Resilience:
The world is going to change, often in ways you don’t like or are unprepared for; therefore, resilience is your best asset. It’s not about how close we match our implementation to plan, but rather about understanding that ‘building to plan’ is constantly too expensive, too rigid, and requires perfect knowledge of the future. Resilience (however) is a commitment to a design, an attitude, and a system that works – even when things don’t go according to plan. Instead of designing for a prediction – consider how you might thrive under different circumstances. That design will give you a much greater chance of success. Design for flexibility, community, and probability – rather than for one point on a horizon.
For example, credit card companies design around people carrying endless balances, incurring ever higher interest fees, and ever lowering minimum payment levels. Statistically, if a person carries a month-to-month balance of $2,000 with a $3,000 credit limit – they will most likely carry $4,000 when their credit limit gets raised to $5,000. Factually, people who actively like living with financial drama – will invent new drama even if the existing fades away. We organize our lives to maintain our existing pressures – NOT to reduce them. Credit companies know that new habits take at least 30 days to form, and they’re counting on us finding another new, shiny object to purchase and finance – long before that month runs out.
Therefore, designing for resilience has allowed credit card companies to seamlessly become long-term, high interest rate finance companies, and will allow EV auto companies to become the advertising & data collection companies of the future.
The Market:
Personally, I refuse to chase the ‘reopening’ trade, but I will always trade the right setup. Yes, interest rates are going higher which is putting downward pressure on richly-valued (tech) stocks – while ‘old-economy’ stocks continue to rise. Markets are also over-pricing a return to normalcy this year – allowing anything related to travel and leisure to be on fire: hotels (MAR, HTHT, and ABNB), airlines (DAL, UAL, UAL, etc.), travel (BKNG, EXPE, TRIP), entertainment (VIAC, DISCA), restaurants (RUTH, CHEF, CAKE), and retailers (JWN, M). Markets always over-discount potential threats and opportunities – causing them to move further than reasonable. Rational expectations account for the first 30% of a move – with the other 70% being attributed to: momentum, speculation, short squeeze(s), and FOMO. The new round of stimulus is causing many cryptocurrencies to hit new highs. Blockchain related stocks are starting to break out – such as: BTBT, BLOK, RIOT, MARA, NCTY, and MSTR. Even the small cap Relative Value Index is registering all-time-highs.
I doubt that many remember that in March 2020, our FED said that it would end the “SLR”program. The program was really focused on policy manipulation and giving banks more latitude on what they could hold and consider reserve requirements. Now that a year has passed, everyone was fairly certain (COVID and all) that our FED would extend the program – but last week they announced its demise. Our FED also invited requests from its member banks as to what is really needed. Does that sound fishy to you – because it should. I’m thinking YCC = “Yield Curve Control”.
Our FED needs to control the 10-Year bond because otherwise – the ‘inflation’ cat is out of the bag, and that 2% FED inflation target is well in the rear-view mirror. My guess is that sometime over the next week our FED will announce a new version of the ‘Yield Curve Twist’ program that will allow them to more directly control the 10-Year Treasury bond. We will see: (a) our FED ‘jawboning’ the market higher with ‘easy money’, (b) OIL spiking higher (and being the escape goat for price inflation), and (c) our FED introducing a new program to further stabilize and replace the outdated SLR program. J. Powell should be coming out with a ‘Yield Curve Manipulation’ strategy – masquerading as a solution for our bond rates & inflation going higher.
InfoBits:
- “Charge it to my room.” We have passed over $5.3T worth of stimulus during the pandemic. That's $43,000 per household. Those dollars add directly to the $28T national debt – which is now larger than the entire US economy.
- China’s government is having Alibaba… dispose of its media assets, as China is concerned about the technology giant’s sway over public opinion.
- Voyage, an autonomous vehicle startup… has been acquired by Cruise.
- eToro, a trading platform that rivals Robinhood… is going public via SPAC.
- Stripe, the digital payments company valued at $95B… has passed SpaceX to become the most valuable private startup. FYI: Facebook’s final valuation before going public was $83B.
- On Sunday, even with heavy traffic… travel volume remained 41% below 2019 levels.
- Carnival Cruise Lines has more 2022 cruise bookings… than it had in 2019.
- Now that people feel more secure in their savings… more indications of revenge spending are surfacing. With a fresh round of $1,400 checks going out, expect more revenge spending in April.
- Apple and Google have reduced their own App Store charges… from 30% to 15% for companies that generate less than $1m in sales
- U.S. retail sales fell… more than expected in February.
- Uber will reclassify all UK drivers… as workers (with benefits) after losing a major labor battle. It could post a reclassification problem as more labor activists are inspired to push for a more global change.
- Dick’s Sporting Goods… is launching its own men’s athleisure line to rival Lululemon.
- President Biden could hit his goal… of delivering 100M Covid-19 vaccine shots in his first 100 days by Thursday.
- Amazon Prime Video snags exclusive streaming rights… for the NFL's Thursday Night Football package for a reported $1B per year.
- Starbuck’s shareholders rejected an executive pay proposal… which included $50m in retention pay for its CEO.
- Didi Chuxing, Chinese ride-hailing giant… is accelerating plans for an IPO to capitalize on the post-pandemic turnaround.
- Zomato, India’s food delivery company… is preparing to go public as early as next month – valued by investors at $5.4B
- The 10-year treasury… settled at its highest level since January 2020.
- The advertising ‘triopoly’ of Google, Facebook and Amazon… now collects over HALF of all advertising dollars in the U.S.
Crypto-Bytes:
- India is retreating from crypto… but we’ve seen this movie before. Discussions that would ban cryptocurrency use in India are in their final stages.
- The Chinese are crypto patent crazy… as they dominate the list of top blockchain patent holders. IBM is the only non-Chinese name in the top-10.
- Oakland B’s, fans of the Oakland A’s… can now rent a private, six-person suite for the cost of one Bitcoin. A’s president said: “The price of a season suite may fluctuate depending on when it’s purchased, which adds to the excitement.”
- Mr. Wonderful has changed his mind about Bitcoin… now owning BTC as 3% of his personal portfolio.
- DC Comics, the owner of Batman and Superman… is considering NFTs.
- COVID / Bitcoin stimulus: $40B could flow into Bitcoin and stocks as 40% of recipients (according to survey) expect to use a portion to invest in crypto.
- “I Have a Bridge to Sell You”… as someone is auctioning an NFT tied to a digital image of New York City's iconic Brooklyn Bridge.
- eToro, digital trading app… is going public via SPAC at a $10.4B valuation.
- The 1st major bank to offer crypto to its high net worth clients is… Morgan Stanley as part of its $4T wealth management division.
- Coinbase is going public… at a staggering $68B valuation.
- VanEck’s Bitcoin ETF… is being formally reviewed by the U.S. SEC – giving them 45 days to make an initial decision. The SEC (ignoring intense public demand) has been hesitant to approve a crypto-ETF.
Last Week:
Monday: I previously mentioned Airbnb (ABNB), figuring that if air travel is increasing then people should be booking homes with ABNB. I’m looking at a couple potential breakouts: NXPI over $200, PENN over $142, and CZR over $106. Either buy the stock or play them with Call options – just go 2 months out.
Tuesday: NNOX is going to be doing a presentation about their X-ray technology on Wednesday. I think NNOX can fly, and am watching for an entry. I’ll probably pick up a few shares on the close – just to see if they pop on their presentation.
Wednesday: Our FED said: (a) Inflation is running below their goal – so they kept rates the same. (b) GDP will exceed 6% this year, but they're not raising rates until 2023. (c) Our FED will continue to purchase at least $80B of Bonds / month, and at least $40B of Mortgage Backed Securities / month – until “substantial further progress is made toward our maximum employment and price stability goals.” Other highlights include:
- Our FED expects current rises in inflation to be short-lived.
- Our FED will hold rates near zero until late 2023.
- And GDP is coming in at 6.5% this year – versus the previously-seen 4.2%.
I’ll be amazed if any of that is true, and “The Oscar for Best Actor goes to … Jerome Powell.”
Thursday: Initial jobless claims are out and (surprise) they went UP. That's not good. The Philly Fed Index came in at 51.8 – which is either remarkable or another lie. This market has me incredibly nervous, and with ‘Quad-Witching’ tomorrow, I’m leaning more and more toward crypto.
Friday: Today is a ‘Quad-Witching’ Friday, and the 10-Year hit 1.755 yesterday. So, we've got the debt market going through some real gyrations, and at some point you can bet the FED is going to announce a new program of Yield Curve Control (YCC), which will be another perverted ‘Operation Twist’. It's coming, because they can NOT look like they've lost control and right now – that’s EXACTLY what it looks like. Our FED needs another direct route towards controlling rates, to offset what the market sees as runaway inflation. But fear not, J. Powell speaks again next week, and I'm sure he'll address the situation. FYI: KOPN looks like it wants to break free of its $11 congestion, and if it closes over $11.03 – I’ll nab some at the close.
Marijuana:
Dutchie, a company that charges cannabis dispensaries a monthly fee to create and run their websites, process their orders and track what needs to be prepped for pick up – has raised $200m in Series C funding at a $1.7B valuation.
Next Week: Is the ‘Buy-The-Dip’ Trade Dead?
A dangerous bond dynamic has come into play... and is holding the entire marketplace hostage. Whether you look at the /ZB (bonds) selling off, or the TNX (10-Year Treasury) rate rising – you don’t need a genius to tell you that both of those are approaching ‘parabolic-liftoff’ status. After all, interest rates started the year around 1% and are now (3-months later) 1.75%. The NASDAQ (the main recipient of ‘interest rate wrath’) has held up fairly well thus far – gaining 1.2% YTD.
- Step 1: If we continue to sell-off in the bonds and interest rates move higher, the tech sector is going to begin to feel even more pain – manifesting in stocks such as Tesla (TSLA = down 10.3% YTD), Apple (AAPL = down 7.3% YTD), and Amazon (AMZN) = down 3.5% YTD).
- Step 2: If bonds rally, the financials (which are up 18% YTD) will be sold.
Markets cannot find correlation: and without correlation – there is no capitulation.
- Financials vs Technology: Currently in the marketplace, financials are screaming higher while tech is falling like a rock. This leaves the S&Ps to meander around in the middle.
- S&P 500 volatility = ‘stuck in the middle with you’. Without any correlation, we cannot achieve capitulation. And without capitulation (in either direction), this market can’t move on with its life’s work. So, we’re stuck in no-man’s-land.
- If we wake up some morning… and we find that 90 of the S&P 100 products are trading higher or lower – that will show correlation and the entire Financials vs Tech dynamic will be broken.
The VIX is low relative to the previous 52 weeks:
- 28-day TLT (bond) volatility and in the SPX (stocks) = 20%
- 28-day volatility in the QQQs, IWM, and the XLF = 30% (50% more than bonds & stocks).
- TRADE #1 = In terms of the VIX, we’re hitting some of the lowest levels of volatility that we’ve seen in a year. If you believe that volatility is about to increase, go out into May and buy the out-of-the-money $35 Calls and sell the $65 Calls – for about $1.50. That buys you some inexpensive downside protection.
Buy-the-Dip or Fade-the-Rip?
- Buying this Dip with Long Stock is NOT worth the associated risk. Currently buying-the-dip (BTFD) in tech – which includes Tesla, Apple, etc. – has NOT been an effective investment strategy. If you’re going to buy-the-dip, then sell a call against it to guard against the short-term annihilation of your principal.
- DO NOT go out and just buy Calls. Even if Apple (for example) were to rally, that would drive volatility lower, and even the value of those calls would go down – despite Apple going higher in price.
- Play it with spreads or synthetics, but play it on products where you are not tempting fate. Nobody has ever seen a move in financials like what has happened over the past year. So, buying that dip is like trying to ‘fix stupid’ – and we all know: ‘You can’t fix stupid’. So FADE IT.
- TRADE #2 = In terms of the financials (XLF), we’re up 18% YTD. If you believe that our FED is coming out with a program to reduce the 10-Year T-bill rates – then you want to go out into May and buy an inexpensive, out-of-the-money Put Spread. An XLF Put Spread has a risk / reward that’s easy to stomach.
SPX Expected Move:
- Last week’s Expected Move (EM) was $73.54 – and we came within $16 to the downside of touching it.
- Next week’s EM is $75.81 – and I believe we will be testing those limits.
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $57,800 / in at $4,310)
- Bitcoin Cash (BCH = $530 / in at $170)
- CTI BioPharma (CTIC = $3.20)
o Sold Apr. $3 CCs for income
- Electramericcanica Vehs (SOLO = $5.57)
o Sold Apr. $5 CCs for income
- Express Inc (EXPR = $5.33)
o Sold Apr. $4 and $5 CCs for income
- Ethereum (ETH = $1,780 / in at $310)
- Grayscale Ethereum (ETHE = $17.26 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $52.95 / in @ $9.41)
- Hyliion (HYLN = $13.13 / in @ $0.32)
- Infinity Pharma (INFI = $3.64)
o Sold Apr. $3 and $4 CCs for Income
- Inovio Pharma (INO = $10.11)
o Sold Apr. $10 CCs for income
- Litecoin (LTC = $198 / in @ $191)
- Opko Health (OPK = $4.85)
o Sold Apr. $4 CCs for income
- Peabody Coal (BTU = $3.56)
o Sold Apr. $3 and $4 CCs for income
- Sandstorm Gold (SAND = $7.17)
o Sold Apr. $7 CCs for income
- SOS Limited (SOS = $7.67)
o Sold Apr. $7.50 CCs for income
- VisLink Tech (VISL = $3.67)
o Sold Apr. $2.50 and $5 CCs for income
- VivoPower (VVPR = $9.40)
o Sold the August $12.50 CCs for income
Thoughts:
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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