RF's Financial News

Sunday, September 8, 2024

This Week in Barrons: September 8th, 2024

Words really do matter… more than just their associated outcomes. The newest research evaluated three types of words: those indicating mealtime, going outside, and playing. The team found that dogs (in real life) were able to successfully associate two of the categories with the correct outcomes. The Netflix documentary ‘Inside the Mind of a Dog’ clearly proves that words really do matter – to all of us.

“When you’re busy looking for more reasons to be bitter… you’re not taking the time to be better.” … Seth G.

It’s a doing less and caring less conspiracy… First, someone finds a freelancer who offers cheap and below average work. Then, small companies start to get worn down by the constant pressure to lower prices for lower quality and worse customer support. Just remember, solving a problem with lower quality and less caring – is not the correct solution.

Perfect is useful. Perfect is an absolute measure, a north star, a chance to improve our work. It’s also a shortcut to persistent dissatisfaction. Comparisons to perfect are helpful when we’re creating something – as long as we all agree that perfection is unattainable. What’s being offered is never perfect, but it may be exactly what we need – right now.

The Market:

Telegram is a social media platform with over 900m users… mostly outside of the U.S. Its Founder, Pavel Durov (now being detained in France) is a Russian billionaire who previously believed in no content moderation. Durov’s position on monitoring individual accounts is murky, and the security and encryption used by Telegram is questionable. Why Durov is being detained, and Elon Musk, Mark Zuckerburg and others are not – depends upon how you answer the question: “If you know your platform is being used for criminal activity, and you are profiting from that – are you (as CEO) complicit in the crime?”

Elon Musk’s xAI just launched “Colossus” … the world’s most powerful AI cluster, and is planning to double its size soon. This matters because xAI’s Grok2 recently caught up to OpenAI’s GPT-4 in record time, and was trained on limited resources. Now, with more than 6X those resources at their fingertips, the xAI team and future versions of Grok are going to put a significant amount of pressure on OpenAI, Google, and others to deliver.

[ Gain free access to Bullseye Trades here… ]

InfoBits:

"Remarkable Alexa” will launch with… conversational shopping tools, aggregated news stories, a child-focused chatbot, and an improved home automation hub that remembers preferences and routines without prompts.
Manuka honey has long been valued for its… antibacterial and anti-inflammatory properties. It helps to heal wounds, reduce acne, improve oral health and more. A new study out of UCLA has pinpointed another exciting application: treating a common type of breast cancer.
U.S. household stock allocation is at a record 42.2%.
The Mouse is over and out… as ESPN went dark on DirectTV when both sides could not reach agreement on a new contract. Disney is profiting from the downfall of pay TV with its own streaming business, AND using ESPN to squeeze cable and satellite TV providers even harder.
The largest pension fund in the US… sold NVDA, IBM, and Walmart.
Job openings fell to the lowest point since 2021… and are now almost 1:1 when compared to the number of unemployed workers.
Summer hiring slowdown… US employers added 142,000 non-farm jobs in August, fewer than the 161,000 jobs anticipated. They also revised June’s hiring lower by -61,000 jobs, and July’s lower by -25,000 jobs.
The Yield curves are back in alignment… 2 years ago, there was a yield curve inversion (the 10-year Treasury yield began paying less of a return than the 2-year Treasury). This week they returned to being in alignment.
Big Lots is preparing a bankruptcy filing.

Crypto-Bytes:

OpenAI now has 1m paid users… for ChatGPT’s business versions
Telegram quietly removed their privacy claim from their FAQs… aka - the statement that chats are private and untouchable by legal requests is missing.
Arthur Hayes is walking back his September Bitcoin bull run call… now saying the he expects BTC to wobble around until our FED injects more liquidity into the market (later in September). Hayes is still betting Bitcoin will rip to new highs – just not as soon as he thought.
Bitcoin holders dumped 642,366 BTC since mid-August…. sending the market into a bit of a tailspin.
Morgan Stanley is going deeper into Bitcoin… revealing a 2.1% allocation to BlackRock’s spot Bitcoin ETF (IBIT) in its institutional fund.

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

Tuesday: Today is off to a pretty grumpy start. The ISM manufacturing PMI has something to do with it, it became the 21st (out of the last 22) months that the U.S. factory activity is in contraction. So now the market has gone from hoping for bad economic news in order to get rate cuts – to now fearing the economy is falling into recession.

The VVIX surged a whopping 38.4%.
The SPX expected move gained 14%, and lost $119 today.
Crude oil futures fell 4.2% and the market screaming is "economic slowdown".
The smart money is buying more hedges – we should all do the same.

Friday: Markets want a weak jobs report – but not too weak. Weak enough that it doesn't stop our FED from cutting rates, but not weak enough to show that the economy has fallen off a cliff. The number came in at 142K vs estimates of 161K. Both June and July were revised down. The market reacted positively to the numbers, as the implied open for all three indexes moved up. That said, I still don't trust the big picture, and I’m not sure markets can hold themselves up for more than a day.

We are red across the board with the S&Ps being down ~100, the techs are off ~500, and the DOW is down ~400. I think that the ‘shock’ we saw a while back concerning the Japanese carry trade, is a big part of what we're seeing now. As much as the ‘Talking Heads’ said otherwise, there were billions of dollars to settle and that doesn’t happen in a week. Calling for a correction has been a death sentence in this market, but it certainly feels like this could be the start of one. We have an advance/decline line showing 10 advancers to 90+ decliners, the seasonality of September, bad economic news, and trillions in debt. I’m not going Full Bear but I continue to like trades to the downside.

Morgan’s Moments…

V.P. Harris proposes increasing the long-term capital gains rate… from 20% to 28%. I don’t believe that people will stop investing if the long-term capital gains tax rate was increased because 28% is still lower than the ordinary income level. But I do believe that our national debt and annual deficit issues are a spending problem, not a revenue problem. So, there is a world where we could decrease the long-term capital gains rate even lower than the current 20%, and you would see more investors and entrepreneurs investing for the long-term. This scenario (however) would require politicians to stop spending needlessly, and that part of the story is nearly impossible to achieve.

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Next Week: We just got Serious…

We awoke the ‘3-Sigma Beast’… The SPX was predicted to move $77 (either higher or lower last week), but instead we moved $250 to the downside. Therefore, we moved 3 TIMES our expected move. But as much as we had a 3-Sigma move, it was due to limited liquidity and low volume. It was a concentrated attack on the players that were going to move the indexes. such as: big cap tech (esp. Nvidia), the small caps (IWM), the financials (XLF), and crypto (esp. BTC & ETH).

Nobody cares about an ‘Oversold’ Condition… The daily chart may look ominous and oversold in the short-term, but when you open it up to a weekly or monthly chart – those conditions go away. So as much as you may think that we’re preparing for a heck of a bounce next week – we saw no capitulation. Therefore, we may have to wait until after the FED meeting on the 18^th. The VIX (volatility index) is in backwardation (where short-term volatility is higher than long-term volatility), but there is no panic in the marketplace.

Where are the Opportunities…

Oil and Bitcoin scare me. Oil is pointing toward a hard-landing recession, and investors continue to raise cash by selling: BTC and ETH.
Tip #1: I believe the utilities (XLU) and the financials (XLF) have more room to run to the downside.
Microsoft, Google, Tesla, and Amazon are way off their highs. That only leaves: Apple, Meta, and Nvidia for investors who are ‘selling their winners’ to survive.
Tip #2: META remains up over 40% YTD. If the selling continues, I’d play it (with small size): (a) by buying a narrow, in-the-money (ITM) Put Spread, or (b) by buying a wider out-of-the-money (OTM) Put Spread – positioned about 30-days out.
Tip #3: NVDA remains higher by over 100% YTD. If the selling continues, and it breaks under $100, I’d play it the same as META above.
Tip #4: GLD has been consolidating for the past several weeks, and needs to break and hold above the $2575. If so, buy an OTM Call Spread – 30-days out.
Tip #5x`: XLP (Walmart and consumer staples) have escaped the market’s wrath thus far. If the market remains weak, the XLP will go lower – play like META.

SPX ($5415) Expected Move (EM):

Last Week: EM = $77 and we moved $250 to the downside.
Next Week: EM = $127, and there is no support until the $5,200 level (200 points lower). 5,200 (interestingly) is the spot where the market found its footing a month ago.

TIPS:

HODL’s: (Hold On for Dear Life)

13 to 17-Week Treasuries @ 4.95%
Physical Commodities = Gold @ $2,526/oz. & Silver @ $28.2/oz.
**Bitcoin (BTC = $54,200 / in at $4,310)
**Ethereum (ETH = 2,220 / in at $310)
HROW – Harrow Health = $38 / in at $12
BRK/B – Berkshire = ($459 / in at $439)
INDA – India ETF ($56.5 / in at $50)
**IBIT – Blackrock’s Spot Bitcoin ETF ($30.4 / in at $24)
**MARA – Marathon Digital = ($13.4 / in at $12)
Weekly: BUY Puts for protection / SELL Calls for income
**RIOT – Riot Bitcoin Mining ($6.54 / in at $12.5)
Weekly: BUY Puts for protection / SELL Calls for income

Options Plays (hedges):

+TLT – Bonds: Jan ’26: +$110 / -$130 CALL-Sp.
+SPY – S&Ps: Jan ’25: +$520 / -$500 PUT-Sp.
+SPY – S&Ps: Jan ’25: +$500 PUT
+WEC – Wisconsin Power: Oct ’24: +$95 / -$100 CALL-Sp.
+GLD – Gold ETF: Oct ’24: +$245 / -$250 CALL-Sp.

** Crypto-Currency aware

Please be safe out there!

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Sunday, September 1, 2024

This Week in Barrons: Sept. 1st, 2024

This Week in Barrons: September 1, 2024:

We need more naps… The Goldilocks’ nap is ~20 min. long (to prevent post-snooze grogginess and issues falling asleep later), and ~6 to 7 hours after waking up. Naps put you into a low-power mode – allowing your body & mind to recuperate.

Schools should stop teaching cursive… It amazes me that schools still teach handwriting – when the only thing I write by hand are my shopping lists. Are schools relegated to teaching us where the margins are, while the rest of life challenges us to go beyond them.

90% of the effort – is in the last 10% of the job… I call it the finishing move. But without all of those who do the long and winding prep-work – there is no finishing move.

It’s tough to go back… Once upon a time, pharmacists mixed chemicals by hand, opticians ground lenses from scratch, and lawyers started with an empty page. All of these jobs are still important, but none have stayed the same. In your work, are you fighting change or leading it?

The Market:

Cheaper capital is coming to the market… which also means a portion of the ~$6.4T sitting in money market funds will likely find a new home in equities. History shows us that lower rates lead to higher asset prices. August’s summary:

The S&P 500 closed August ‘UP’ +2.3%.
Retail bought the dip.
Sentiment is euphoric, but seasonal risks are rising.
Rotation prospects look good – in terms of value and fundamentals.

Broaden your experience, but narrow your field of view… We only have so much emotional storage, but we continue to stockpile market memories unrelated to us and outside of our control. Per Phil P: We have exhausted our emotional storage space. We are great hoarders, but lousy forecasters. Therefore, we need to become less and less interested – in more and more things.

AI needs more ‘herbs’… Per Seth G: Sure, food can sustain us, but ‘herbs’ are the addition that create interest and wonder. For example, the first 100 interactions that you have with AI will leave you amazed, but post-amazement you’ll feel a bit incomplete. User experience pros are trained to add-the-herbs. Pros will create tiny speed bumps, moments of tension, and opportunities for imperfection, traction, and conflict – within an AI experience. Currently, AI is in search of customers and business models. Adding ‘herbs’ into the AI experience will bring in both of those.

[ Learn about BullseyeTrades.com here… ]

InfoBits:

Are you human? Chinese tech firms unveiled 27 humanoid robots at a Beijing expo, with Tesla’s Optimus being the only foreign competitor present. China is committed to dominating the humanoid robotics race, and commercially available humanoids may be coming sooner than most expect.

Lower interest rates won’t necessarily help housing affordability… since a cut will most likely trigger more short-term buyers and price increases.

Boeing’s spaceship is returning from space empty… Both SpaceX and Boeing were awarded funding under a 2014 NASA award. SpaceX has flown nine crewed NASA flights to the ISS since 2020, while Boeing has yet to complete any successful missions despite going $1.5B over budget.

Australia’s “right to disconnect” laws went into effect… giving Aussies’ the right to ignore their boss outside of working hours.

Pres. Biden raised duties on Chinese EVs to over 100%... Canada’s now following suit with its own 100% EV tariff (plus a 25% duty on Chinese steel and aluminum).

Made in China – Stays in China… this week IBM shut down its Chinese R&D team affecting around 1,000 employees.

Groundhog Day for oil demand… as ExxonMobil forecasts that oil demand will remain constant through 2050.

Home prices hit record highs… as national prices rose 5.4% YoY.

OpenAI is raising money… because even with sales of ~$3.4B, it’s will lose $5B by the end of this year. They will need to raise more money than any start-up ever has – at a $100B valuation.

Warren Buffett’s Berkshire… becomes the first non-tech company worth $1+T.

A generational shift towards balancing work life… shows that ll sick leave usage increased by 55% from 2019 to 2023. Even white-collar workers took sick leave 42% more in 2023 than in 2019.

Alibaba just threw its hat into the AI beauty contest… as they released a new vision-language model that outperforms GPT-4o in several benchmarks.

ChatGPT now has 200M+ weekly active users… up +200% from Nov. 2023.

Q2 GDP was revised higher… from 2.8% to 3.0%.

Crypto-Bytes:

Pavel Durov, Telegram's CEO, was detained in France… throwing crypto, privacy, and free speech worlds into chaos. Pavel is currently charged with “complicity, and refusal to cooperate”; with bail being set at €5m. The arrest comes as the EU implements its Digital Services Act – which imposes stricter rules on content moderation. With #FreePavel trending, the crypto and Telegram communities aren’t backing down.

BlackRock has surpassed Grayscale… as the leading manager of on-chain capital as its lineup of exchange-traded funds now includes the largest Bitcoin product on the market (IBIT).

Bitcoin spot ETFs enjoyed their eighth… consecutive day of inflows on August 26 – with BlackRock’s IBIT leading the way.

The Nasdaq is awaiting regulatory approval… to launch BTC Index Options (XBTX). If approved, this will mark a significant step in the maturation of digital assets.

There are now 172,300 crypto millionaires… with Bitcoin producing 85,400 of them.

[ Learn about Polymarket.com here… ]

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

Monday: This week brings us earnings from the most darling of the Mag-7: Nvidia. They report on Wednesday (after the bell) and expectations are for yet another blowout quarter, beating estimates, and raising guidance. If they do all that, the entire AI space will once again light up. If they disappoint, it could rock the entire NASDAQ.

Thursday: Nvidia’s earnings were incredible: Revenue: $30.0B UP +122% YoY, EPS: $0.67 UP +168% YoY, Operating Income: $18.64B UP +174% YoY, Net Income: $16.60B UP +168% YoY, Gross Margin: 75.7%, and they Announced a $50B stock buyback. The only issue is that their revenue growth decelerated from previous quarters.

Friday: This morning we’re awaiting another measure of inflation – the PCE. The PCE headline number is 0.3, they wanted 0.2, but it was better than last month’s reading. Core PCE came in at 0.2% MoM and 2.6% YoY – beating the 2.7% estimate. These numbers will allow Powell to do multiple rate cuts starting in September.

Morgan’s Moments…

The newest Samsung EV battery… uses a 2.2lb. SILVER core. It’s lighter than current batteries. There's much less risk of fire. It will offer a 600-mile range and will recharge in 9 minutes. If they sold 20% of the global EV market, they'd need to use 16,000 tons of the 25,000 tons of silver mined each year. If these batteries work, they will affect the silver supply and price. Tip: The pure silver miners that I like for this solution are HL (the largest silver miner in the U.S. and third largest in the world) and SVM. The key is patience.

Bitcoin performance summary:

Q2: The most consistent performer, balancing gains with fewer severe losses.
Q4: High highs, low lows – exciting but risky.
Q1: A decent start to the year with moderate performance.
Q3: The most underwhelming, often a quiet quarter for Bitcoin.

Next Week: Time to ‘Bear-Up’?

Bkgd: The plan was easy – until it wasn’t. Nvidia was to deliver dynamite earnings, and markets were to rally from Wednesday night onward. Instead, we received good earnings, and 2-days of a low-volume, illiquid slop-fest. New market leaders are emerging, but the September calendar scares me – along with rate cuts.

Watch our Monetary Policy pivot… from being a headwind to a tailwind as rate cuts pick up the pace.
Watch Emerging Markets (INDA)… given their strengthening technicals, sentiment, value, a lower USD, and significant investor under-allocation.
Watch Global, Small, & Value (HROW)… over U.S., Large, and Growth.

Nvidia and Tech… Factually, we cannot make new highs without technology leading the way.

The Financials & BRK/B try to lead… but the best we can do is tread water with our financials leading.

September is historically and notoriously a volatile month… and with FED rate cuts approaching – this one will be no different.

New Trade Ideas… with the premise being: (a) it’s an election year, (b) the incumbents would like to be re-elected, and (c) people vote with their pocket books.

1. Tech will need to reclaim ownership of this market – making it ripe for NVDA and MSFT to assert their dominance.
2. Disney is sitting right on 15-year LOWS, and moving in the wrong direction.

Tip #1: Buy a MSFT out-of-the-money (OTM) Call Spread – 30+ days out.

October +$450 / - $455 Call Spread for $0.60

Tip #2: Buy a NVDA OTM Call Spread – 30+ days out.

October +$140 / - $145 Call Spread for $0.65

Tip #3: Buy a DIS OTM Put Spread – 30+ days out.

October +$85 / -$80 Put Spread for $0.55

SPX Expected Move (EM):

Last Week: EM = $82, and we ended up flat ($0)
Next Week: EM = $75 – but with a 4-day trading week.

Is it time to ‘Bear-Up’? Not just yet – despite us being in a low liquidity September with Warren Buffett screaming caution. It’s true that this marketplace needs technology to lead it because without it – we can’t make new highs. Financials are trying, but they’re not enough to carry the S&Ps alone. The economic data that drops this week could spark massive moves. Therefore, put your hedges-on, and your hands-n-feet inside the vehicle – as we’re definitely coming into some turbulence.