RF's Financial News

Sunday, January 8, 2023

This Week in Barrons: January 8th, 2023

Smart ones trade… A baker makes loaves of bread more easily and efficiently than the blacksmith. A blacksmith would ruin their productivity if they stopped making rakes and horseshoes in order to bake a loaf of bread. If someone else can do their thing efficiently, and you can trade your stuff for their thing – then everyone comes out ahead. Often ‘freelancers’ have trouble trading, and think that they should do every job themselves. Not only is that non-productive, it reduces the magic that they have left for the work that only they can do.

What’s your Savings Account earning you? SoFi just raised its annual savings account yield (APY) to 3.75%. E-Trade offers 3.5%, Robinhood offers 4% if you pay a $60/yr. subscription, but in terms of the highest yield with no fees, no time limits, and no deposit maximums – SoFi’s 3.75% is in elite territory.

The Market:

The latest FED minutes: FED officials were not pleased by the surge in stocks ahead of their most recent meeting – as was reflected in their transcribed minutes: "The unwarranted easing in financial conditions is complicating this Committee's effort to restore price stability."

- Slowing rate hikes do not mean pivoting: "We are strongly committed to returning inflation to the Committee's 2% objective. A slowing in the pace of rate increases was not an indication of any weakening of the Committee's resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path."

- There are ‘few’ signs of a wage-price spiral: “The pace of increase for prices of core services excluding shelter (which represents the largest component of core PCE price inflation) was high. This component of inflation has tended to be closely linked to nominal wage growth. Bringing down this component of inflation would require some softening in the growth of labor demand to bring the labor market back into better balance."

- FOMC forecasts: "Core goods inflation is anticipated to slow further, while core non-housing services inflation is forecast to move down as wage growth eases. Risks are skewed to the upside for inflation but to the downside for growth."

InfoBits:

- Bed, Bath & Beyond believes that it will not have the cash… and expects to file bankruptcy in the coming weeks. BBBY shares plummeted another 30% to their lowest level since 1993.

- Analysts expect that BBBY’s bankruptcy… won’t be the last in 2023.

- The US national debt is $31T, and US GDP is $26T... giving the world’s largest economy a debt-to-GDP ratio of 125% = 3rd-World status.

- Amazon laid off 18,000 … the highest 2022 reduction by a major tech company – and largest in Amazon’s ~ 30-year history.

- The FTC is forcing companies to drop non-compete restrictions.

- Veteran VC Theresia Gouw thinks… this recession will be like 2000 vs 2008.

- Salesforce is laying off 10% (7,000) … and reducing its office space.

- DoorDash needs another revenue source… it’ll now return packages.

- ADP’s private payrolls report showed… a 7.3% YoY upward pressure on wages.

- OpenAI, the lab behind ChatGPT… will sell shares at a $29B valuation.

- New York City public schools will ban ChatGPT… as it could make it easier for students to cheat on assignments.

Crypto-Bytes:

- BTC's 7-day volatility… hit its lowest point since July 20, 2020, and that’s a good sign moving forward.

- Everyone sees a fight coming between the U.S. and the Bahamas… for the $3.5B in FTX assets.

- Analysts proclaimed Binance as solvent, liquid and stable.

- Genesis Trading is laying off 30% of its workforce.

- Celsius Networks owns its crypto deposits… says the judge. So, most of its 600k customers will be last in line for a bankruptcy repayment.

- Silvergate’s crypto problems continue… as its shares fell 43% after the $8.1B run on the bank forced it to sell assets at a $718m loss.

- President Trump’s NFT trading cards… are trading for ~ $1 – losing 98% of their value since mid-December.

- Five 2023 crypto storylines:

o De-risking crypto portfolios is a thing and will continue.

o Crypto tech will see more highly anticipated updates.

o Stablecoin regulation is on the agenda in the U.S.

o Africa will lead emerging markets in Bitcoin adoption.

o Countries will test / implement Central Bank Digital Currencies.

TW3 (That Was - The Week - That Was):

Thursday: ADP just revised the way they gather their jobs reports information, and they just said that last month we added 235K jobs. Almost immediately the market sold off, so what to do here? GDX and GDXJ (a collection of metal miners) have traded sideways in a channel. Both indexes broke out yesterday. This is big, as they've had a lot of time to consolidate. If this is the real deal, there could be a lot of upside. Take GDXJ over $37.95, and GDX over $30.45.

Friday: Retail traders unloaded $3.1B in assets two weeks ago, making it the third worst week of net selling in history. So, while the retail guy was trying to get out, "someone" was buying all the dips. Gee, who could that be (cough-cough: FED or J. Yellen == both)? Heck, they managed to keep the S&P above 3800. At 10 we got the ISM non-manufacturing PMI and it came in at 49.6 versus a 56.5 reading last month. The market loved it – hoping that less production will give our FED reason to pause. Yes, the market is surging on a lousy economic number. It's very twisted.

AMA (Ask Me Anything…)

“It’s GOLD b*tch”… This is a market where you DO NOT WANT to be market cap weighted. This is a sector-pickers market – which was proven because asset managers (vs the Indexes) had one of their best years in 2022. Technically, the last of the sovereign bonds with a negative yield has disappeared. There are currents out there saying:

- If Bitcoin can get above $20k – it would be a breakout to the upside and need to be bought.

- MSTR and MU are both low probability and high risk-reward investments.

- Look at XLV – the healthcare ETF because it has just broken-out and the world does NOT revolve around large-cap tech. Simply fish where the fish are biting!

BUT the biggest proclamation is GOLD – which was flat last year even when T-bills were getting killed. In 2022, gold (GLD) started as a ‘flight to quality’ vehicle, but it could very well end up rising over 30% this year alone. Silver is the leveraged way to play Gold. In terms of specific suggestions: try Alamos Gold (AGI) above $9.60, First Majestic Gold, GDX over $30.45, and GDXJ over $37.95.

Next Week: More Bull or Prep for ‘da Bear?

- Trading is sketchy = fast & broken: This week we ended within the Expected Move on the SPX, and within a stone’s throw of 3931.

- Jobs and Durable Goods numbers: Friday’s Jobs Number was a darn good number, but the Durable Goods numbers were really bad – and the market hopped on bad numbers as being ‘good’ for the FED and higher we went. This just highlights the fact that every economic release could be a catalyst for a rally or a fall – so be careful.

- Rates / Financials: The movement (fall) in the 10-Year note on Friday was amazing, and on the back of that move – the financials rallied. We have the steepest Yield Curve in 38 years. Meaning, that the difference between the 2-Year (4.25%) and 10-Year (3.5%) yields are the most anyone has seen for the past +3 decades. This is bad news for those who want to avoid a recession, and it’s not too healthy for the financials as they kick-off earnings next week.

- Binary range is back == 3,800 / 3,900: Nothing screams Volatility Box as what we’ve been in for the past month. When a channel is this tight and we continue to accumulate open interest – we’re either going to explode higher or lower and next week’s earnings could be the catalyst.

- Careful with your allocations – it’s a coin flip: We are trapped in an SPX 100-point range with the VIX over 20; therefore, be careful with your directional bias.

- Trades:

o TIP #1: BOT a Catapult in TGT:

§ BOT Mar: +$145 / -$135 PUT Spread

o TIP #2: BOT a Vertical PUT Spread on the SPY:

§ BOT Feb: +$355 / -$365 PUT Spread

o TIP #3: BOT more GLD and the Miners:

§ BOT some GDX and GDXJ

o TIP #4: BOT more, short-dated T-Bills

- SPX Expected Move (EM)

o Last Week = $84 for a 4-day week. For the 2^nd consecutive week, we did not touch the upper or lower edges of the EM.

o Next Week = $98 for a 5-day week. Put on your big-boy pants, and try not to get too directional. Last week gave us a short squeeze, but if we can get above 3931 – we have a different situation on our hands.

Tips:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,871 & Silver @ $24 /oz.

- AGG – iShares Bond Fund: (AGG = $99 / in at $93)

- BIV – Vanguard Bond Fund (BIV = $75.90 / in at $74.54)

- 90-Day Treasuries @ 4.6%

- **Bitcoin (BTC = $16,950 / in at $4,310)

- **Ethereum (ETH = $1,265 / in at $310)

- CAT (Downside PUTS):

o BOT Feb: +$200 / -$190 PUT Spread

- GDX – Metals Miners ETF: (GDX = $31.56 / in at $30)

- GDXJ – Metals Jr. Miners ETF: (GDXJ = $39.48 / in at $37.50)

- GME – DRS’d and HODL

- GS (Downside PUTS):

o BOT Jan: +$340 / -$330 PUT Spread

- IBM (Downside PUTS):

o BOT Jan: +$130 / -$120 PUT Spread

- Innerscope (INND = $0.006 / in at $0.0052)

- SBUX (Downside PUTS):

o BOT Jan: +$85 / -$75 PUT Spread

- SPY (Downside PUTS):

o BOT Feb: +$355 / -$365 PUT Spread

- XLF (Downside PUTS):

o BOT Feb: +$32 / -$30 PUT Spread

o BOT Feb: +37 PUT

Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

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Sunday, January 1, 2023

This Week in Barrons: January 1st, 2023

What separates good companies from bad ones is that the good ones have learned how to: ‘Feed the tuna fish mayonnaise’. Good companies continue to sell their existing customers more products and services that will lower their customer’s costs, and/or increase their revenues – immediately. In a world where ‘customer acquisition costs’ have skyrocketed, good companies have figured out that your existing customers are so much easier to reach, communicate with, and sell. Good companies learn how to increase the perceived value of their existing offerings. Entrepreneurs often try and ‘squeeze the air’ out of every customer conversation, when (in fact) they should be extending its life – further listening to and cementing the customer relationship.

In 2012 PG posted: “As I look back, the unsuccessful entrepreneur was NOT less intelligent, but was just NOT eager to listen and follow advice. Unsuccessful startups are killed by: (a) entrepreneurs that lack resourcefulness (money is no substitute for: vision, passion, and speed-to-market), (b) entrepreneurs that refuse to ‘go the extra mile’ (small companies exist to serve customers - period), and (c) entrepreneurs that mis-calculate where all of the dominos will fall. The key is listening, closing sales, and delivering product – urgently. The rest is secondary.”

The Market:

There are a lot of headwinds out there. Consider that in 2022, Amazon, Tesla, Netflix, and META – all lost over half their value. It’s called a ‘recession’, and it’s a natural part of the economic cycle. ‘Recessions’ result in a stronger, leaner, and more productive economy. Bear markets have their own ways of building wealth, and when this one ends – it will present a generational opportunity to those who have the capital to take advantage of it.

As HM writes: “In my 53 years in the investment world, I’ve seen many economic cycles, pendulum swings, bubbles and crashes – but I remember only 2 real sea changes. I think we may be in the midst of a 3^rd one. Declining interest rates gave birth to: (a) investor optimism, (b) aggressive investment vehicles, and (c) 40 years of stock market growth. I believe that declining interest rates played the greatest role in: (a) the economic growth of the U.S. (b) gains in technology, productivity and management techniques; and (c) globalization. Lately we’ve gone from the low-rate world of 2009-21 to a full-rate world. Investors can now get solid returns from credit instruments, and no longer have to rely on riskier investments to achieve their overall returns. Given the current environment is very different from what it was over the last 40 years, then the investment strategies that worked the best over those periods may not be the ones that outperform in the years ahead. That is the 3^rd sea change.”

The 'sea change' is real. Everyone is hoping for a short-mild recession, but what if the ‘hangover’ lasts as long as the party – 40 years? Most investment professionals only began their careers after 2009, and have limited experience on how the credit, equity, and currency markets are all interconnected. Don’t fear, as people didn’t stop investing in energy because of Enron - crypto won’t collapse due to the ‘House-of-Cards’ that SBF built. But for the first time in 40 years, you will need to learn how to fish out of a new pond – the ‘debt pool’. It’s a place where shiny objects are replaced by: time, discipline, and dedication.

InfoBits:

- The Philadelphia FED claims… only 10,500 net new jobs were created in Q2, instead of the +1m that our Govt’s Jobs Reports told us.

- Auto repos are on the rise… loan defaults are flirting with record numbers, and 26 nations have inverted yield curves.

- The CFPB ordered Wells Fargo to pay $3.7B… for “widespread mismanagement of auto loans, mortgages and deposit accounts.”

- Zimbabwe’s Minister announced a ban… on exporting unprocessed lithium.

- Netflix's early numbers suggest… cheaper (ad-supported) options will cannibalize existing premium customers. Be careful what you wish for.

- USPS is spending $9B for 66K electric vehicles. So the strategy is, if you can’t run your business profitably … get new, shiny stuff to play with?

- David Tepper told the world that because of all the rate hikes… he's "leaning short" equities.

- Disney is on track for its worst performing year since 1974.

- TSLA is on track for its worst-performing… Mo, Qtr, Yr - ever.

- GasBuddy reports that gasoline will be over $4/gallon by May.

- Pending home sales fell -4% in November. The pending home sales index is near the 2010 low – following its 6^th consecutive monthly decline.

Crypto-Bytes:

- Binance.US has agreed to buy Voyager Digital’s crypto assets… for +$1B and “aims to return crypto to customers in kind.”

- Coinbase is now worth LESS… than the total market value of dogecoin.

- FTX co-founder Gary Wang and Alameda Research co-CEO Caroline Ellison… plead guilty to federal charges and are cooperating with prosecutors.

- SBF met with the writer of ‘The Big Short’ at his parent’s house.

- Bitcoin underperformed stocks and gold for the first time since 2018.

- FTX co-founders SBF and Gary Wang… borrowed $546m from Alameda Research to buy an ownership stake in Robinhood (HOOD).

- Gemini is being sued by investors… for offering interest-earning crypto products that should have been registered with the SEC.

- The Bahamian Securities Commission… has taken custody of $3.5B of FTX deposits – due to the fear of hackers and/or former employees taking control of the funds themselves.

TW3 (That Was - The Week - That Was):

Monday: My theory has been that they've realized the year has been crap, and instead of pushing it higher in the last two weeks, maybe they just take the tax losses and wait on next year. Investor sentiment has finally shifted to bad news is actually bad news for the markets and the economy. Some of the miners are catching a bid in here. Keep an eye on AGI – over $10.45 and SAND over $5.60.

Tuesday: Japan, our biggest U.S. debt buyer, is now worried about inflation, and they are widening their interest rate bands to take that into account. So, all the people thinking that Powell is going to pivot and cut rates in ‘23 – just got nuked. Secondly, after years of not needing our FED’s overnight lending window, our banks have been lining up for handouts for a few weeks now – which suggests that our banks are more stressed than what they’re letting on.

Wednesday: The real tell will be the S&P 3800. If by any chance we lose that, this market pukes. An awful lot of derivatives are based on that 3800 S&P floor. If they don't come out with guns blazin’ tomorrow morning, and get us back up and over that level – they’ll probably sell us hard right into Friday's close. The DOW had been defending its 50-day moving average for a week, but it lost it in a big way today.

Thursday: Last week David Tepper was on CNBC and said that because of all the rate hikes, he's "leaning short" equities.

Friday: 2022 was a rough year that sent the S&P 500 down -19% YTD, the DOW down -8.5% YTD, the Nasdaq down -33% YTD, and the Russell 2000 down -21% YTD.

AMA (Ask Me Anything…)

Forecasts for 2023:

1. A recession is inevitable… for the U.S., U.K. and E.U.

2. Precious Metals (+Copper) will go +20%... due to green energy and China.

3. Oil will go +$100/barrel… and +$110 in 2^nd half of 2023.

4. Banks will turn conservative… after loan defaults hit 5%.

5. Unemployment will hit 5.5% in Q2… and that will curtail retail spending.

6. On-shoring will continue… keeping CapEx strong.

7. China will ‘really’ re-open… in the 2^nd half of 2023.

8. The S&P will end ’23 at 4,000… and our FED will peak in mid-2023.

9. The 2-Year and 10-Year Notes will end 2023 lower… at 3.25%.

Next Week: Volatility will continue…

Can markets handle another YEAR of Extreme Volatility:

- Coming out of the 2009 Financial Crisis… We received legislation (Dodd Frank), economics directives (Volcker Rule), and all of the 0% interest + QE programs that followed for the next 13 years.

- For real market making to work… market makers will need to borrow money in order to buy or short stock. Previous to 2022, the cost of carrying/borrowing was low (0%), but not anymore (+6.25%). This will cause market makers to NOT hold as much stock as they did before – which is going to allow for increased volatility going forward because that ‘dealer protection buffer’ will be gone.

- Our FED is swinging a big, non-0% bat… higher rates are causing market making firms to NOT hold as much stock (specifically over weekends and holidays) – and that’s going to cause a volatility storm. As long as the FED’s rates are above 4%, you can’t escape continued volatility and a 2023 market roller-coaster.

What will work going forward:

- You’re going to want to SELL ‘back-month’ PREMIUM… due to the massive number of weekly breaches and 2-Sigma moves. That simply means that you need to sell premium 90 to 120 days out, hold it for about 30 to 45 days, and buy it back (for 50% less) – all due to option decay.

SPX Expected Move (EM):

- Last Week’s $71 EM (for a 4-day wk)… and we only moved $5.

- Next Week’s $84 EM (for a 4-day wk)… but our markets remain data dependent and we have CPI, FED minutes, and the Jobs Report on Friday.