AI has numerous potential applications… but I wonder whether it will transcend serving and perpetuating mediocrity. I've used AI for various tasks like answering questions, writing letters, and coding – with reasonable success. While AI can save resources, time, and money – so can fast food, online degrees, and remote work. At times, it seems like the market may be overvaluing AI, much like it did with 3D printing. Currently, I see AI primarily as a tool for accelerating mediocrity.
When facing a complex problem… it’s easy to become confused. Lately, it has become fashionable to express one’s confusion with certainty. The thing is, confusion shared often leads to learning and progress. “I don’t understand this part,” is a great thing to say before someone helps you understand it. On the other hand, certainty is almost guaranteed to maintain your confusion, particularly when the thing you were sure was going to work – does not.
Choose your bucket(s) wisely… because in many situations, success depends on context. If you douse a small campfire with a bucket of water, you'll extinguish it. However, if you pour a bucket of vodka into a shot glass, most of it will go to waste, and the table will be ruined. Everything is relative. If a small tech company's mission is to 'Change the World,' but it only delivers a useful tool – it’s perceived as a failure. The promises we make set expectations, and when they don't align with what's delivered – people tend to overlook the effort and quality. The key challenges are: (a) picking the right bucket for the problem you’re trying to solve, and (b) making sure you fill the bucket all the way to the top. Mastering these two aspects makes predicting the future much easier.
The Market:
“The way I think about relative price strength vs popularity:” Per Howard L.
- In Up-Trending markets, I like the least followed stocks with the highest relative price strength.
- In Down-Trending markets, I like the most followed stocks with the weakest relative price strength.
5-star ride... Uber’s getting into the $212B un-delivery biz with a “return a package” feature. Users in dozens of US cities can now pay a flat $5 to send packages to their local post office, UPS, or FedEx. Uber has pivoted from a ride-hailing app to an everything transportation app – delivering: people, food, freight, and pharmacy.
Inflation’s under control… LoL. The price of orange juice is up 315%, and cattle prices are up 125% - since 2020. Olive oil prices are up 130% YTD. U.S. Bank losses on held-to-maturity assets have soared to an all-time-high of $400B. U.S. mortgage rates surpassed 8% for the first time in this century. Taiwan Semiconductor’s revenue fell 13% YoY, and given they make all of the chips for Nvidia, Apple, and AMD – maybe all is not great in AI-land.
InfoBits:
- Pandemic era childcare funds are expiring… and student-loan repayments are re-starting – stretching thin budgets even thinner.
- OpenAI announces that ChatGPT can now… hold 2-way, verbal conversations. Next up = video generation from text.
- JPM’s CEO believes that stress and stagflation… will hit when the FED rate hits 7%.
- All of the most recent IPOs… are trading at or below their initial IPO price.
- Demand for instant noodles hit a record 121B servings last year.
- Consumer confidence fell in September… along with increasing consumer recession concerns.
- GDP estimates were lowered to 2.1% for the year.
- Costco has been selling one-ounce gold bars… so quickly that they had to limit each customer to a maximum of two.
- Blue Apron (APRN) made its last delivery… and was sold to the Wonder Group for 99% LESS than its IPO price 6 years ago.
- Restspace allows users to rent private bathrooms… for $1 per minute. Call it: AirPnP.
- The U.S. is now $33T in debt. We have not balanced a budget in 22 years – regardless of which political party is in power.
- We added $275B to the national debt in a single day… and we’re on track to add $1T to the debt in a single month. Ain’t printing money fun?
- We created 336k new jobs in September… the largest monthly increase since January. This allows our FED to continue raising rates to tame inflation.
- AMC confirmed that Swift’s The Eras Tour movie… sold more than $100m in advanced tickets – making it the highest single-day ticket revenue in their 103-year history.
Crypto-Bytes:
- MicroStrategy bought $147m worth of Bitcoin in August… raising its stake to 158,000 BTC.
- Congress told the SEC to approve a Bitcoin spot ETF… immediately – arguing that the SEC can no longer justify rejecting Bitcoin ETFs based upon manipulation and fraud concerns.
- Ethereum hit $10B in revenue faster than Facebook & Microsoft.
- 6 of the top 10 countries leading in crypto adoption are… India, Vietnam, the Philippines, Indonesia, Pakistan, and Thailand.
- Europe is eclipsing the U.S. in crypto regulation… and drawing investors because of it.
- The crypto market is up +39.32% YTD and +17.13% YoY.
- ‘The Big Short’ author Michael Lewis said… that SBF considered paying Donald Trump $5B to withdraw his presidential bid – viewing him as a threat to democracy.
- Coinbase obtained a crypto payment license… from the Central Bank of Singapore to expand its services to institutions and retail investors.
- In 2022, FTX employees discovered a back-door to Alameda… which allowed FTX to borrow / embezzle $65B. They told their bosses and they flagged the code – right before those same bosses were fired.
- A lawyer for FTX’s creditors said… “SBF’s 2022 investment in Anthropic could make it possible for FTX to post a 100% recovery rate in assets.
- A new report from K33 Research recommends… rotating from Ethereum into Bitcoin after the recent Ether futures ETF launch saw weak trading volumes.
TW3 (That Was - The Week - That Was):
Tuesday: The 10-year note yield is now up ~440 basis points from its 2020 low. Almost every move of this size, dating back to the 1980’s, resulted in some form of a crisis. Currently, the gap between treasury yields and equity valuations is unfilled, so either equity valuations or treasury yields need to fall to close this gap.
Wednesday: Anthropic, one of the main rivals of OpenAI, is in talks with investors to raise at least $2B in new funding – after Amazon committed $1.25B last week. Google, which bought a 10% stake in the startup in 2022, is expected to invest at a valuation ~$25B. That’s at least six times the $4B valuation investors assigned the company when it raised 7 months ago.
Friday: In other news, the oil majors have been sold vigorously, and when the selling ends and they turn higher – I’m going to load the boat with: VLO, XOM, and MRO. In Friday’s Jobs Report, 885k full-time jobs were lost, and over 1m part-time and government jobs were added. Enjoy this rally while it lasts.
AMA (Ask Me Anything…)
The above is a waste of time. Per Seth G, the math makes no sense, and it leads people to create inferior passwords – not better ones. There’s plenty of insightful, effective thinking about online security out there, and your organization only embarrasses itself when it hassles customers to engage in silliness like this. The good news is that stupidity is easier to spot and fix than ever before. The challenge is that the person doing the work often has a boss who won’t put in the time to understand the work. For example: there’s no good reason for the country drop-down to start with Andorra and put two of the largest ecommerce countries in the world at the end of a hundred plus list. Don’t tell me that it’s the way we’ve done it since the last century, and ‘if it ain’t broke’. Now that AI is about to rewrite every rule of our culture, perhaps it’s a good time for the bosses to commit to understanding them?
Next Week: Bond Markets Tank…
Bonds continue panic selling – damage report? The bond situation just keeps getting worse, and if they don’t recover soon it will be ‘game over’ in the S&P’s along with the bonds. But in the midst of all of the chaos, technology saved the week as the QQQs ended the week on the upper edge of their expected move. As the 10-year approached 5%, currently it’s all about the ‘bond-induced panic’ price action.
Unrealized Losses for regional banks and brokers are mounting: There are tons of risk managers and portfolio managers that are ‘massively’ long bonds from years ago. They originally bought bonds in order to earn any fixed income return – until they fell asleep at the switch. There are unfathomable, unrealized losses across the entire banking community. Schwab (for example) could be showing ~$35B in unrealized losses – for a company that’s only worth $90B.
Is the selling in Bonds over… not yet – as every bond rally is met with increased selling by banks exiting their positions. The implied volatility of the TLT (1 week out) is 23%. When I compare this to the volatility of the S&Ps (16%) – I’m scared that there is more bond selling to come because we’re only about ‘half-way’ on the ‘bond fear’ index.
Watch retail as WMT and COST were hit hard… and this is the first time that a virtually unscathed area – took a largely unprovoked marketplace hit.
Tech saved the market (again), but for how long? The financials are down 4% YTD. The energy sector is flat on the year. The S&Ps are up about 13% on the coattails of 7 technology stocks. Retail is one of the last soldiers standing – along with tech. Until tech starts to fade, this marketplace will be resilient. Watch AMZN, AAPL, GOOGL, NVDA, META, TSLA, and NFLX for the cues for any deeper correction. Bonds will continue to sell-off, but until we see tech respond – there could be a case for buying the bonds (/ZB) that others are selling.
SPX Expected Move (EM):
- Last Week’s EM = $80… and we moved ~$30 higher on the week.
- Next Week’s EM = $77… keep your helmet on as:
o Bonds could continue selling / or
o We could rally in bonds and have the money to support the rally come out of selling tech stocks!
TIPS:
- The market continues to trade as if there will be no recession.
- The yield curve is turning higher, which (following an inversion) has historically been a bearish/recession signal.
- Over the long-term, the tactic of letting winning stocks keep winning has been a productive strategy.
Overall, the picture remains murky with recession leading indicator signals rising, rates increasing, a continued tight labor market, and some signs of resurgent growth. In the short-term, the improvement in the technicals and lurch in sentiment to the bearish side – set things up for a short rebound.
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1847/oz. & Silver @ $21.8/oz.
- 17-Week Treasuries @ 5.5%
- **Bitcoin (BTC = $28,100 / in at $4,310)
- **Ethereum (ETH = $1,650 / in at $310)
- Apple (AAPL = $177.5 / in at $177)
- CCJ – Uranium = ($37.7 / in at $33.8)
- DO – Diamond Offshore ($13.6 / in at $15)
- MESO – Mesoblast Ltd. ($1.2 / in at $3.6)
o SOLD Oct $5 CALLS
- NFGC – Newfound Gold ($4.1 / in at $3.8)
o SOLD Oct. & Jan. $5.00 CALLS
- UEC – Uranium Energy Corp ($5.3 / in at $4.8)
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Please be safe out there!
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