RF's Financial News

Sunday, October 15, 2023

This Week in Barrons: October 15th, 2023

Get it WRONG the first time… Nobody paints a masterpiece from scratch, writes a novel without revisions, or builds a structure without alterations. Embrace the process of improvement. Allow iteration, revision, and evolution to deliver progress – not necessarily perfection. Sign up for better instead of perfect. Practice: ‘Getting it wrong the first time, and then making it better.’

Old problems need new solutions… Lawmakers have long fought against skyrocketing medical costs, and now end-users are demanding affordable meds. Walmart and Cost Plus have entered the market with cheaper generics, and Amazon has a new $5/month RxPass. Blue Shield of California replaced CVS’s pharmacy benefit services with Amazon and Cost Plus drugs in order to lower costs.

Per Tom P: Launching a new business is just like riding a bike: At some point, your motivation outweighs your hesitation and you go for it. That’s when you start winning.

Per Seth G: Good pizza (like many things) is rare, even though the method to create it is well known. Any efforts to make it cheaper, easier, or more convenient will make it worse.

The Market:

WARS create Inflation:

1. Central Banks link inflation expectations to outcomes. Therefore, anticipated inflation prompts businesses to raise prices and consumers to buy in bulk.

2. During conflicts, nations rely on the U.S. for resources. As the U.S. provides this aid, its own resources deplete – which triggers more conflicts in a recurring cycle.

3. We are forced to increase our national debt in order to pay for all the free resources. We just added $500B to the debt in a matter of weeks, and could soon add another $1T in a single month – for the first time in history.

4. Overextending ourselves in global conflicts risks economic inflationary ruin. China's strategic restraint can secure victory by just letting the U.S. weaken itself and bleed itselfdry.

InfoBits:

- Paramount put the “Mean Girls” movie on TikTok in 23 clips. TikTok’ers were already posting full (pirated) movies. The platform gives studios a workaround to avoid paying writers and actors.

- Jamie Dimon (CEO of JPM) said: “I just tell people, be prepared for higher rates and slower growth. I think the geopolitical situation is the thing that most concerns me, and we don't know the effect of that on the economy.”

- Shipping rates remain depressed… with the largest container carriers facing weaker volume as consumers continue to buy fewer goods.

- Mortgage rates are above 8%.

- The IMF (International Monetary Fund) cut… China’s and the Eurozone’s growth estimates.

- Texas has the highest U.S. office-vacancy rate ~25%.

- Teenagers watch more YouTube videos than Netflix.

- Taylor Swift's - The Eras Tour… was produced and financed by T. Swift. She then sold it directly to the AMC theater chain rather than distributing it through a studio.

- Buying an EV could get easier... as our Treasury proposed a rule that would let EV and plug-in-hybrid buyers get up to $7,500 in tax credits right at the dealership.

- OpenAI revenues are $1.3B in 2023… up from $28m in 2022.

- The CPI (Consumer Price Index)… came in above Sept.’s expectations.

- The UK approved Microsoft's $68.7B purchase of Activision.

- U.S. VCs are on pace for their slowest year since 2019.

Crypto-Bytes:

- CME’s Terry Duffy infamously told SBF… “You’re a fraud. You’re an absolute fraud” – the first time they met … after speaking for 15 minutes.

- Alameda Research CEO Caroline Ellison testified that:

o SBF instructed her to pay a bribe "of ~$100m" to Chinese officials in exchange for the release of ~ $1B of Alameda's money on OKX and Huobi.

o SBF instructed her to prepare 7 ‘fake balance sheets’ to show lenders, and SBF would decide which one would look better.

o SBF “directed” Caroline to use FTX customer deposits to finance venture investments and loan repayments.

- Bitcoin is the best performing asset class of 2023… but it’s struggling to stay above its 200-day.

- Frax Finance (FXS) is set to launch Frax v3… enabling users to access US T-bills on-chain.

- Bitcoin holdings on exchanges hit a new yearly low… suggesting a bullish sentiment as large investors move Bitcoin to private wallets for long-term holding.

- Israel worked with Binance to freeze Hamas’ crypto accounts… as wallets linked to Hamas had received $41m in crypto between mid-2021 and June.

- Paul Tudor Jones finds equities risky, but as for Bitcoin… he’s all in. He appreciates its: volatile nature, limited supply, and resistance to manipulation.

- Jim Cramer recently warned of the impending doom of Bitcoin. “Look, our viewers want to make money, not lose it. Gold? Nah, not feeling it. And Bitcoin? Oh boy, Mr. Bitcoin is about to take a nosedive.”

- Bloomberg thinks that there’s a 90% chance of… a Bitcoin spot ETF in January 2024 as the SEC works through their issues.

- MetaMask & Stripe launched U.S. fiat on-ramps… as they add one-click dollar trading – bringing crypto closer to mainstream adoption.

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

Monday: Oil surged more than 4% as the surprise attack on Israel threatened to destabilize the Middle East, adding to surging Treasury yields, the Ukrainian / Russia conflict, and volatile commodity prices. After that huge up day on Friday, you may have expected some follow through today, but the war got in the way. As bizarre as it sounds, markets often do pretty well during war times as they print more debt and spend more. Yeah, it's upside down, but then again – what isn't?

Tuesday: The ten year is behaving, and we got earnings this morning from Pepsi that beat expectations. That has them feeling like the financials at the end of the week will also be good. I’m liking: AAPL > $179, OLED > $161, HALO > $38, AMAT > $141, and NEE > $51.

Wednesday: The PPI is out and it is stronger than estimated. We’re seeing a flight to safety via bonds catching a bid, rates going lower, allowing investors to run back to the Magnificent Seven. This feels a bit "desperate" to me. Yesterday, we had eyes on NEE, HALO, AMAT, AAPL, and OLED. I think you can watch the same group today.

Thursday: The newly released CPI details are: (a) it rose 0.4% MoM vs 0.3% est, (b) excluding food and energy, it was up 0.3%, (c) YoY it’s up 3.7%, and (d) YoY core is up 4.1% - all hotter than expected.

AMA (Ask Me Anything…)

Is Inflation really under 2%? On Friday, Paul Krugman gifted us with one of his worst tweets in years. He tweeted a chart of the CPI X-food, energy, shelter, and transportation – while exclaiming that the war on inflation is over. Per Anthony P: this is so ridiculous that it may not be worth responding to, but I honestly can’t help myself. Paul Krugman's recent claim of the end of the war on inflation lacks substance. Neglecting vital costs like food, energy, shelter and transport weakens his argument. His oversight of widening income inequality and financial losses dismisses the toll on many Americans. We saw a 0.6% inflation increase in the month of August, and a 0.4% increase in September. Not many people are arrogant enough to claim victory when inflation is still increasing by half a percent each month. While economists are worried about the rate of price change, consumers are worried about the final price. Prices rising a little less each month is a sign of progress, but prices are still increasing. That’s why consumers remain concerned about inflation, and are turning more pessimistic about the U.S. economy.

Next Week: NASDAQ caves under Geo-Political Risk…

If we're going to get the classic year-end rally, you’ll need to see the U.S. Dollar under the$105 level. If the Dollar loses that, I would expect to see new all-time highs for the indexes.

Risk metrics come Alive… but the S&Ps ended the week slightly higher. Everywhere you look in the marketplace, you will find horrendous risk vs reward scenarios. Specifically, inside of the Nasdaq – the downside risks far outweigh any upside potential.

We are in Backwardation… which means that short-term risks are out-weighing their longer-term counterparts. For example: Risk over the next 33 days – outweighs the risk over the next 66 days. The VIX (a measure of our markets volatility) is becoming ‘a little squirrely.’ We traded over 700% more VIX options on Friday – than in the previous 5 days. Traders are buying VIX Calls as a risk mitigation / hedging instrument.

Bonds and Gold catch a bid… as a hedging activity. What’s unusual about this is that both rallied – while the U.S. Dollar was also moving higher. All of this is pointing toward an upcoming, unstable equity market.

The Magnificent Tech Seven… traded lower last week. Watch, if the S&P futures start being sold – because tech will take the brunt of the selling.

Inflation is making a comeback… and although the PPI and CPI saw a move higher, the worry surrounds oil (/CL) spiking to $150/barrel – and the corresponding global impact.

The Financials faded on strong earnings. Next week we have Tesla’s earnings, and investors are beginning to get nervous for their estimates. If risk comes to fruition, it will hit technology the hardest.

SPX Expected Move (EM):

- Last week’s EM = $77 … and we moved about $20 to the upside.

- Next week’s EM = $90 … that’s an expected big league move, and a warning to manage your upcoming risk.

TIPS:

If you like to trade in high volatility markets, look at 2-sided trades like: SELLing the ADBE June $460 PUT and BUYing the corresponding $700 CALL for a net credit. Make sure you get a credit (get paid) to take the risk. You can reduce the risk of this trade – by selling a PUT Spread instead of the naked PUT. Any ADBE closing price below $500 is my signal to get out of this trade, whatever it costs. And take profits if/when ADBE hits $700 per share. This is a bet on the bull market resuming, and ADBE being one of its leaders. I would only put this trade on if/when the Dollar (DXY) is below $105.

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1946/oz. & Silver @ $22.9/oz.

- 17-Week Treasuries @ 5.5%

- **Bitcoin (BTC = $27,050 / in at $4,310)

- **Ethereum (ETH = $1,550 / in at $310)

- Apple (AAPL = $179 / in at $177)

- CCJ – Uranium = ($36.5 / in at $33.8)

- DO – Diamond Offshore ($14.1 / in at $15)

- MESO – Mesoblast Ltd. ($1.2 / in at $3.6)

o SOLD Oct $5 CALLS

- NFGC – Newfound Gold ($4.2 / in at $3.8)

o SOLD Oct. & Jan. $5.00 CALLS

- UEC – Uranium Energy Corp ($5.2 / in at $4.8)

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/>.

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.

If you'd like to view R.F.'s actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.

If you'd like to see R.F. in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

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.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, October 8, 2023

This Week in Barrons: October 8th, 2023

AI has numerous potential applications… but I wonder whether it will transcend serving and perpetuating mediocrity. I've used AI for various tasks like answering questions, writing letters, and coding – with reasonable success. While AI can save resources, time, and money – so can fast food, online degrees, and remote work. At times, it seems like the market may be overvaluing AI, much like it did with 3D printing. Currently, I see AI primarily as a tool for accelerating mediocrity.

When facing a complex problem… it’s easy to become confused. Lately, it has become fashionable to express one’s confusion with certainty. The thing is, confusion shared often leads to learning and progress. “I don’t understand this part,” is a great thing to say before someone helps you understand it. On the other hand, certainty is almost guaranteed to maintain your confusion, particularly when the thing you were sure was going to work – does not.

Choose your bucket(s) wisely… because in many situations, success depends on context. If you douse a small campfire with a bucket of water, you'll extinguish it. However, if you pour a bucket of vodka into a shot glass, most of it will go to waste, and the table will be ruined. Everything is relative. If a small tech company's mission is to 'Change the World,' but it only delivers a useful tool – it’s perceived as a failure. The promises we make set expectations, and when they don't align with what's delivered – people tend to overlook the effort and quality. The key challenges are: (a) picking the right bucket for the problem you’re trying to solve, and (b) making sure you fill the bucket all the way to the top. Mastering these two aspects makes predicting the future much easier.

The Market:

“The way I think about relative price strength vs popularity:” Per Howard L.

- In Up-Trending markets, I like the least followed stocks with the highest relative price strength.

- In Down-Trending markets, I like the most followed stocks with the weakest relative price strength.

5-star ride... Uber’s getting into the $212B un-delivery biz with a “return a package” feature. Users in dozens of US cities can now pay a flat $5 to send packages to their local post office, UPS, or FedEx. Uber has pivoted from a ride-hailing app to an everything transportation app – delivering: people, food, freight, and pharmacy.

Inflation’s under control… LoL. The price of orange juice is up 315%, and cattle prices are up 125% - since 2020. Olive oil prices are up 130% YTD. U.S. Bank losses on held-to-maturity assets have soared to an all-time-high of $400B. U.S. mortgage rates surpassed 8% for the first time in this century. Taiwan Semiconductor’s revenue fell 13% YoY, and given they make all of the chips for Nvidia, Apple, and AMD – maybe all is not great in AI-land.

InfoBits:

- Pandemic era childcare funds are expiring… and student-loan repayments are re-starting – stretching thin budgets even thinner.

- OpenAI announces that ChatGPT can now… hold 2-way, verbal conversations. Next up = video generation from text.

- JPM’s CEO believes that stress and stagflation… will hit when the FED rate hits 7%.

- All of the most recent IPOs… are trading at or below their initial IPO price.

- Demand for instant noodles hit a record 121B servings last year.

- Consumer confidence fell in September… along with increasing consumer recession concerns.

- GDP estimates were lowered to 2.1% for the year.

- Costco has been selling one-ounce gold bars… so quickly that they had to limit each customer to a maximum of two.

- Blue Apron (APRN) made its last delivery… and was sold to the Wonder Group for 99% LESS than its IPO price 6 years ago.

- Restspace allows users to rent private bathrooms… for $1 per minute. Call it: AirPnP.

- The U.S. is now $33T in debt. We have not balanced a budget in 22 years – regardless of which political party is in power.

- We added $275B to the national debt in a single day… and we’re on track to add $1T to the debt in a single month. Ain’t printing money fun?

- We created 336k new jobs in September… the largest monthly increase since January. This allows our FED to continue raising rates to tame inflation.

- AMC confirmed that Swift’s The Eras Tour movie… sold more than $100m in advanced tickets – making it the highest single-day ticket revenue in their 103-year history.

Crypto-Bytes:

- MicroStrategy bought $147m worth of Bitcoin in August… raising its stake to 158,000 BTC.

- Congress told the SEC to approve a Bitcoin spot ETF… immediately – arguing that the SEC can no longer justify rejecting Bitcoin ETFs based upon manipulation and fraud concerns.

- Ethereum hit $10B in revenue faster than Facebook & Microsoft.

- 6 of the top 10 countries leading in crypto adoption are… India, Vietnam, the Philippines, Indonesia, Pakistan, and Thailand.

- Europe is eclipsing the U.S. in crypto regulation… and drawing investors because of it.

- The crypto market is up +39.32% YTD and +17.13% YoY.

- ‘The Big Short’ author Michael Lewis said… that SBF considered paying Donald Trump $5B to withdraw his presidential bid – viewing him as a threat to democracy.

- Coinbase obtained a crypto payment license… from the Central Bank of Singapore to expand its services to institutions and retail investors.

- In 2022, FTX employees discovered a back-door to Alameda… which allowed FTX to borrow / embezzle $65B. They told their bosses and they flagged the code – right before those same bosses were fired.

- A lawyer for FTX’s creditors said… “SBF’s 2022 investment in Anthropic could make it possible for FTX to post a 100% recovery rate in assets.

- A new report from K33 Research recommends… rotating from Ethereum into Bitcoin after the recent Ether futures ETF launch saw weak trading volumes.

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

Tuesday: The 10-year note yield is now up ~440 basis points from its 2020 low. Almost every move of this size, dating back to the 1980’s, resulted in some form of a crisis. Currently, the gap between treasury yields and equity valuations is unfilled, so either equity valuations or treasury yields need to fall to close this gap.

Wednesday: Anthropic, one of the main rivals of OpenAI, is in talks with investors to raise at least $2B in new funding – after Amazon committed $1.25B last week. Google, which bought a 10% stake in the startup in 2022, is expected to invest at a valuation ~$25B. That’s at least six times the $4B valuation investors assigned the company when it raised 7 months ago.

Friday: In other news, the oil majors have been sold vigorously, and when the selling ends and they turn higher – I’m going to load the boat with: VLO, XOM, and MRO. In Friday’s Jobs Report, 885k full-time jobs were lost, and over 1m part-time and government jobs were added. Enjoy this rally while it lasts.

AMA (Ask Me Anything…)

The above is a waste of time. Per Seth G, the math makes no sense, and it leads people to create inferior passwords – not better ones. There’s plenty of insightful, effective thinking about online security out there, and your organization only embarrasses itself when it hassles customers to engage in silliness like this. The good news is that stupidity is easier to spot and fix than ever before. The challenge is that the person doing the work often has a boss who won’t put in the time to understand the work. For example: there’s no good reason for the country drop-down to start with Andorra and put two of the largest ecommerce countries in the world at the end of a hundred plus list. Don’t tell me that it’s the way we’ve done it since the last century, and ‘if it ain’t broke’. Now that AI is about to rewrite every rule of our culture, perhaps it’s a good time for the bosses to commit to understanding them?

Next Week: Bond Markets Tank…

Bonds continue panic selling – damage report? The bond situation just keeps getting worse, and if they don’t recover soon it will be ‘game over’ in the S&P’s along with the bonds. But in the midst of all of the chaos, technology saved the week as the QQQs ended the week on the upper edge of their expected move. As the 10-year approached 5%, currently it’s all about the ‘bond-induced panic’ price action.

Unrealized Losses for regional banks and brokers are mounting: There are tons of risk managers and portfolio managers that are ‘massively’ long bonds from years ago. They originally bought bonds in order to earn any fixed income return – until they fell asleep at the switch. There are unfathomable, unrealized losses across the entire banking community. Schwab (for example) could be showing ~$35B in unrealized losses – for a company that’s only worth $90B.

Is the selling in Bonds over… not yet – as every bond rally is met with increased selling by banks exiting their positions. The implied volatility of the TLT (1 week out) is 23%. When I compare this to the volatility of the S&Ps (16%) – I’m scared that there is more bond selling to come because we’re only about ‘half-way’ on the ‘bond fear’ index.

Watch retail as WMT and COST were hit hard… and this is the first time that a virtually unscathed area – took a largely unprovoked marketplace hit.

Tech saved the market (again), but for how long? The financials are down 4% YTD. The energy sector is flat on the year. The S&Ps are up about 13% on the coattails of 7 technology stocks. Retail is one of the last soldiers standing – along with tech. Until tech starts to fade, this marketplace will be resilient. Watch AMZN, AAPL, GOOGL, NVDA, META, TSLA, and NFLX for the cues for any deeper correction. Bonds will continue to sell-off, but until we see tech respond – there could be a case for buying the bonds (/ZB) that others are selling.

SPX Expected Move (EM):

- Last Week’s EM = $80… and we moved ~$30 higher on the week.

- Next Week’s EM = $77… keep your helmet on as:

o Bonds could continue selling / or

o We could rally in bonds and have the money to support the rally come out of selling tech stocks!

TIPS:

- The market continues to trade as if there will be no recession.

- The yield curve is turning higher, which (following an inversion) has historically been a bearish/recession signal.

- Over the long-term, the tactic of letting winning stocks keep winning has been a productive strategy.

Overall, the picture remains murky with recession leading indicator signals rising, rates increasing, a continued tight labor market, and some signs of resurgent growth. In the short-term, the improvement in the technicals and lurch in sentiment to the bearish side – set things up for a short rebound.