How does anyone set reasonable expectations? Heck, how long should it take for someone to change the world? Or personally, how long would it take you to reinvent yourself? Forget about being the next world leader, how long will it take you to become… Yourself 2.0? My best guess is that it will take 10,000 hours = 6 years. Now, that doesn't mean you can't move the dial in 6 days or 6 months. It just means that life changing stuff takes hard work, luck, and timing. Give yourself 6 years to learn, build and create. It will be gone in a blink. So, get started on building the know-how and finding the opportunities – to fuel your next vision.
Why do we care about Acquisition Cost? The cost of a puppy may be $100 at the shelter, but it’s about $25,000 – when you add it all up. A child is a couple-thousand dollars to bring home from the hospital – but about $500,000 when all is said and done. Why are we so focused on the cost to acquire – instead of the cost to maintain and retain? Twitter and YouTube are NOT free. In fact, they cost a small fortune in time and brain power to always out-think the competition. Putting your business online is peanuts … except for the millions in management fees and salaries it takes to maintain your online competitive advantage. Thinking through and ‘fessing-up’ to the carrying costs of a decision, right up front - is a great way to avoid any future surprises.
The Market:
Here’s a brilliant interview with a Hall-of-Fame investor: Mr. Stanley Druckenmiller == https://www.youtube.com/watch?v=-7sWLIybWnQ Some out-takes:
1. “We never had a soft landing when inflation has gotten above 4.5%. Once Inflation goes above 5% - it has never come down before the FED funds rate went above the CPI (8.6%) and/or we’ve had a demonstrable recession.”
2. “We are nowhere near the end of this bear market. I’m seeing a recession in 2023 – whether it’s the first half, the 2nd half, or both?”
3. “Do NOT invest in the present. The present does NOT move stock prices. Tell me what catalyst is required to move the price, and when / how we get that catalyst to fire.”
4. “If you believe we’re going to have irresponsible monetary policy and inflation going forward: Then if it’s in a ‘Bull phase’ = you’ll want to own Bitcoin, but if it’s in a ‘Bear / Stagflation phase’ you want to own gold (or copper).”
We all know that our FED doesn’t set interest rates – the bond market does. Our FED does its best to meet the bond market’s objectives. Currently, equity markets are calling ‘bulls@#t’ on our FED, and their idea that they can architect a ‘soft landing’ – without hurting the economy. Everyone’s seeing: softening economic data, record pessimism among consumers and business leaders, and big downside bets from hedge fund titans like Bridgewater. They’re all signaling a lot more pain ahead.
InfoBits:
- Qatar Energy signed a partnership deal with Total Energies… for a $30B expansion of the world’s largest liquefied natural gas (LNG) project. The project all but guarantees a long-term gas supply to Europe.
- TikTok has taken over:
o People are spending more time on TikTok than on Facebook.
o TikTok has 1.6B mo. users = over Twitter, Snap, and LinkedIn combined.
- The Sandy Hook family victims settled with Remington for $73m… using the same strategy that collapsed big tobacco and opioids.
- Spirit shareholders need to decide on their new home… Frontier, JetBlue, or neither. Acquiring Spirit will give the new owner more seats, gates, and pilots.
- Interest rates will be moving higher – faster… said our FED on Wednesday.
- A knock-off economy is emerging… as corporate departures and sanctions have not caused the Russian economy to shut down, but rather to rebuild with different brands. Next hurdle: micro-chips and Europe’s oil ban.
- Prologis, the world’s largest warehouse operator… is buying Duke Realty for $26B. They process online orders for Amazon and FedEx, so it’s a show of confidence in a slowing e-business sector.
- Wholesale prices rose 10.8% in May… a near record annual pace.
- Leon Cooperman is calling for a recession in 2023… expecting the S&P to drop another 20% from here.
- The 30-year Mortgage Rate surged to 6.3%… from 5.5% just last week. The National Assn. of Home Builders Index fell for the 6th straight month as rising rates and record-high prices continue to slow demand.
- Ford recalled 48K of its Mustang Mach-E’s and halted sales… citing an overheating concern.
- US airline bookings slipped for the 2nd month… as ticket prices spiked 30% from 2019 due to sky-high fueld costs and labor shortages.
- Americans owe $22B in LATE utility bills… as delinquencies rise.
- Hiring is slowing… Spotify down by 20%, Wealth Simple is reducing headcount by 13%, and Warner Bros. Discovery is cutting 1,000 ad sales jobs.
- U.S. Retail sales fell 0.3% MoM… as higher prices are hitting consumers’ wallets. It’s even hitting corporations, as Block / Square are giving up their San Fran. HQ as they transition to a more distributed workforce model.
- Experts predict US oil production… will be at pre-pandemic levels in 2023. And a global recession and collapsing demand would bring down oil prices.
- iPhone assembler Foxconn… plans to build its first EV battery plant in Taiwan.
- U.S. cosmetics company Revlon filed for bankruptcy.
- EV owners can’t escape inflation… as Tesla raised prices $6k on all US car models. Tesla was making more money repossessing cars than selling them!
Crypto-Bytes:
- The U.S. could have a new stablecoin law by the end of 2022: Sen. K. Gillibrand (D-NY) said: “We just had a financial crisis meltdown that catalyzed a process of drafting legislation that would otherwise have taken a decade.”
- Celsius paused all withdrawals, swaps, and transfers this week… due to extreme market conditions. “We are working with a singular focus: to protect and preserve assets to meet our obligations to our customers.” Nexo offered to buy Celsius but their offer was declined.
- 2,000 Terra investors filed a class action lawsuit against Binance US: It’s the 1stmajor U.S.-based court filing relating to Terra, whose UST stablecoin wiped out around $40B in investor funds last month.
- Goldman Sachs started trading a derivative tied to ether (ETH).
- Financial Institutions are weighing in on crypto: (a) Bank of England: “Crypto has no intrinsic value”. Morgan Stanley: “Expectations of higher FED rates are depressing crypto prices.” Bank of America: “Consumer interest in the sector remains strong.”
- Coinbase will lay-off 18% of its workforce and BlockFi 20% of its team. Gemini, BitMEX, and Crypto.com made their cuts prior to last week.
- Celsius has hired restructuring attorneys… Akin Gump Strauss Hauer & Feld to advise on possible solutions for its financial problems.
- Tether has denied claims that its commercial paper portfolio… is 85% backed by Asian paper – some of the riskiest on the market.
- USDC issuer Circle is set to introduce a Euro-Backed stablecoin… by the end of June. The Euro Coin will be backed by euro-denominated reserves held by U.S.-regulated financial institutions.
- Three Arrows, a massive crypto VC and trading fund… was liquidated by BlockFi and other lending firms after it failed a margin call.
- A pool on Curve that lets investors exchange stETH for ETH… is running dry. Staked ETH, a revenue-generating version of ETH, traded at an 8% discount this week.
- Babel Finance is pulling a Celsius and suspending withdrawals… citing “unusual liquidity pressures.”
- Anna Sorkin (aka Anna Delvey) - the fake German heiress… is launching an NFT collection from her jail cell. Never say Never.
TW3 (That Was - The Week - That Was):
Monday: U.S. futures are plunging, with S&Ps dropping below 3,800. Following last Friday’s hotter than expected CPI data (where consumer prices hit 40-year highs), markets fear a more aggressive rate hike cycle than previously expected. Many economists are calling for a potential 75-bps hike this week, and 175-bps in the next 3-meetings combined. That’s a far cry from the prior expectation of two 50-bps hikes and then a pause in September. There are a lot of eyes watching the 3800 S&P level, and if/when we get down to 3750 – you may hear some panic cries on the financial stations. At some point, I'll look at commodity exposure again, but patience is a virtue right now.
Tuesday: Yesterday, the 10-Year note hit a level not seen since 2011. Now, if the debt market implodes – then all bets are off. Stocks are really nothing more than derivatives around the debt market. Today is the first day of a 2-day FED meeting and it’s often a green day. After the carnage of the last 3 sessions, I wouldn't be at all surprised if they pull off a win today. The 10-Year Note is up to 3.45% as everyone is expecting a 75-bps hike. How quickly 50-bps became yesterday’s weather.
Wednesday: Markets are now pricing in a 75-bp hike when the FOMC announces its decision today. Just last month J. Powell said that his Fed was not "actively considering"raising rates by 75-bps. Do they remain THAT MUCH in inflation denial? Mortgage rates hit 6.28% on Tuesday, up 150-bps in just a few weeks – leading to some headcount reduction in the industry. Job concerns are perking up with many top companies talking about job freezes (WMT, TGT, AMZN), and today we saw WBD cut 30% of their global ad salesforce. I truly don’t know how you could possibly wreck an economy better than our FED is doing it today. Our Government admits to 10.6% YoY inflation, which is actually more like 16 – 18%. The bond market is acting like it’s losing control of the credit market. Maybe the market will look at Powell’s 75-bps hike as a good thing – because it will cause a recession quicker, and then the Fed can pivot and cut rates and start QE all over again. Our FED could most definitely hike us right into a massive recession. Now, that’s directly in the face of the ECB who are holding an economic meeting because they’re considering going back to QE = money printing. Just remember, it takes more and more stimulus – for the same amount of economic ‘high’. So, the ECB is inflating their way to heaven versus a crushing recession. Interesting times.
Thursday: Yesterday they were all happy about the 75-bps hike, thinking that it will rush in a recession – and then our FED can go back to cutting rates. Then last night they came to the ugly realization that if the hike is going to cause a recession, it might not make sense to buy stocks in companies that could see their earnings take a hit. What’s a greedy fund manager to do? The fact is, we’re already in a recession, and hiking rates will just amplify it. It’ll hit almost every sector, so chances are good that the general direction is still down. I’m hearing rumblings of S&P 3500 or even 3000 before funds jump back in. Tomorrow is Quad-witching, and the start of a 3-day weekend.
Friday: What a week it has been. There's been forced selling, margin calls, the plunge patrol trying to keep us from literally crashing, horrid economic reports – the entire ball-of-wax. Over 90% of stocks in the S&P declined yesterday, and that’s happened for the 5th time in the past 7 days. Since 1928, there is NO PRECEDENT for that behavior. It has been the most overwhelming display of selling in history. This morning housing starts declined, housing permits declined, and the Philly FED expected an expansion in business and instead saw a contraction. Hey, looking forward to the 3-day weekend!
AMA (Ask Me Anything…)
What’s our FED going to do? Going into this year, smart money was on our FED having to choose between two poisons: inflation or recession. Somehow, our FED is going to stumble their way into the worst-case scenario = both. Our FED has debased the Dollar for so long, and has brought our debt to such historic levels, that our FED is now bringing a knife to a gunfight. Our Debt-to-GDP ratio is at such a high level, that it would bankrupt the United States if our FED increased interest rates above 6%. Will our FED have the courage to push our economy into a recession, while dealing with 5-7% inflation – going into the midterms? There’s no chance of a soft landing. These aren’t skilled pilots who have landed on this runway hundreds of times. Our FED proved their lack of understanding and control when they spoke of inflation as transitory. An even better example was watching our FED inject money into the economy – while inflation was 7%. Our FED will play tough in the next few months, but the pivot will come. They must return to low interest rates and QE, or they will bankrupt the United States. So, the question is not ‘if’ there will be a recession, but simply ‘when’ = based upon the pivot.
Next Week: Market Killer = FED or Inflation…
- There is NO easy path forward for the markets… If our FED sticks to their playbook and pivots after a couple of rate hikes – then a market crash will be put on hold. If they try and tame inflation, then the S&Ps will fall another +20%.
- Our FED will ‘break a lot of sh*t’… as the selling has even hit the oil markets. Oil sees a recession and demand destruction coming. Last week’s oil collapse prevented the S&Ps from rallying. You can’t rally when a major sector is down 5.5%. The Bond market sees their yield curves inverting, because they’re not built to absorb 75bps moves, every 4 to 6 weeks – for the next 4 months.
- It’s bothersome that last week we had LOW volatility… combined with HEAVY selling. We closed almost 2X below the expected move, and the market barely yawned. Our markets (for the last month) have become ridiculously in-efficient. In the last 7 trading days, the S&Ps have lost 10% and nobody is out there buying PUTS. Something’s wrong. I worry that professional firms are selling volatility into an onslaught of risk – in desperate need of yield.
- Yields inverted, Bonds tanked and then rebounded… Tip #1: I would look for the 2-Year and the 10-Year to continue to invert (foreshadowing a recession). The 10-Year yield will move lower as our FED continues to tighten, and the 2-Year yield will move higher.
- Crypto is showing its liquidity and stability gaps: Per HL: I’d like a stablecoin that is actually stable = backed by the US Gov’t. I’d also like an Apple / Google wallet that allows me to move money back and forth from digital into USD. I understand the tax implications, and that means someone will need to track it. I’d also like to buy my NFTs with Apple Pay. We need easy ‘n secure ways to purchase derivative PUTs and CALLs on individual coins – because derivatives increase liquidity and stability. Tip #2: To that end, I believe that it’s time to nibble again in ETH – if we can hold the BTC = $20,000 level. I say that because over the past 18 months, the average price paid for BTC has been $20,000. If we dip under that, crypto could become an absolute retail, slaughter-fest.
- The metals (GLD / SLV and Copper) are holding up well – even with a strong Dollar… Tip #3: Look at buying In/Out Call Spreads into July or August in Gold, Silver, and/or Copper.
SPX Expected Move (EM):
- Last Week’s EM = $132… and we moved = $222. We’ve seen 2-Sigma moves for 2 consecutive weeks, with very little increase in volatility. We are short-term oversold, so I’m looking for a counter trend rally led by tech and energy.
- Next Week’s EM = $120.79 (4 trading days)… hold onto your shorts.
Tips:
HODL’s: (Hold On for Dear Life)
- CASH == Nexo == @ 8 to 12% yield on USDC
- PHYSICAL COMMODITIES == Gold @ $1,842 / oz. & Silver @ $21.63 / oz.
- **BitFarm (BITF = $1.33 / in at $4.12)
o Sold Dec ‘22: $5 CCs for income,
- **Bitcoin (BTC = $19,150 / in at $4,310)
- CDEV (CDEV = $7.25 / in at $7.83)
- CostCo (COST = $447)
o Bot July, +$465 / -$460 PUT Spread
- CPG (CPG = $7.86 / in at $6.44)
o Sold Jul $7.50 CCs for income,
- Emerging Markets (EEM = $39.71)
o Bot Jul +$40 / -$42 Back Ratio CALL Spread
- Energy Fuels (UUUU = $5.25 / in at $11.29),
o Sold June $8 CCs for income,
- **Ethereum (ETH = $1,075 / in at $310)
- GME – Holding
- **Grayscale Ethereum (ETHE = $7.08 / in @ $13.44)
- **Grayscale Bitcoin Trust (GBTC = $12.47 / in @ $9.41)
- Hudbay Minerals (HBM = $4.75 / in @ $5.04)
o Bot October 22, $7.50 CALLs,
- Silver (SLV = $20)
o Bot Jul +$19.50 / -$21.50 CALL Spread
- Uranium Royalty (UROY = $2.48 / in at $4.41)
o Sold July $5 CCs for income
** Denotes a crypto-relationship
Trade of the Week:
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Please be safe out there!
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