,000 JOBS. With the mid-terms right around the corner, they trotted out Boston Fed President Susan Collins to suggest that she’s ready to slow the pace of Fed rate increases. But then she walked it all back by saying that rates will need to go higher than previously expected. What a charade. The dollar has fallen, commodities have gone crazy, and energy still looks good here. SLB over $54.05 would pull me in. Once this midterm vote is over, this administration has no reason to keep oil prices low, and SLB will be a good place, along with OXY and VLO.
AMA (Ask Me Anything…)
Are we still producing jobs in the U.S.? NO, but allow me to explain. On Friday we learned that last month we created 261,000 jobs, but the devil’s in the details. Each month, the Bureau of Labor & Statistics (BLS) takes verified job numbers, and counts them. But they also understand that there are probably jobs out there that we didn’t get proof of yet, and we need to include them into the mix. That is called the ‘Birth/Death’ model. Basically, for every X percent of businesses that close and employees that are laid off, there will be Y percent that open some form of small business and hire Z number of new employees. Now, none of these percentages are set in stone. There are no tax forms, employment records, unemployment insurance numbers – nothing but a hunch. For this particular 261k jobs report, the BLS inserted 455,000 new Birth/Death model jobs (phantom jobs) to get the number up to a positive 261,000. As you dive into the BLS report, the actual number employed DECREASED by 328,000 as full-time employment tanked by 433,000 jobs. The only real jobs gain occurred in the part-time workers category. Wow, talk about ‘prettying up a pig’ prior to an election.
Next Week: The Force of the Volatility Box is Strong…
We’re back inside the volatility box… When that good jobs number hit the tape, we immediately jumped back inside of the SPX volatility box (3,600 to 3,800). We’ve been trading within this range for the last 60 days – accumulating risk. Tip #1: When we break out of this range, the move will be explosive – and we won’t be returning.
Bifurcation in sectors, the dollar, and bonds… Last week: The Q’s dropped way below their expected move, and that led the S&Ps to end the week slightly outside the lower edge of their expected move. Bonds are heading back toward their lows. Tip #2: When bonds break lower, it will drive both the QQQ’s and the financials – lower. This new dollar weakness, pushed oil and the other commodities (gold) higher.
Our FED and what the Yield Curve means… The 2-Year note is presently around 4.65%, and the 10-Year and 30-Year are at 4.13% and 4.15% respectively. This is a monster yield-curve inversion. Tip #3: Because of this inversion, I would caution anyone against getting long in this market. The intent of our FED is to drive us into a recession. Get long when you’re coming out of a recession, not going into one.
Be scared because the Volatility Structure is all wrong… For the past 3 weeks, the VIX has declined – in the face of us losing 130 S&P points. But the big issue is that the implied volatility of the SPY out of the money PUTS vs the out of the money CALLS – is EXACTLY THE SAME. Tip #4 The last time this happened was prior to the stock market crash of 1987. That means that nobody’s buying PUTS, and that translates to there being a ton of risk in this marketplace right now.
Is this an Election or a CPI Trade? The market is viewing the election as a yawn as shown by the volatility numbers (around 19%). However, the market views Thursday’s volatility surrounding the CPI release as being huge (28%). So, this coming week is a CPI trading week, and not an election trading week.
SPX Expected Move (EM):
- Last Week’s EM = $119. We closed down 130 – outside the lower end of the EM.
- Next Week’s EM = $117 – Look out for: Mr. Toad’s Wild Ride.
Tips:
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,685 /oz. & Silver @ $20.90 /oz.
- AGG – BOT some bonds (AGG = $94.34 / in at $93)
- **BitFarm (BITF = $0.89 / in at $4.12)
o Selling CCs for income,
- **Bitcoin (BTC = $21,300 / in at $4,310)
- **Ethereum (ETH = $1,630 / in at $310)
- GME – DRS’d and HODL
- GS (Downside PUTS):
o BOT Nov 18 / +$342.50 / -$340 GS PUT Spread
- **Grayscale Ethereum (ETHE = $10.91 / in @ $13.44)
- Innerscope (INND = $0.013 / in at $0.0052)
- RIG ($4.06 / in at $3.47)
- SPY (Downside PUTS):
o BOT Dec 16 / +$357 / - $347 SPY PUT Spread
o BOT Dec / $285 DIA PUT
- XLU (Upside CALLS):
o BOT Nov 18 / -1X $63 / + 2X $67 Back-Ratio CALL Spread
* * Denotes a crypto-relationship
Trading Tips:
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Please be safe out there!
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