RF's Financial News

Sunday, April 16, 2023

This Week in Barrons: April 16th, 2023

Time has taught me that leading from the heart is very powerful. Per FW: A leader can be the most brilliant product person, strategist, entrepreneur, and/or business builder, but if they cannot get people to care, follow, engage, and trust – they will not be effective. This is a difficult lesson to learn. It’s a natural tendency to hold your emotions in check when you are in front of groups – as we are taught to project strength. It is also natural to hold back ‘bad news’ like a dysfunctional fundraising process, conflicts in the board room, the loss of your largest customer, or a co-founder / supplier relationship that is at risk. Yet, it is in these exact moments where leaders develop fellowship, trust, engagement, and caring from their team. If you are struggling to build trust – try a little more transparency, vulnerability, and honesty in your communication style.

The Market:

Allow me to quantify the level of financial unpreparedness out there. We need to stop assuming that most financial experts know what’s going on. The recent banking crisis taught us some very valuable lessons about risk:

1. Too big to fail bank CEOs are telling us how dangerous digital assets (crypto) are as an investment – yet these same banks combined to somehow accrue over $150B in unrealized bond losses.

2. Most major financial services CEOs tell us how dangerous self-directed investing is – yet they hold unrealized trading losses exceeding $50B.

3. Finally, we have constant reminders from traditional financial media telling us how dangerous and outrageous financial derivatives are. Yet DAILY they spend tens of millions of marketing dollars to pitch and validate their unproven market savvy and capital safety. These are the same firms that have more dollars than all the retail trading losses combined – a few hundred times over.

Nobody knows your own financial situation better than you. I think you’ll be happier when you bring your financial decision-making back in-house.

InfoBits:

- “Some of last year’s storm clouds did hit… but some of those threatening clouds are still here. Today’s inverted yield curve is eight for eight at predicting a recession in the next 12 months"… JPM CEO: Jamie Dimon.

- 40% of 2023 college grads are desperate for a job… because the unemployment rate for grads aged 20 to 24 has doubled since 2021.

- "Super Mario Bros." recorded the #1 opening global box office debut for an animated film.

- US corporate bankruptcies are at their highest level since July 2020.

- Q1 earnings season kicks off this week; analysts expect S&P 500 earnings to decline nearly 10% from Q1 2022.

- The 4 cities with home prices lower than a year ago are… San Francisco, Seattle, San Diego, and Portland. It’s the first time the index as lower since 2012.

- A record 56% of Americans believe… that a 4-year college degree is not worth the cost.

- Property defaults are not slowing down… as WeWork just defaulted on a loan for a San Francisco office tower.

- “Tear down the skyscrapers” says Kyle Bass. Demand for office buildings isn’t returning and it’s impractical to turn most towers into apartments.

- “NPR’s organizational accounts will no longer be active on Twitter… because the Twitter platform has taken actions that undermine our credibility.” Musk’s comment was: “Defund NPR.”

- “Just follow the money”… Silicon Valley investors are seeking to build long-term ties with Middle Eastern sovereign wealth funds during the worst funding crunch for venture firms in almost a decade.

- U.S. retail sales fell by 1% in March… for the 2^nd month in a row.

Crypto-Bytes:

- SBF sez: “We sometimes find $50m of assets lying around… such is life.” FTX was never a real business.

- Arkansas joined Montana and Texas… in proposing legislation to regulate and protect Bitcoin mining operations.

- There has been a real increase in the number of Bitcoin HODLers… reflecting a pattern observed in early 2021 when BTC surpassed $60,000.

- Bitcoin is above $30,000… and has doubled in 2023.

- Gold is at weekly, all-time-highs (over $2k)… so it has been a good year for the ‘end-of-the-world’ asset class (Bonds + Bitcoin + Bullion).

- The Bank for International Settlements believes… that tokenizing the trillion-dollar government debt market “could yield sizable benefits.” Let’s tell Elizabeth Warren and Warren Buffett that the BIS just found a real use-case for crypto!

- Twitter is allowing users to… view market charts and buy ‘n sell stocks from eToro.

- VC funding for crypto startups plummeted 80% YTD… meanwhile Bitcoin has increased in price by 100% YTD. Coincidence?

- Ethereum’s implementation of the Shanghai upgrade… was successful. Shanghai allows ETH stakers to withdraw their stakes (and rewards) from Ethereum if they wish to do so.

- SBF sez: “Alameda is un-auditable. We are only able to ballpark what its balances are, and cannot access a transaction history.”

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

Monday: What's on tap for us this fine week? In order, we get: (a) the CPI on Wednesday, (b) the PPI on Thursday along with the FOMC minutes, and (c) earnings from JP Morgan, Wells Fargo, and Citicorp on Friday. But there's trouble brewing out there. Lumber futures are signaling a major problem in housing, and I could easily see the market finally paying attention to some reality later this month. We're way out over our ski's here.

Wednesday: Currently, Fed Fund Futures are currently predicting a 75% chance of a 0.25% rate hike on May 3. The CPI came in at 5% YoY. We were up 0.1% MoM, and ex-food and energy we were up 0.4%. The Core Rate was unchanged at 5.6%. So, are we looking at the beginning of a blow off top here? Are they going to squeeze the shorts till they bleed, and then yank the rug? Or has magic returned and it's: Up, Up, and Away? One would think that if this number was really good, gold (and Bitcoin) would be cratering – instead of being UP $40. Will this number make Powell quit hiking? Nope, but the market doesn't care – it thinks it is pressuring him to stop.

AMA (Ask Me Anything…)

March’s Jobs Report showed:

- Entrepreneurial jobs decreased by 280,000,

- Part-time jobs decreased by 342,000, and

- Initial Jobless Claims increased by 28,000 above expectations.

Therefore, leading indicators such as Initial Jobless Claims show us a jobs market that is about to deteriorate, especially given the majority of the report was filed prior to the banking crisis.

Next Week: When the Music Stops…

- How are a cooling economy and deflation = bullish? Year-to-date, we have seen an incredible amount of manic, one-sided trading. We are trading around and between 3 particular levels: 4211, 4106, and 3931. We may need to touch the 4211 level – before we fall because I’m anticipating an extremely volatile summer.

- We had a huge retail sales miss = 1% lower in March. I don’t believe that our FED will be cutting rates any time soon (into 2024) because inflation is entrenched in wages and ‘cost-of-goods’. Markets are completely detached from the economy – moving full-speed-ahead – while only watching through the rear-view mirror.

- The Dollar continues to ‘melt down’… and it will cause a ‘scare’ if it falls below $100. But notice how the All Country World Index of stocks has moved in the exact opposite direction of the Dollar. Aka: once the Dollar peaked in the autumn of 2022, stocks all over the world started to rip higher.

- Commodities continue to move higher… look at the chart of the CRB Index and the overall CPI percentage change from a year earlier. I was shocked at how closely these charts move in tandem, but it makes sense since inflationary assets such as commodities rise along with inflation. However, the resilience of the major commodity indexes speaks to pockets of strength beneath the surface, especially in precious metals and agricultural contracts.

- We have the lowest Volatility (17.07) since 2021… so watch for the opportunity to buy VIX CALLS.

- TRADES:

o Consumer Discretionary ETF = XLY In/Out Spread: BOT May: +$147 / -$145 PUT SPREAD for $0.88. Amazon and Tesla are both substantial contributors to the XLY, and both have earnings over the next weeks. We just need one to miss to collect the premium.

- Expected Move (EM):

o Last Week == $76 … 2^nd consecutive week for no-breach of the EM

o Next Week == $58 … It would be a statistical anomaly for us to continue the streak of no-breach behavior; therefore, we’re moving higher or lower than the EM this week.

TIPS:

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $2,018/oz. & Silver @ $25.5/oz.

- 13 Week Treasuries @ 4.8 to 5.25%

- **Bitcoin (BTC = $30,600 / in at $4,310)

- **Ethereum (ETH = $2,100 / in at $310)

- DNN – Denison Mines ($1.04 / in at $1.32)

- GME – DRS’d and HODL

- Innerscope (INND = $0.003 / in at $0.0052)

- MESO – Mesoblast Ltd. ($3.44 / in at $3.60)

o SOLD July $5 CALLS for $0.85

- MRK – Merck ($115)

o BOT Oct: +$115 / -$125 CALL SPREAD

- NFGC – Newfound Gold ($5.26 / in at $3.75)

o SOLD some April $5.00 CALLS

Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting: <http://rfcfinancialnews.blogspot.com/>.

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PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

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Until next week – be safe.

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Sunday, April 9, 2023

This Week in Barrons: April 9th, 2023

Vince McMahon’s World Wrestling Entertainment… has agreed to merge with the UFC to form a new publicly traded company controlled by the Endeavor Group. The deal combines two of the biggest sports entertainment brands in the world.

Remember Sean “Diddy” Combs? Well, hip-hop mogul Sean “Diddy” Combs is still paying rock legend Sting $5,000 a day for the privilege of having sampled the Police song “Every Breath You Take” in 1997 – which created the backbeat for Sean’s own hit, “I’ll Be Missing You.” Sting took to fact-checking by telling The Breakfast Club that he thought he was receiving $2,000 a day, but Sean was quick to respond: "Nope. 5K a day. Love to my brother." At $5K a day, that’s a whole lotta love!

What’s your plan for getting the Word In? Most organizations have processes for getting the word out, but what is your plan for getting the word in? Per SG: It can’t be random chance that some ideas get to you and that cultural and technical awareness just happen? If knowing what’s happening is important to you, it probably pays to focus on how (and when) you discover the new stuff. FYI: In 7 years, 21% of the U.S. will be over 65 years old. That’s a HUGE number of intelligent Americans with time on their hands. Time for: pickleball, Par 3 golf, gambling, watching TV, and investing. With AI on the tips of everyone’s tongues in 2023, just imagine the healthcare and longevity possibilities by 2030.

The Market:

The U.S. Dollar continues to lose its global reserve status:

- China and France completed their first LNG gas trade using Chinese Yuan.

- China and Brazil started settling energy trades in their own currencies.

- China and Saudi partnered to build a Chinese oil refinery for 83.7B Yuan.

- Kenya will buy Saudi oil with Kenyan shillings. The President of Kenya told his citizens to get rid of US Dollars.

- India started settling their energy deals in Indian Rupees.

- China, Brazil, Russia, India, and South Africa (BRICS) are finalizing a new currency backed by gold and rare earth metals.

- 33 tons of gold were withdrawn from JP Morgan vaults this past week.

- 4.8 million ounces of silver sold from the COMEX this past week.

- Bottom Line:

o Inflation will be with us for longer (rates going higher), because We can no longer export inflation.

o Gold, Silver, Bitcoin, and other precious metals will continue to rise as long as the world continues to dump (sell) U.S. Dollars (DXY).

The bulls won Q1 of 2023. The Nasdaq (QQQ) gained 21%, with the best performers YTD being three of the worst performers from last year: NVDA (+90%), META (+76%), and TSLA (+68%). This all happened during: mostly weak earnings, our FED raising the benchmark interest rate to 5% and talking about a recession, several big banks going bankrupt, and commercial real estate enduring a massive correction. BUT… the most inverted part of the U.S. yield curve is one that hasn't sent a false signal about a recession in over 50 years. The 155bps spread between the 3-month and 10-year Treasury yields – reflects a 3-month T-bill that's trading well above its 10-year counterpart. This large of a difference in rates points to the likelihood of a "deep recession" according to Duke Professor Campbell Harvey who pioneered the use of the spread as an indicator of future economic growth.

A Recession will really depend upon Layoffs: But before laying people off, we need to stop hiring. Lower job openings pre-announce that much larger layoffs are coming. Remember the cycle: Job Losses à Lower Income à Lower Spending à Lower Corporate Profits à Rinse & Repeat. Because in corporate-land, the solution to lower corporate profits is to lay off more employees. Not helping matters was a surprise output cut from OPEC – just in time for the summer driving season. This has oil back over $80/barrel once again. This only emphasizes our FED’s high inflation concerns, and for the rest of us, if more money is being drained into the gas tank – there is less for everything else. I think the stars are finally aligning for the recession to unfold starting in Q2 – which would bring the bear market back out from its recent hibernation.

InfoBits:

- “Consumer spending isn't slowing that much, the labor market continues to run unsustainably hot, and inflation is not coming down as fast as I had thought." - US Federal Reserve Governor Christopher Waller.

- OPEC+ stunned the oil market… by cutting output by +1.5m barrels / day.

- UBS will lay off 25% of its global workforce… (abiyt 25k people) – after completing the Credit Suisse deal.

- High-end travelers are reining in spending … 69% said that they won’t pay more than $500 a night for a hotel.

- JPMorgan’s Marko Kolanovic said: “The Fed indicated no intention to cut interest rates this year, yet risk assets continue their unprecedented rally. We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months.”

- Paris just voted to ban e-scooter companies by Sept 1^st.

- The U.S. Manufacturing PMI… marked it’s 5^th consecutive month in contraction.

- The ISM Manufacturing PMI… hit its 4^th straight month of contraction.

- Cleveland FED President Loretta Mester said: “We should hold our benchmark rate at restrictive levels for some time to quell inflation. The exact level depends upon how quickly price pressures ease.”

- In Q1, global VC funding fell 53%... despite 2 massive deals with OpenAI and Stripe. Early-stage numbers dropped as investors continue to hoard their record levels of dry powder.

- In 3 years, 65% of Walmart stores will be serviced by automated distribution centers.

- Warren Buffett said: “Interest rates are to asset prices – like gravity is to the apple. When interest rates go higher, there is more of a gravitational pull on asset prices.”

- Costco’s March same-store sales fell for the first time in 3 years.

- Comcast generated more cash last year than… Disney, Discovery, Fox, Charter Communications, Netflix, and Paramount – combined.

- President Bill Clinton said: “Higher Interest Rates mean: a higher mortgage payment, a higher car payment, a higher credit card payment. It means business people will not borrow as much money, invest as much money, create as many new jobs, create as much wealth, or raise as many raises.”

Crypto-Bytes:

- Dogecoin is a cryptocurrency with an uncapped supply… and a Shiba Inu meme for a mascot. Its price soared after Twitter swapped its bird logo for the doge logo, fueling investor hopes that the platform might support doge payments. Coincidentally, Elon Musk asked a judge last week to toss out a $258B lawsuit accusing him of pumping dogecoin's price. Come-on Man!

- Federal prosecutors charged Charlie Javice… the founder of financial-aid startup: Frank – with fraud. Authorities allege she faked user numbers while pursuing her company’s $175m sale to JPM.

- Donald Trump’s official NFT collection increased 463%... after he appeared in court to defend his payment he made to a porn star.

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

Thursday: This week’s string of weaker-than-expected data releases has put the risk of a recession back into focus for investors who will be watching the JOBS Report closely. Friday’s monthly nonfarm payroll data is expected to add 240K jobs, hold the unemployment rate steady at 3.6% and average hourly earnings to rise +0.3% m/m.

Friday: March’s Non-Farm Payrolls grew by 236,000. The unemployment rate ticked lower to 3.5% amid an increase in labor force participation, and average hourly earnings rose 0.3%, pushing the 12-month increase to 4.2%. Labor increases came in: hospitality and leisure, healthcare, and government. FYI: if you're into the short side, TSLA has lost its 50-day moving average, and could lose $5 quickly.

AMA (Ask Me Anything…)

“Are brokerage firms safe?” It’s a fair question. If a $100B bank can implode, why can’t a brokerage firm? The simple answer is yes – brokerage firms are much safer than banks. How can that be? Brokerage firms specialize in managing risk and they position themselves the equivalent of delta neutral 100% of the time. Banks are dumb, don’t understand delta neutrality, position themselves directionally and try to maintain risk appropriate positions. In fact, the only major brokerages who have gotten in trouble in the last 20 years have allowed their banking arms to take them down: Bear Stearns, Merrill, Lehman and E*TRADE in 2008/2009.

“Is the job market eroding?” Yes, and current data is not encouraging. As businesses and investors see bad data, they will start to brace-for-impact with a financial recession. This will accelerate actions, such as layoffs and/or fewer raises – that will further increase the odds of a recession. It’s not uncommon for recessions to behave like a slow car crash. Watch the job market, it will tell us the cause ‘n effect.

“What is marketing?” Marketing is NOT the act of getting people to buy what you’re paid to sell them. Marketing is the craft of understanding what people want and need – and helping them achieve it. Per SG: Sell something you believe in, to people who are eager to believe in it as well. You do your best work for an audience that deserves you, appreciates you, and applauds you. If it’s just a job, you’ve sacrificed your best energy for a paycheck. Pick your client – then pick your future.

Next Week: Get Ready to Rumble…

- Our FED: FED mtg. on May 3^rd – has a 67% probability of raising rates 25%. But what is interesting is that the FED fund futures are pricing in a >50% chance of a RATE CUT before September – even though our FED has said NO to that on numerous occasions. That means this coming summer will be: “Mr. Toad’s Wild Ride”.

- Short interest remains at a record high level… within the S&Ps. Longer term (greater than 60 days) – I can’t find a lot of reasons to be bullish. But shorter term, I do believe we could have multiple short-squeeze rallies. Fair warning!

- Sector expected moves: XLF (financials) = unchanged this week and many financial earnings are next week. XLE (energy) = closed at the upper edge of the expected move. QQQ (tech) = lost some footing on the week, and could that single the ‘shape of things to come’?

- Risk-On vs Risk-Off:

o Tip #1: GLD / SLV / PMs… Gold has reached a closing, quarterly, all-time-high. Fundamentally, everything is setting up for a Gold break-out. We’ve on-boarded half-a-billion new traders who haven’t been around long enough to sort out the noise – so GOLD could leap a lot higher from here – especially given it’s doing that in every other global currency. If the Dollar goes under $100, look for a rally in Gold / Silver.

o Tip #2: MRK… Large-cap Healthcare names are ripping to the upside. Merck is coming out of a 20-year base, and hitting all-time-highs. XLV (a major healthcare ETF) has been going sideways for 2 years, and that break-out could just add wind to the individual stock sails.

o Tip #3: CBOE… If you get a chance to combine an all-time-high, with high relative strength, and social obscurity == it’s a recipe for a large gain.

o Tip #4: LVMH… A shout out to the group that owns the 1-percenter, and hedges themselves with liquor. Warren Buffet hedges with insurance, and LVMH hedges with liquor – both do extraordinarily well in recessions!

- Bonds: Interest rates have come down from 4% on the 10-Year to 3.29%, and could rip dramatically to the upside while bonds move lower. I do not have a good feeling as for the direction in Bonds, but feel that whatever direction they move … they’re going to LOSE.

- Looking at a Risk Twist Spread on HYG: Currently, junk bonds (HYG) are trading around 5.5% and FED funds are trading at 5%. HYG has a ton more risk built into it than our FED funds; therefore, it needs to move lower (aka rates move higher) going forward.

o Opening a HYG Risk Twist Spread: SOLD July: -$74 PUT (8) / +$71PUT (12) / -$69PUT (4).

- SPX Expected Move: Next Week = $76 (5-day week)