RF's Financial News

Sunday, May 7, 2023

This Week in Barrons: May 7th, 2023

“So, what’s the compromise?” Every no-compromise solution has failed. If there was a way to solve our problems without giving something up, we would have done that already. So, if a persistent problem is important – the question is not: ‘Should we compromise?’, but rather: ‘Which changes are we going to make first?’

What’s the price? Salt is essentially free, but salt used to be expensive – like gold expensive. Per SG: We keep seeing the price deflation of things that we were sure would remain expensive: computer chips, disk storage and now content. Once computers start illustrating, writing and composing – the opportunity will be to have computers work with you, and not compete against you.

“How can you still be living here?” My mic drop answer is always the same: “Have you been listening to your own BS for so long, that you’ve forgotten your roots? News Flash: ‘Money doesn’t make you smart.’” I have lived in Pittsburgh for over 4 decades, and have built some incredible relationships. Without this area’s work ethic, mentors, friends, and universities – I’d be left trading time-shares in the Poconos and sneakers on eBay. Factually, it takes 10,000 hours (6 years) to really understand an area and its people. Figure out your priorities ahead of time: people vs beach / healthcare vs swimming pool / education vs country club. You are the customer, so choose wisely, because you really only get to understand 3’ish locations in your lifetime.

The Market:

The top 10 stocks are… responsible for 86% of the overall S&P index’s return. This is the most extreme concentration on record.

J. Powell did NOT say ‘Pause’: I cannot see how our FED’s decision to not say Pause – powers the S&P on a new, sustainable bull run. It’s more likely that we wobble up and down in our 3800 to 4200 channel. It’s back to trading without a trend – which means you need to be right on timing and direction.

How are overall earnings? 72% of the NASDAQ has reported falling earnings to the tune of a -7.5% Q1 Earnings Recession. The latest Jobs Report came out much hotter than estimates – which opens the door to further rate increases. Interestingly, of the 253,000 new jobs created in April, 378,000 were ‘fake jobs’ created via the Birth/Death model. Therefore, without the BLS injecting the 378k fake jobs – the Jobs Report would have been negative. The street and Powell both knew this, and hence Friday’s rally.

InfoBits:

- “The U.S. regional banking crisis is far from over.” … Former Dallas FED Pres. Robert Kaplan.

- Mercedes-Benz says cutting ties with China is “unthinkable”… and it’s also financially catastrophic given China is their largest overseas trading partner.

- Hedge funds are betting against the U.S. Dollar… and are pro-Gold.

- “We've started to see consumers rotate… towards non-discretionary spending and reduced basket size."…Fiserv

- Apple’s savings account launched last month… and attracted almost $1B in deposits in its first four days, and 240,000 accounts were opened by the end of the product’s first week.

- Morgan Stanley is preparing a fresh round of 3,000 job cuts… with banking and trading being hit the hardest.

- Writers Guild of America members went on strike… after failing to reach a new compensation deal with TV and film producers.

- IBM expects about 30% of its 26,000 back-office staff… to be replaced by AI within 5 years.

- Adidas shareholders sued the shoemaker… over its un-Yeezy split with Kanye West following the rapper’s anti-Semitic comments.

- Fund managers from Morgan Stanley to JPMorgan to UBS… prefer bonds over stocks.

- Oil prices plunged below $70/barrel… on fears of lower demand.

- The NYPD is urging people to help fight auto theft… by putting Apple’s Air Tags in their cars.

- 48% of US adults are worried… about the safety of their bank deposits. That is higher than during the 2008 global financial crisis.

- Apple’s still got it… as global smartphone shipments fell 14.6% in the quarter, Apple grew iPhone revenues 1.5%. Apple is still printing masses of cash, but it’s not growing. At some point, growth will become an issue, but it isn’t right now.

Crypto-Bytes:

- PayPal’s Venmo app will allow users to transfer crypto… between Venmo accounts, PayPal accounts, and external wallets. This move takes crypto into the world of being a legit currency you can use to buy avocado toast and pay back your friends for movie tickets.

- Bitcoin whales have purchased $2B in BTC… in the past 2 weeks.

- Coinbase launched an international exchange in Bermuda… while Gemini announced a derivatives platform anchored in Singapore. U.S. = You snooze ‘n you lose!

- Last month Kraken secured a license to operate in Ireland… and Bittrex abandoned America altogether.

- Sen. Lummis (R-WY), revealed that a newer version of her bill… which aims to build a framework for crypto regulation, could be unveiled within the next 6 weeks.

- Rep. McHenry (R–NC), said that his crypto bill… will address both securities and commodities questions – a key sticking point for crypto regulation.

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

Monday: The news of the day is that First Republic bank was taken over by the FDIC and sold to JP Morgan. I’m liking a few charts such as: NVDA > $280, TOST > $18, EQT > $35 and TGTX > $24. Momentum is carrying the morning, despite more bad news like GM laying off hundreds more.

Wednesday: Tuesday saw the fear of smaller banks going under take over the market, and we saw: PacWest -30%, Western Alliance -25%, Metropolitan Bank -21%, HomeStreet Bank -15%, Zions Bank -10%, KeyCorp -7%, HarborOne -6%, and Citizens Financial -5%.

Thursday: It’s the Apple effect. Rumor has it they're going to announce a $90B stock buy-back program, and that’s what has the NASDAQ sparked up. I am liking STNE over $13 – now that it’s finished consolidating at $12.50. If it looks strong tomorrow morning, I think I'm going to get some.

AMA (Ask Me Anything…)

Per HT: If you missed the latest by Stanley Druckenmiller, https://youtu.be/dXxWajc-tgI . Stanley is still looking for a hard landing later this year, and doesn’t trust our FED’s J. Powell to stay true to his mission. A couple more hi-lites:

- Factually: Stanley Druckenmiller is one of the world’s best investors. He’s compounded capital at over 30%/yr. for over 30 years.

- Stanley is short the US Dollar and long Gold. He sees our FED having to return to a loose monetary policy, which would drive the dollar lower versus other foreign currencies. And as the Dollar weakens, gold will appreciate in price.

- Stanley tends to buy stocks or assets that he likes before his firm completes their diligence. If their due-diligence uncovers something negative, then he will immediately cut his position. This approach of “invest now, research later” flies in the face of most investment advice, but it’s clearly working well for one of the best hedge fund managers of all-time.

Is the banking crisis over? The best-case scenario from here (per AP) is that regional banks have enough time and enough access to liquidity – that they can avoid failure moving forward. Depositors will be safe and the government won’t need to print trillions of dollars to backstop the whole system. The worst-case scenario is that banks keep failing, the government has to step in with trillions of dollars in support, and the devaluation of the U.S. Dollar re-accelerates inflation. Let’s hope for the best.

Next Week: High Volatility within a Narrow Range…

- Our 30-day trading range of 4100 to 4200… defines everything including volatility. The Expected Move for all of last week was $72 – yet we moved over $90 on Friday. Whenever you trade in a specific range for a long period of time, you continue to accumulate open interest. We will either explode higher above 4211 (on the S&Ps), or break-down from the 4106 level to 3931. The risks to trading this market are beginning to eclipse the rewards, and you’re seeing a flight to safety – Gold in particular hitting all-time-highs.

- When this range breaks, it will get nasty in a hurry. If it were not for Mega-Tech (APPL, MSFT, and NVDA), we would be there already be in-the-soup, because Energy (XLE) and Financials (XLF) are already at their break-down limits.

- TRADES:

o Tip #1: Short META = BOT out-of-the-money Put Spreads in July ’23.

o Tip #2: Watch NVDA and MSFT for similar Put Spread buying.

o Watch AAPL over $177.

o Tip #3: Gold: Precious metals are gearing up for a potential rip-roaring rally, as gold is retesting all-time highs. I would like to see a confirmed breakout holding above its $2,020 highs to feel more confident about adding to our gold & silver positions.

o Tip #4: Tri Pointe Homes (TPH): is working its way higher from a basing formation, while currently posting multi-year highs. If TPH is above $28, we want to own it with a target of $42 over the next 3 months.

o Fair Warning: Nothing good happens to this market if Financials break below last summer's lows (XLF < $31), or if Small-caps (IWM) break below $170.

- SPX Expected Move (EM):

o Last week – EM = $72. We breached the lower edge of the EM, but we ended inside the EM.

o Next week – EM = $69 = keep your hands and feet inside the vehicle!

TIPS:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $2025/oz. & Silver @ $25.9/oz.

- 13 Week Treasuries @ 5.1 to 5.45%

- **Bitcoin (BTC = $29,700 / in at $4,310)

- **Ethereum (ETH = $2,000 / in at $310)

- **Chainlink (LINK = $7.07 / in at $7.17)

- Big Bear Holdings (BBAI = $2.74 / in at $2.90)

o BOT Sept $4 CALLS for $0.35

- DNN – Denison Mines ($1.06 / in at $1.32)

- 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

- NFGC – Newfound Gold ($5.05 / in at $3.75)

o SOLD some more July & Oct $5.00 CALLS

- STNE – StoneCo ($13.60 / in at $13.02)

- TPH – Tri Pointe Group ($29.30 / in at $26.50)

o BOT July $35 Call

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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Sunday, April 30, 2023

This Week in Barrons: April 30th, 2023

Teaching is hard… Explaining atoms, molecules, decision making, or what you do at your job is difficult because in order to explain something – we really need to understand it first. Understanding goes beyond just being able to do the task, or ace the test. Understanding is hard; therefore, teaching is really hard.

Change is hard… Refusing to change is the toughest hurdle in entrepreneurship. If Major League Baseball (a game dominated by purists) can shorten the game by implementing a pitch clock, why can’t e-people admit they’re wrong and move in a different direction? Heck, why can’t we figure out how to regulate crypto – a topic for a different day. I hope we all believe that for the most part – change is good. Here are some additional financial changes that come to mind:

- 24/7/365 markets,

- Instantaneous clearing, and

- A single, non-political, regulatory body.

The Market:

It is funny what people get used to: For more than a decade, startup funding deal sizes only went up – until the second-half of 2022 happened. After that, funding deal sizes have gone down. Entrepreneurial Hint #1: 99% of the deals do not require funding, and would be well served to boot-strap the opportunity.

For example, Texas energy is weird: In Texas, so much capital was allocated to oil, gas, and renewable energy – that Texas created enough energy to power the entire state – one extra day out of every week. Factually, the Electric Reliability Council of Texas (which runs the state’s power grid) is paying consumers to take the excess energy off their hands. Bitcoin miners have also invested heavily in Texas, and have a very interesting relationship with the energy council. Bitcoin miners will pay for and consume as much energy as possible when prices and power usage are low. In exchange, they will consume ALL of the excess power – especially when they are being paid to consume it. Texas is the only state where it truly pays you to mine Bitcoin.

InfoBits:

- "I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still more work to do." …FED Governor Christopher Waller.

- Google paused construction… on their 80-acre San Jose campus amid a slowing economic environment.

- Investors see the dollar sliding even further… with the yen and/or yuan being the primary driver.

- In Q1, the 4 largest US lenders wrote off $3.4B in loans (up 73% YoY)… as consumers struggled to pay down debts.

- Gen Z & Millennials are racking up record debt due to financial avoidance.

- Luxury goods giant LVMH… is the first European company to surpass $500B in market value. Higher-income consumers continue to spend despite economic uncertainty.

- 33% of Americans have more credit card debt than emergency savings… which is the highest on record.

- Proctor & Gamble raised prices by 10%YoY… Pepsi increased prices by 16%, and Nestle went up by 9.8% - all showing sales declines. Does this sound like inflation is slowing down?

- GM and Hyundai plan U.S. battery plant investments. The new facilities will help the automakers meet local sourcing requirements required to qualify for federal electric vehicle tax credits.

- “In this economic climate, some of the best companies will die. They will die not because they have bad products, but because they do not have enough space to execute” … Cat Middleton – GP The Venture Collective.

- Tesla’s Model Y now sells for under $47k… some $759 less than the average U.S. auto price. Last summer, the Model Y cost $20,000 more.

- Q1 GDP rose at an annualized 1.1% rate… much less than expected.

- According to JAMA’s internal medicine doctors… OpenAI's ChatGPT scored better than real doctors at responding to patient queries posted online.

Crypto-Bytes:

- Chamath Palihapitiya said: “Crypto is dead in America.” The U.S. is no longer the best place to start a crypto project. Dubai, Singapore, or various islands are much better.

- Bitcoin has the potential to rally past $50,000 within a year… courtesy of a process known as halving – which cuts in half the amount of tokens miners receive as reward for their work.

- Coinbase sued the SEC… by asking a federal court to compel the agency to respond to its demand for clearer crypto regulations, and said: “the SEC is making up rules on the fly.”

- In 2021, China was the first major economy to launch an e-currency… over 100 countries (including the U.S.) have been playing catch-up ever since.

- China is positioning their Digi-Yuan for international use… which would offer an attractive alternative to the U.S. dollar for sanctioned countries.

- ARK Investment Management and 21Shares… believe that the 3^rd time is the charm when trying to get a spot bitcoin ETF approved.

- Binance.US backed out of its $1B deal… to buy the assets of bankrupt crypto lender Voyager citing an "uncertain regulatory climate."

- Speaking of hypocrisy… “Mr. Gary Gensler (SEC Chair), Did you mean what you said at MIT when you said: ’three-fourths of the crypto market are not what would be called securities in the U.S., Canada, and Taiwan – the 3 jurisdictions that follow something similar to the Howey test.’”

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

Tuesday: Earnings are beating estimates, but it's a con game. For example: let’s assume you're an analyst for the XYZ company. You know that sales and earnings are down YoY – so you lower your estimates to revenues of $500m vs the previous $750m. They report revenues of $550m, and everyone is happy because – XYZ beat their estimates! Yes, but in the big picture – XYZ is selling less and making less. Almost every name that's reported has beaten estimates that are so low, they could beat them by declaring bankruptcy.

Wednesday: Last night GOOGL and MSFT both beat earnings after the bell, with MSFT beating "better" than GOOGL. That’s an indicator that companies that play in the AI arena will probably go up. MSTR comes to mind. Today it seems that even MSFT and GOOGL couldn’t save the market. I expected some weakness in the second half of April, and I think the first stop will be the 50-day moving averages on all three indexes. Keep your powder dry as there will be bounces, but I think that we have lower to go.

Thursday: We're coming off of two pretty hefty down days, and some form of counter bounce is certainly possible. Today, I suspect SNOW is going to get some attention. On the economic front, the Atlanta FED mysteriously slashed its ‘FLASH’ GDP number in half to about 1% annual growth.

Friday: Yesterday’s bounce came out of left field. It certainly wasn't because of stunning earnings growth. With 46% of companies reporting, NASDAQ earnings have slowed to a recessionary -6.9% YoY. So, what we're seeing is that they're loving the mega-cap tech darlings, and they're so heavily weighted that when one of them jumps – the entire index goes up. Okay the PCE (inflation indicator) is out: (a) Employment Cost Index up 1.2% vs est. of 1%, (b) Personal Income up 0.3%, (c) Core PCE 0.3% = est., and (d) PCE YoY +4.6%. The PCE being up 4.6% should bother the markets.

AMA (Ask Me Anything…)

Is the Banking Crisis over? Not yet – watch First Republic Bank. First Republic’s stock is down more than 90% YTD, and is on the brink of collapse. Assuming First Republic fails, it would be yet another of the 5 largest bank failures in U.S. history. That would mean that 3 of the 5 largest bank failures have all happened in the last 4 months. FYI: First Republic is holding hundreds of billions of dollars in debt that is underwater, and those mark-to-market losses would render many of those indebted organizations insolvent.

The only path out of this situation is for the government to step in and save yet another financial institution. Per AP: they can do it in a number of ways: (a) manipulate the accounting rules, (b) print a significant amount of money, or (c) let banks fail while saving the depositors. My expectation is for (b) the government to start printing more money over the next 12 months.

Central Banks (including our FED) are running out of tools to curb inflation – so on will go the money printing presses to provide market liquidity. Everyone knew that our FED would tighten until something broke. It looks like we are watching many of the largest banks around the world buckle under the pressure. I wonder: Has there been enough pain, before they waive the white flag?

Next Week: From: FOMC to ECB to Apple to Jobs…

Range bound market – watching levels: This past week we had a nice ‘fade’ going until something weird happened. On Thursday, the DOW put on a 500-point up day on virtually no news. And on Friday we did it again – on virtually no news. What’s going on?

- (a) The PCE (inflation) numbers weren’t great, nor was the income or the employment cost numbers.

- (b) Earnings out of META and MSFT were good, but a couple companies talking about growing slower YoY shouldn’t move the entire market so high.

- (c) What if it was all on the rumor of this being the last rate hike?

So, this week gets dicey. If Powell hikes and suggests that more may be appropriate, I suspect this market will fall out of bed. Even if he does one more and suggests that he’s willing to take a break and look around, it might end up being a “buy the rumor, sell the news”sort of thing. Unfortunately, the big picture hasn’t changed until we either break significantly above 4211 or fall under 3931. We’re in the sideways chop, with lousy economic numbers, “not so hot” earnings, and a recession staring us in the face.

On tap next week = FED, ECB, APPL, and Jobs:

- Our FED will move interest rates on Tuesday & Wednesday,

- The European Central Bank speaks on Thursday,

- Apple earnings are on Thursday after the bell, and

- The April JOBS Report is on Friday.

Trades:

- Tip #1: BABA: BOT May: +$84 / -$86 CALL Spread

- Tip #2: TGTX > $24 with a $36.50 target…

- Tip #3: Gold: The near-term environment calls for patience. It’s bullish that platinum and palladium have broken to fresh highs. This structural uptrend for precious metals definitely includes the industrial side of the family.

SPX Expected Moves (EM):

- Last Week – EM = $62

- Next Week – EM = $72… it’s higher but not high enough!

TIPS:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,999/oz. & Silver @ $25.3/oz.

- 13 Week Treasuries @ 4.8 to 5.25%

- **Bitcoin (BTC = $29,500 / in at $4,310)

- **Ethereum (ETH = $1,900 / in at $310)

- **Chainlink (LINK = $7.26 / in at $7.17)

- DNN – Denison Mines ($1.10 / in at $1.32)

- GME – DRS’d and HODL

- Innerscope (INND = $0.0025 / in at $0.0052)

- MESO – Mesoblast Ltd. ($2.95 / 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 ($4.57 / in at $3.75)