RF's Financial News

Sunday, April 23, 2023

This Week in Barrons: April 23rd, 2023

How personal is success? If I was able to introduce you to the most successful trader, entrepreneur, executive, and/or business person – could they mentor you to achieve some reasonable levels of success? GOATs can certainly share tips and wisdom, but can they deliver repeatable success? I believe the answer is – No. In general, if someone is great at something, I don’t believe that they are even capable of sharing that skill or vision in an actionable, reproducible format. And that’s why I believe in free markets and opportunity. Disruption is normal because skill sets are not transferable – they’re earned.

The Feedback Loop: Sometimes we use sticky notes as a suggestion box. The point of sticky notes is not the number, the categories, or even the remarks themselves. The purpose of using sticky notes as a suggestion box is to foster the practice of giving feedback (both positive and negative) and actively caring – on a regular basis.

Use ALL of your 5 Senses. If you:

1. need some Energy and Cheer == Use your sense of Smell.

2. are Stressed out == Use your sense of Touch.

3. are Distracted and Unproductive == Use your sense of Hearing.

4. need a Creative spark == Use your sense of Sight.

5. wish to feel Closer to Others == Use your sense of Taste.

The Market:

The recent developments in artificial intelligence (AI) suggest that white collar workers will actually be the first portion of the population negatively affected. Per AP:

- Sales teams will instruct AI models to: Locate potential leads based upon a series of parameters, insert them into the CRM, design and execute an outreach campaign optimized to get the lead to respond, and then deliver a product demo.

- Finance teams will instruct AI models to: Constantly monitor all transactions and auto-switch to a competitor when the savings are greater than 10%.

- Marketing teams will instruct AI models to: Identify relevant topics by content, outline the content, create the content, post it on the various distribution platforms (email, blog, social media), measure the results – rinse-n-repeat.

- Engineering teams will instruct AI models to: Write task-specific code, add new features to the product, and optimize performance.

We should all learn more about: artificial intelligence, natural language models (LLMs), Chat-GPT, and stable diffusion (text-to-image models). Put in the 10,000 hours required to learn. Your future self will thank you.

It seems that many of the recent breakouts to 52-week highs haven’t really followed through. Semiconductors are the undisputed big leader year to date, but in the past several weeks their relative strength has been declining as other sectors have picked up. The net result is a resilient S&P. Being optimistic:

- As long as the SPY ($412.20) holds above $407, it is likely to test $420.

- The Nasdaq 100 (QQQ = $316.61)) is setting up for a potential breakout near $322. If it clears that level, it is likely to test $330.

InfoBits:

- As you collect 5% on 90-day T-bills… be cautious around ‘debt-ceiling’ day!

- Merck will buy Prometheus for $10.8B… to boost its immunology drugs pipeline. The transaction comes as Merck and peers brace for patent expirations on their key drugs.

- Google / Alphabet CEO Sundar Pichai was paid $226m last year. That’s about $20,000 for each of the 12,000 Google-ites laid off via email in January.

- Google may be supplanted as the default search service… on Samsung devices by Microsoft’s Bing – due to ChatGPT.

- Tesla's building a Shanghai “Megapack” plant… to build more energy-storage solutions for businesses and homes – Elon’s next growth industry.

- 27% of Boomers (+59 yr-olds) have $0 aside for their later years. 25% of Gen X’ers (+43 yr-olds) said the same.

- VW, BMW, Nissan, Rivian, Hyundai and Volvo EVs… will lose access to a $7,500 tax credit under new battery sourcing rules.

- China’s economy grew at the fastest rate in a year… during Q1 – spurred by consumer spending.

- Brookfield has defaulted on over a dozen D.C. office building mortgages… as rising vacancies have hit property values – falling about 25% YoY.

- META will cut 4,000 more jobs this week.

- U.S. Gasoline Prices Rise To 5-Month High.

- The Fox / Dominion Voting Systems defamation lawsuit settled… with FOX agreeing to pay $787.5m to Dominion.

- Microsoft is developing an in-house processor for AI.

- UK inflation is 10.1% YoY… which is probably where the U.S. really is.

- Millennials’ (27 - 42 yr-olds) credit-card debt rose 30% YoY in March… hitting $5,800/person. Gen Z’s (20 - 27 yr-olds) credit-card debt soared 40% to $2,800/person.

- 20% of Americans use ‘Buy Now / Pay Later’… to pay for groceries.

- In March, 5.3% of subprime auto borrowers were over 60 days late… on their payment. That is higher than in 2009 – the peak of the financial crisis.

- Existing US home sales fell 2.4% MoM… and 22% YoY.

- The amount of corporate debt trading at distressed levels… has surged 300% YoY, and small businesses say it hasn’t been this difficult to borrow in a decade. Small businesses will need to learn: ‘How to run a small business.’

Crypto-Bytes:

SEC Chair Gary Gensler was in front of the House Financial Services Committee to answer for the way his agency has been approaching crypto regulation. Some excerpts:

- Rep. Patrick McHenry: “Sir, can you tell us whether you view Ethereum (the 2^ndlargest digital asset) as a security or a commodity?” GG refused to answer – which highlights the industry’s frustration. The actual answer is less important than an agreement from regulators on a single answer. The lack of clarity is incredible to comprehend, and will cause an off-shore movement for the digital, fintech revolution.

- Rep. Bryan Steil: “Sir, have you owned any bitcoin or cryptocurrencies?” GG said: “No.” OK have you ever owned any digital assets including the time when you were teaching crypto courses at MIT? GG said: “No.” Sir, it’s hard to comprehend how you can understand innovation without using it. The idea that we have regulators who are actively making rules for something that they have never used seems confusing. Additionally, to have professors at universities teaching courses about technologies they have never used highlights the absurdity of academia.

- Rep. Tom Emmer: “Sir, China’s CCP is planning to open their banking apparatus to US-based crypto firms in an effort to capitalize on our country’s hostile posture towards the industry.” GG = no response. This tells me that bitcoin and cryptocurrencies are going to thrive globally with no regard for US securities law. Sir, the U.S. has a choice to make: Do we want this innovation to happen in the U.S. or elsewhere?

- Rep. Warren Davidson: “Sir, I’m letting you know that we’re putting forward legislation to remove the SEC Chair and restructure your entire organization.” The current structure and your body-of-work specifically – have created more harm than good.

- Per AP: Bitcoin is up 70% to start the year, because:

o It’s a hedge against a US debit-limit crisis default.

o It’s a hedge against a worsening banking crisis.

o It’s a hedge against future US (country-specific) sanctions.

o It’s a way to front-run a potential FED-pivot.

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

Tuesday: I thought the market would begin to fade sometime in the last two weeks of April. The closer we get to 4200 – the stiffer the resistance. I'm watching MMM. For two days now, they've run into their 50-day moving average, only to get stopped. A move over $107.20 would bring me in.

Thursday: New York Fed President John Williams said that the central bank had more work ahead of them to bring down inflation, suggesting another interest-rate increase at their May meeting. “Inflation is still too high, and we will use our monetary policy tools to restore price stability.” In Washington DC, the GOP will propose lifting the debt limit by $1.5T or until March 31, 2024.

Friday: I still like AMD. From a high on March 23, it faded sideways and down, hitting its 50-day and halting the slide. Their technicals are firming up a bit, and if the overall market holds up – it could put in a pretty good bounce. I’ll take a shot at AMD if it can get over $90.55.

AMA (Ask Me Anything…)

Is everything really fine? In a nutshell, NO! Let’s look into the auto sector during the past 10 days:

- Capital One shut off dealer floorplans (inventory lines of credit),

- USA Auto shut down 39 dealerships after losing its Ally floor plan.

- Wells Fargo laid-off all of its Jr. Auto Loan underwriters and capped future auto loans.

The auto business is all about credit. Every car in every dealer’s showroom is financed. If the banks are refusing to finance, how are they going to stock their showrooms? Yet on the surface, things are still calm and undisturbed. I wonder which straw breaks this camel’s back?

Would the real Drake – please stand up… an AI-generated song featuring the voices of Drake and The Weekend went viral this week. “Heart on My Sleeve”, posted on TikTok by Ghostwriter977, racked up millions of streams across YouTube, Spotify, Apple Music, and other platforms. Drake and The Weekend knew nothing about the collaboration, all-the-while Ghostwrite977 claimed that Ghostwriter977 wrote and produced the verses for the AI-generated vocals. This is a very good collaboration, and puts music and video innovation in a very interesting place.

Next Week: What to do in a Calm Market…

Falling Flat: The NASDAQ has traded sideways for 3 weeks. The S&Ps have traded flat for those same 15 sessions. The DOW has done slightly better, but nothing to write home about. The summer of 2017 was the last time we saw activity this flat, but this time volatility remains relatively high.

This Market feels Heavy: There’s an old adage about the market: “Sell in May and go away.” The way the market has been so narrow, and volume so unimpressive – it feels like they’re desperately trying to keep it stable and not roll over. I believe this coming week could start a significant fade. I’m not seeing any earnings numbers that will ignite a new bull market, and our FED will hike rates again in May. Even those looking for a FED-pivot, need to recognize that every FED pivot has been met with a selloff. If the S&P breaks over 4300 and holds it for 2 days, then I’m wrong.

Tech is Camouflaging Weakness: The S&Ps are up 8% YTD due to 6 tech stocks: MSFT (+20% YTD), AAPL (+32%), GOOGL (+18%), META (+71%), TSLA (+53%), and NVDA (+89%). As long as investments stay this focused, then volatility will remain elevated. We are presently caught between 4211 and 4106; however; this will be resolved in the next 2 weeks because a lot of our major tech stocks have earnings.

TRADES:

- Opened the SPY July: Xmas Tree Spread:

o SOLD (-5) $320 PUTs, SOLD (-4) $335 PUTs, SOLD (-3) $350 PUTs, and

o BOT (+1) $390 PUT.

- Opened a VIX July: Call Spread:

o BOT +$26 / -$32 CALL Spread

- Opened new premium sales in AA ($38.16) and SQ ($63.48)

o AA: SOLD May 5: -$39 / +$40 CALL Spread, and

o AA: BOT May -5 / +12: $34 PUT Calendar.

o SQ: SOLD May 5: -$66 / +$67 CALL Spread, and

o SQ: BOT May -5 / +12: $55 PUT Calendar spread.

SPX Expected Move

- Last Week == $58 EM. We have not breached the EM in the past 3 weeks, and this has not happened since 2017.

- Next Week = $62 EM. Fair Warning: The complacency and volatility compression of this marketplace – will turn into a massive eruption overnight.

TIPS:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,994/oz. & Silver @ $25.2/oz.

- 13 Week Treasuries @ 4.8 to 5.25%

- **Bitcoin (BTC = $27,250 / in at $4,310)

- **Ethereum (ETH = $1,800 / in at $310)

- **Chainlink (LINK = $7.12 / in at $7.17)

- DNN – Denison Mines ($1.02 / in at $1.32)

- GME – DRS’d and HODL

- Innerscope (INND = $0.003 / in at $0.0052)

- MESO – Mesoblast Ltd. ($3.36 / in at $3.60)

o SOLD July $5 CALLS for $0.85

- MRK – Merck ($115)

o BOT Oct: +$115 / -$125 CALL Spread

- NFGC – Newfound Gold ($4.70 / in at $3.75)

o SOLD some more Oct $5.00 CALLS

- AA – ALCOA ($38.16)

o SOLD May 5: -$39 / +$40 CALL Spread

o BOT May -5 / +12: $34 PUT Calendar

- SQ – Block ($63.48)

o SOLD May 5: -$66 / +$67 CALL Spread

o BOT May -5 / +12: $55 PUT Calendar spread

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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PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

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Until next week – be safe.

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Sunday, April 16, 2023

This Week in Barrons: April 16th, 2023

Time has taught me that leading from the heart is very powerful. Per FW: A leader can be the most brilliant product person, strategist, entrepreneur, and/or business builder, but if they cannot get people to care, follow, engage, and trust – they will not be effective. This is a difficult lesson to learn. It’s a natural tendency to hold your emotions in check when you are in front of groups – as we are taught to project strength. It is also natural to hold back ‘bad news’ like a dysfunctional fundraising process, conflicts in the board room, the loss of your largest customer, or a co-founder / supplier relationship that is at risk. Yet, it is in these exact moments where leaders develop fellowship, trust, engagement, and caring from their team. If you are struggling to build trust – try a little more transparency, vulnerability, and honesty in your communication style.

The Market:

Allow me to quantify the level of financial unpreparedness out there. We need to stop assuming that most financial experts know what’s going on. The recent banking crisis taught us some very valuable lessons about risk:

1. Too big to fail bank CEOs are telling us how dangerous digital assets (crypto) are as an investment – yet these same banks combined to somehow accrue over $150B in unrealized bond losses.

2. Most major financial services CEOs tell us how dangerous self-directed investing is – yet they hold unrealized trading losses exceeding $50B.

3. Finally, we have constant reminders from traditional financial media telling us how dangerous and outrageous financial derivatives are. Yet DAILY they spend tens of millions of marketing dollars to pitch and validate their unproven market savvy and capital safety. These are the same firms that have more dollars than all the retail trading losses combined – a few hundred times over.

Nobody knows your own financial situation better than you. I think you’ll be happier when you bring your financial decision-making back in-house.

InfoBits:

- “Some of last year’s storm clouds did hit… but some of those threatening clouds are still here. Today’s inverted yield curve is eight for eight at predicting a recession in the next 12 months"… JPM CEO: Jamie Dimon.

- 40% of 2023 college grads are desperate for a job… because the unemployment rate for grads aged 20 to 24 has doubled since 2021.

- "Super Mario Bros." recorded the #1 opening global box office debut for an animated film.

- US corporate bankruptcies are at their highest level since July 2020.

- Q1 earnings season kicks off this week; analysts expect S&P 500 earnings to decline nearly 10% from Q1 2022.

- The 4 cities with home prices lower than a year ago are… San Francisco, Seattle, San Diego, and Portland. It’s the first time the index as lower since 2012.

- A record 56% of Americans believe… that a 4-year college degree is not worth the cost.

- Property defaults are not slowing down… as WeWork just defaulted on a loan for a San Francisco office tower.

- “Tear down the skyscrapers” says Kyle Bass. Demand for office buildings isn’t returning and it’s impractical to turn most towers into apartments.

- “NPR’s organizational accounts will no longer be active on Twitter… because the Twitter platform has taken actions that undermine our credibility.” Musk’s comment was: “Defund NPR.”

- “Just follow the money”… Silicon Valley investors are seeking to build long-term ties with Middle Eastern sovereign wealth funds during the worst funding crunch for venture firms in almost a decade.

- U.S. retail sales fell by 1% in March… for the 2^nd month in a row.

Crypto-Bytes:

- SBF sez: “We sometimes find $50m of assets lying around… such is life.” FTX was never a real business.

- Arkansas joined Montana and Texas… in proposing legislation to regulate and protect Bitcoin mining operations.

- There has been a real increase in the number of Bitcoin HODLers… reflecting a pattern observed in early 2021 when BTC surpassed $60,000.

- Bitcoin is above $30,000… and has doubled in 2023.

- Gold is at weekly, all-time-highs (over $2k)… so it has been a good year for the ‘end-of-the-world’ asset class (Bonds + Bitcoin + Bullion).

- The Bank for International Settlements believes… that tokenizing the trillion-dollar government debt market “could yield sizable benefits.” Let’s tell Elizabeth Warren and Warren Buffett that the BIS just found a real use-case for crypto!

- Twitter is allowing users to… view market charts and buy ‘n sell stocks from eToro.

- VC funding for crypto startups plummeted 80% YTD… meanwhile Bitcoin has increased in price by 100% YTD. Coincidence?

- Ethereum’s implementation of the Shanghai upgrade… was successful. Shanghai allows ETH stakers to withdraw their stakes (and rewards) from Ethereum if they wish to do so.

- SBF sez: “Alameda is un-auditable. We are only able to ballpark what its balances are, and cannot access a transaction history.”

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

Monday: What's on tap for us this fine week? In order, we get: (a) the CPI on Wednesday, (b) the PPI on Thursday along with the FOMC minutes, and (c) earnings from JP Morgan, Wells Fargo, and Citicorp on Friday. But there's trouble brewing out there. Lumber futures are signaling a major problem in housing, and I could easily see the market finally paying attention to some reality later this month. We're way out over our ski's here.

Wednesday: Currently, Fed Fund Futures are currently predicting a 75% chance of a 0.25% rate hike on May 3. The CPI came in at 5% YoY. We were up 0.1% MoM, and ex-food and energy we were up 0.4%. The Core Rate was unchanged at 5.6%. So, are we looking at the beginning of a blow off top here? Are they going to squeeze the shorts till they bleed, and then yank the rug? Or has magic returned and it's: Up, Up, and Away? One would think that if this number was really good, gold (and Bitcoin) would be cratering – instead of being UP $40. Will this number make Powell quit hiking? Nope, but the market doesn't care – it thinks it is pressuring him to stop.

AMA (Ask Me Anything…)

March’s Jobs Report showed:

- Entrepreneurial jobs decreased by 280,000,

- Part-time jobs decreased by 342,000, and

- Initial Jobless Claims increased by 28,000 above expectations.

Therefore, leading indicators such as Initial Jobless Claims show us a jobs market that is about to deteriorate, especially given the majority of the report was filed prior to the banking crisis.

Next Week: When the Music Stops…

- How are a cooling economy and deflation = bullish? Year-to-date, we have seen an incredible amount of manic, one-sided trading. We are trading around and between 3 particular levels: 4211, 4106, and 3931. We may need to touch the 4211 level – before we fall because I’m anticipating an extremely volatile summer.

- We had a huge retail sales miss = 1% lower in March. I don’t believe that our FED will be cutting rates any time soon (into 2024) because inflation is entrenched in wages and ‘cost-of-goods’. Markets are completely detached from the economy – moving full-speed-ahead – while only watching through the rear-view mirror.

- The Dollar continues to ‘melt down’… and it will cause a ‘scare’ if it falls below $100. But notice how the All Country World Index of stocks has moved in the exact opposite direction of the Dollar. Aka: once the Dollar peaked in the autumn of 2022, stocks all over the world started to rip higher.

- Commodities continue to move higher… look at the chart of the CRB Index and the overall CPI percentage change from a year earlier. I was shocked at how closely these charts move in tandem, but it makes sense since inflationary assets such as commodities rise along with inflation. However, the resilience of the major commodity indexes speaks to pockets of strength beneath the surface, especially in precious metals and agricultural contracts.

- We have the lowest Volatility (17.07) since 2021… so watch for the opportunity to buy VIX CALLS.

- TRADES:

o Consumer Discretionary ETF = XLY In/Out Spread: BOT May: +$147 / -$145 PUT SPREAD for $0.88. Amazon and Tesla are both substantial contributors to the XLY, and both have earnings over the next weeks. We just need one to miss to collect the premium.

- Expected Move (EM):

o Last Week == $76 … 2^nd consecutive week for no-breach of the EM

o Next Week == $58 … It would be a statistical anomaly for us to continue the streak of no-breach behavior; therefore, we’re moving higher or lower than the EM this week.