RF's Financial News

Sunday, January 28, 2024

This Week in Barrons: January 28th, 2024

Optimize vs Maximize: Optimization involves finding the best set of tradeoffs for a particular set of environmental, financial, safety, and efficiency conditions. Per Seth G: maximization simply seeks the best solution for one variable. In its prime, Yahoo’s goal was to maximize its short-term stock price (satisfying the needs of its top execs) instead of optimizing for customer experience, innovation, resilience, and utility. Most social networks faded away because they began to treat their users as products, and not as the customers that they truly were. Maximizing is simple, easy to measure, rarely satisfying, and doesn’t involve difficult tradeoffs. But it constantly reminds me: ‘Just because You Can – doesn’t mean You Should.’

The Market:

I hate to be the one who throws cold water on this market… but in my capacity as someone who’s seen every bubble and crash in the last 40+ years – it’s time. It’s time to:‘Feed the Ducks.’ Blind faith with house money and FOMO are the driving forces behind this market rally. Here’s how crazy things are getting.

- Investors who lost up to 70% of their investment in Twitter – are getting priority to invest in Musk’s AI startup at a $20B valuation. Oui vey!

- Sam Altman is raising billions for a network of AI chip factories. I asked: ‘At what valuation?’ The answer was: ‘Who cares – it’s free money.’ Double oui vey.

We are witnessing a classic institutional top of a market that was once described to me as: ‘I’ll buy it with your money, but I’m not touching it with my money’.

Wanna retire early? You may want to re-think that strategy as retirements are set to break records this year.

- ~11,000 Americans will turn 65 every day - joining the 44% of boomers already retired. This will create major issues for various skill sets within our labor force.

- Americans 65+ hold more than half of the US’s wealth, but ~43% of those have $0 in retirement savings.

- The average 401(k) balance dropped by 20% in 2022.

This problem isn’t going away as ~150m jobs worldwide (over the next 6 years) are shifting to workers whose current average age is 55+.

InfoBits:

- Magnificent 7 earnings growth… is expected to be +47% in Q4.

- The Conference Board Leading Economic Index (LEI) fell… for the 21st consecutive month in December, hitting its lowest level since May 2020.

- The US economy grew at an annualized rate of 3.3% in Q4… outpacing analyst expectations of around 2%, and causing us to wonder about fake data?

- L.A. Times to lay off 20% of its newsroom staff… coming just 4 days after their journalists went on strike for first time in the newspaper's 142-year history.

- Microsoft laid off 1,900 video game workers… following its Activision Blizzard acquisition.

- WWE and Netflix agree to 10-year, $5B deal… that streams WWE's flagship "Raw" program on Netflix beginning in 2025.

o In other WWE money news… former wrestler Dwayne ‘The Rock’ Johnson is joining TKO’s BOD. He’s set to receive $30m in stock grants, and obtain full ownership over the trademarked name ‘The Rock’ as part of a new licensing arrangement.

- That Apple doesn’t fall far from the tree…

o Apple’s Vision Pro sold out… of ~180,000 units in their first 4 hours of being open for business.

o Apple topped Samsung in annual smartphone shipments… for the first time since 2010.

- Tesla’s hitting potholes…

o Chinese EV carmaker BYD became the world’s #1 EV seller.

o Versions of Tesla’s Model 3 became ineligible for the US $7.5k tax credits.

o Hertz and Sixt have sold thousands of Tesla’s from their fleet of EVs.

o Tesla’s cutting prices in Europe.

o The Cybertruck has had mixed reviews.

o Tesla’s shares put in their biggest slump in over a year, after the company missed sales estimates and warned of a slowdown ahead.

- “This ain’t business … It’s personal” … Rocky

o After regulators put the kibosh on Adobe’s merger with Figma, Figma is cutting its valuation by 50% and offering buyout packages (at the lower valuation) to employees who want to bail.

o Senior executives at Google apparently just tried Bard, because they immediately fired the AI firm that created & trained their pseudo-ChatGPT competitor.

o San Francisco is suing California for allowing Waymo and Cruise to expand their autonomous car operations despite the software’s serious issues.

Crypto-Bytes:

- Bitcoin’s price has fallen 16%... since the spot ETFs launched on January 11.

- Inflows into the sport ETFs… have totaled ~$4.7B by EOD Tuesday.

- Due to Grayscale’s ETF fees (1.5%)… vs Blackrock’s and Fidelity’s 0% fees - about $3.7B has left Grayscale’s fund.

- Hackers stole $1.7B from crypto platforms last year… which is a 50% YoY drop as DeFi protocols have ‘battened down their hatches’.

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

Wednesday: China is planning a stock market rescue package backed by $278B. With that in mind, watch BABA – it ran straight into its 50-day moving average and stopped on a dime. But here's the issue: Is there anything out there NOT absurdly expensive that seems like it wants to go? AMZN over 158.44 might work. Otherwise, this is all about the Mag 7 – because this market is pretty skinny out there.

Thursday: While we see the Mag 7 push the indexes higher:

- Initial Jobless Claims came in at 214k – while we expected 200k,

- Durable goods came in stronger than expected,

- Q4 GDP crushed estimates at 3.3%, after 2% was expected, and

- Core PCE (inflation) came in at 2% - with 2% being expected.

With a GDP this strong, are they sure our FED is going to cut rates?

AMA (Ask Me Anything…)

What if we’re being FED bad data? What if inflation is already back to its 2% target? Truflation is showing the current inflation rate as 1.86% - almost 50% lower than our Fed’s 3.4% current reading. Per Anthony P: What if our FED wants to cut interest rates – because it sees a dis-inflation recession coming? Factually:

- Small business hiring fell to the lowest level since June, and marked its second lowest reading since the 2020 pandemic.

- Both manufacturers and service companies cut jobs in December, the first time that’s happened since October 2022.

- Job growth was revised lower in 11 of the last 12 months. This often occurs when an economy is at an inflection point, or shifting from growth to contraction.

- Credit card debt hit a record high of $1.1T and delinquencies were at their highest levels since 2011.

- Profit margins for S&P 500 companies shrank to 10.9% in Q4, their lowest level since 2020.

- The inverted yield curve (the 2-Year T-Bill rate being above the 10-Year) has been with us for over a year.

When it looks like a duck and quacks like a duck…

Next Week: Just Listen to our FED’s remarks…

After the GDP reading came in hot (even accounting for them fudging the numbers during an election year), that puts the market (and our FED) in a tough place. Our market wants multiple rate cuts this year, and it’s hard for our FED to justify slashing rates – if the economy is doing so well. With that in mind, it's going to be very interesting to hear from the FOMC this week. Between rate cuts, and goosing the GDP & inflation numbers – I think this market has gotten a little ahead of itself, and could use a sideways pause. If Powell is hawkish, we might get a little correction. But, if he's dovish and is considering removing the accommodation – then we may continue surging to more all-time highs. So, it’s the Powell show this week.

TIPS:

HODL’s: (Hold On for Dear Life)

- 13-Week Treasuries @ 5.3%

- PHYSICAL COMMODITIES = Gold @ $2037/oz. & Silver @ $22.9/oz.

- **Bitcoin (BTC = $42,300 / in at $4,310)

- **Ethereum (ETH = $2,270 / in at $310)

- **ChainLink (LINK = $14.41 / in at $7.78)

- AAPL – Apple = ($192.4 / in at $181)

- **COIN – Coinbase = ($125.2 / in at $125)

- **MARA – Marathon Digital = ($17.85 / in at $12)

o Sold the Feb. & March $32 Covered Calls

- **RIOT – Riot Platforms = ($11.3 / in at $12.5)

o Sold the Feb. & March $22 Covered Calls

- UEC – Uranium Energy Corp ($7.4 / in at $4.8)

- UROY – Uranium Pure Play ($3.3 / in at $3.1)

- XLK – Technology ETF (201.75 / in at $201.2)

** Crypto-Currency aware

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, January 21, 2024

This Week in Barrons: January 21st, 2024

“Sorry - You didn’t get the job…” is a phrase you can process 2 ways:

- 1. The selection committee saw you, understood you, and then rejected you.

- OR

- 2. The selection committee didn’t understand what you had to offer. They didn’t reject you, as much as they rejected your application and your story.

Now, you can always do a better job of finding your own special place. But in the short-term, practice telling your story and earning your chance to get there. In today’s climate, there’s just not enough time to fully understand and reject anyone as a person.

“Developing your story…” per Seth G: will take between 50 and 100 practice sessions. Most stories don’t resonate with people. In fact, the stories that resonate the most – are the ones that are built on top of stories we already believe-in. For example, single-use plastic was a story that refused to stick. Heck, in many countries bottled water remains a symbol of status and healthcare. The story of millions of discarded bottles floating in the ocean, it was easy to ignore because: (a) those bottles were ‘out-of-sight & out-of-mind’ and (b) ‘I already put my bottles into the blue bin.’ Recently a more powerful story emerged that described 100 times more micro-particles of plastic (billions of tiny, new health risks) in bottled water – than previously thought. Suddenly those clear bottles of status and health, look like bottles of poison. Remember, the stories that resonate – build upon the stories we already believe-in.

The Market:

Did you know at 65…

- Your senses are your competitive advantage. History rhymes and you sense the trends.

- Your insight comes from your peripheral vision – which (over the years) has gathered ~70% of your knowledge.

- You’ve honed your listening skills. You have 2 ears and 1 mouth – and have learned to use them in that proportion.

- More sustainable businesses are built by those over 65 than under 35.

- More continued provisional patents are filed by those over 65 than under 35.

- Instead of asking: ‘Am I too old?’, maybe you should be asking: ‘Is it time for a change?’

InfoBits:

- Apple Vision Pro’s Pre-Orders started on Friday… and they see teaching and remote learning as their first markets. The iPhone 16 should include a horizontal camera button for Vision Pro videos.

- Baby Boomers have figured out how to torture millennials… instead of downsizing into smaller homes, they’re learning to enjoy more aspects of their larger homes – and NOT moving.

- David Solomon (CEO of GS): “I'm very concerned about our growing debt. I do NOT think that it will come home to roost in 2024. I'm in the camp of higher rates longer – because we have to refinance this debt."

- Google is kicking off the year by laying off ~1,000 staffers… without much explanation, after already cutting 12,000 jobs. Employees worry about corporate morale.

- U.S. housing starts fell 4.3% in December… with single-family home construction falling the most. Sales of previously owned homes dropped 19% YoY – to their lowest level since 1995.

- Initial jobless claims have fallen… to their lowest levels since Sept. 2022.

- The mix of high inflation, cheap wine, and an aisle-of-shame… have made Aldi’s the U.S.’s fastest-growing grocery store chain.

- Chinese telecom giant Huawei… just established a new smart car unit.

- Spirit Airlines may soon be with us in spirit only. A federal judge ruled against their planned $3.8B sale to JetBlue for competitive reasons. Spirit’s response: “Without a merger, we’re toast, and then no one will have budget airfares. Is that what you want judge?”

Crypto-Bytes:

- Howard Lutnick (CEO of Cantor Fitzgerald) has confirmed… that Tether, (the issuer of USDT) possesses the funds that it claims. That follows a detailed examination of the stablecoin issuer’s assets and balance sheet.

- Jamie Dimon (JPM’s CEO) says his "personal advice"… is to not get involved with Bitcoin. But Jamie, how does that fit with JPM being an authorized participant in BlackRock’s spot Bitcoin ETF? OOPS… mic-drop!

- “Bitcoin is secured by the largest computer network in the world… orders of magnitude larger than the combined size of the Amazon, Google, and MSFT clouds.” ... Eric Yates

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

It’s been a weird week: I think the ten year had them bothered, but they’re buying the dips. Last week, the S&P 500 rose 1.2% to 4839.81, surpassing a closing all-time-high from January 2022. The Dow Jones Industrial Average rose 1.1% and the Nasdaq Composite rose 1.7%. Optimism around artificial intelligence has helped drive gains in technology stocks, including Taiwan Semiconductor Manufacturing Co., Nvidia, and AMD.

AMA (Ask Me Anything…)

How did Bitcoin ETFs receive Billions – and prices go down?

Per Anthony P:

1. “Buy the rumor – Sell the news”… Investors had built up so much anticipation for the ETF approvals that they ran the BTC price from $27k in mid-October to $45k earlier this month – and then took profits.

2. There have been billions of dollars flowing out of Grayscale’s GBTC, which is putting significant sell pressure on the bitcoin price. Grayscale’s management fees only dropped from 2% to 1.5% - while other spot bitcoin ETF fees are in the 0 to 0.5% range. It just takes time to move from one ETF to another.

3. Finally, the demographic of the average Bitcoin holder is changing.

a. Previously, those who held Bitcoin created a HODL culture (Hold On for Dear Life). This produced a highly illiquid asset, which caused FOMO-esque behavior when responding to any up-tick in demand.

b. Now, the hardcore holder base will be diluted by traditional financial players. Blackrock’s IBIT already has more than $1B in the fund after the first four days. Traditional financial investors are likely to rebalance their portfolios once a month – which will include selling and taking profits. Some of the incoming capital flows will have their origins in leveraged derivatives – which will reduce the actual positive impact on price.

c. AND with more capital and products come increased liquidity and reduced volatility. The good news is that we shouldn’t see severe 80% drawdowns in the future, but we also shouldn’t expect 1,000% price increases / year.

Next Week: Markets Catch the NVDA Fever…

Backdrop: Our economy and especially our markets are designed to be debt based. That's why +$34T in debt is not bothersome to anyone, and our markets are making all-time-highs. Remember, the debts will never be repaid, and increased debt gives us more of an excuse to print money. Also, this is an election year. The incumbent party will do everything possible to make the economy look good, and the easiest way to do that is to juice the stock market. Everyone likes seeing their 401k go higher, and this is why the latest consumer sentiment survey came out so strong. Unfortunately, reality bites because our credit card balances are at all-time-highs and delinquency defaults are not far behind. By the way, the NY Empire Manufacturing report was expected to come in flat – instead, it came in down -35. Layoffs continued through Google at ~1,000, Wayfair at ~1,650, and Macy’s for ~2,500. But hey: What Me Worry?

Tech came roaring back… and everything paled in comparison to the ~23% YTD gains shown by Nvidia (NVDA).

NVDA is the tech market… It’s simply incredible, that 3 weeks into the year – NVDA is up +23%. Out of nowhere NVDA is a $1.5T company that has twice the volatility of AAPL and MSFT. So, NVDA is acting like a $3T company, and is driving the tech marketplace. [FYI: the YTD returns of the other Mag 7 components pale in comparison to NVDA.]

If you’re not into tech… get into tech, because many of the old economy indicators (like freight) are telling a very different story. Global trade and manufacturing are recessionary, and both Europe and China continue to be weak. Fund managers (not wishing) to get left behind again this year) have been ramping up their exposure to tech stocks - especially if winning is as simple as: "Buy the Mag 7".

Call buyers are back and running wild… especially inside of NVDA. Prop trading firms are coming in and buying mass quantities of CALL options – ‘At the Ask or Above’. When you look at other sectors: Energy (XLE) and Utilities (XLU) are both down -5% YTD, Financials (XLF) are flat, even Tesla (TSLA) is down 15% YTD. The market (right now) is localized to AI / Nvidia, and that is ‘cause for concern’. Also, the premium being charged for NVDA CALL options is ~30% higher than the premium being charged for the same equidistant / equal volatility out-of-the-money PUT options. Tip #1: In NVDA, the immediate trade is to purchase an inexpensive PUT Spread – 30 days out and allow the stock’s own mean-reversion to make money for you.

FED Funds go 50/50 for a March rate cut… which is the largest marketplace acknowledgement toward normal FED behavior – that we’ve seen in a long time. So, it’s a coin-flip as to whether our FED cuts rates in March. Bonds are selling off, the Dollar remains above $102.50, and yields on the 10-Yr. have moved convincingly above 4.1%. None of this is positive for markets – except Debt + AI + Nvidia = print baby print.

SPX Expected Move:

- Last Week = $55 (4-day week) that ended EXACTLY @ +$55

- Next Week = $58 (5-day week)

TIPS:

Buy what’s working – until it doesn’t:

1. Bonds = steady tax-free, cash income,

2. Crypto = it is this past decade’s best performing asset class,

3. Big Tech = because it most recently gained 55% YoY – end-of-story, and

4. Uranium = everybody needs a ‘spec-play’.

HODL’s: (Hold On for Dear Life)

- 13-Week Treasuries @ 5.3%

- PHYSICAL COMMODITIES = Gold @ $2031/oz. & Silver @ $22.7/oz.

- **Bitcoin (BTC = $41,600 / in at $4,310)

- **Ethereum (ETH = $2,480 / in at $310)

- **ChainLink (LINK = $15.41 / in at $7.78)

- AAPL – Apple = ($191.5 / in at $181)

- **COIN – Coinbase = ($124.7 / in at $125)

- **MARA – Marathon Digital = ($16.13 / in at $12)