RF's Financial News

Sunday, October 13, 2024

This Week in Barrons: 10.13.2024

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It worked, but just barely… is the story of just about everything engineers have ever created. Per Seth G: the first plane just barely flew and early VisiCalc was just barely useful. The earliest bridges were shaky, unreliable, and made of vines. Successful product development is NOT an innovation that bursts on to the scene as a great product. It’s more like nurturing, sharing, and improving something that is almost useless – until we can’t imagine living without it. It’s the same process we use when we: learn to walk, speak a new language, or even visit a new community.

The number one question I’m asked is: "Will my job be replaced by an AI bot?” Allow me to ask a question back: “When was any game-changing technology NOT good for everyone?” What past paradigm-shifting tech did NOT grow the economy, add jobs, and power innovation. I remember when smart phones, 3D printing, EVs, blockchain, and digital currencies were going to upend our lives. AI will accelerate the speed of opportunity. AI will change the corporate landscape, increase wages, and create wealth.

“I’d like more tension in my job please?” … This is virtually never requested, but it’s the tension that we remember. Tension is what changes us. Tension is the feeling we experience just before we grow. Ironically, it’s the exact medicine that we need to grow – at the exact time we’re trying to avoid it.

The Market:

One heck of a student project … A couple Harvard students just demo-d a proof-of-concept system using Meta’s Ray-Ban smart glasses that allow the wearer to access personal information about strangers, raising major privacy concerns.

2 students combined Meta’s smart glasses with custom software, enabling the ability to ID people and retrieve personal data.
Their system, I-XRAY, uses a combination of facial recognition, reverse image search, and LLMs to find names, addresses, phone numbers, and other details.
The privacy concerns come as Meta confirmed that it can use any images and videos shared with Meta AI.

The demo exposes how much privacy and surveillance are about to change in the AI age – and it’s coming fast. If a couple of students can achieve these abilities with a pair of Meta smart glasses and publicly available tools, what will dedicated corporations and governments be capable of? [Heck, what can go wrong?]

Interestingly … right after our FED cut the overnight rate by 50bps and signaled the beginning of a rate-cut cycle, the market started to move yields higher. I mention the ‘reverse’ action in market rates because I believe they have a big impact on what groups are leading the market. I’m not chasing healthcare, small caps, and regional banks while rates are rallying, but would rather be long the Mag-7. When rates decline, then I would lighten-up on the Mag-7 and buy more: healthcare and emerging markets.

[ Gain free access to Bullseye Trades here… ]

InfoBits:

2 Nobel Prizes went to AI this year:

The Nobel for Physics went to: John Hopfield (who developed a network model mimicking how the brain recalls memories) and Geoff Hinton (who created how neural networks learn from their mistakes).
The Nobel for Chemistry went to David Baker (for developing novel proteins), and to Demis Hassabis (Google AI) and John Jumper (Google’s Deepmind) for their work on Alphafold.
I still remember 8 years ago when Bob Dylan was the first musician ever awarded the Nobel Prize for Literature.

Gone in 7 Days… is how long it took MISO to sell through their first batch of Flippy Fry Station kitchen robots.
U.S. Homeowners have a record $38T in home equity.
Wynn Resorts won the first commercial license… to offer gambling in the United Arab Emirates
Home Depot will start to require… its corporate employees to work a full day shift at one of its retail stores each quarter. [Know Your Customer.]

The DOJ is examining splitting Google into multiple companies… because they are operating in markets that are “indispensable to the lives of all Americans.”
o BUT, since Google has provided many of its services for FREE (search, Gmail, Google Maps, Google Photos) – haven’t they actually been helpful to the consumer?
o Our government believes that: “Google’s illegal conduct unlawfully enriched Google”. That would be a good argument if Google was a private company, but it’s a public one, owned by tens of millions of Americans.
o [So DOJ, who exactly will benefit from Google’s breakup?]

Tesla unveiled its Robotaxi strategy… and it involves using their new CyberCab automobile, along with cars of Tesla owners who want to make a little money on the side. Of course, Tesla still has a long way to go to prove that its autonomous driving software is safe, but it’s fun to dream. [FYI: Google’s Waymo already services 100,000 paid rides per week in Los Angeles, San Francisco, and Phoenix.]
OpenAI projects $14B in losses by 2026… and $101B in revenue by 2029.
Boeing will cut 17,000 jobs… and delay the first 777X delivery as the strike begins to hit its bottom-line.
TD Bank agreed to pay $3B in a money-laundering settlement.

In the last 2 years, VC-backed projects have:
o Exited 70% of the time below their level of invested capital.
o Have seen a majority of later stage investments end in a loss.
o Have confounded even sophisticated investors like Andreessen Horowitz with 25% of their investments going to ZERO.

Crypto-Bytes:

65% of all bitcoin in circulation have not moved in the last 12 months… which is great for HODLers because that means less liquidity for the circulating supply. And for the past 3 years, +50% of all bitcoin in circulation have not moved – despite the price of bitcoin tripling during that period.

Satoshi Nakamoto was identified as Peter Todd… in a new HBO documentary. The film, “Money Electric: The Bitcoin Mystery,” uses circumstantial evidence to point to the 39-year-old Canadian software developer as the creator. [FYI: Satoshi’s $69B BTC stash has not moved.]

Michael Saylor envisions MicroStrategy as a Bitcoin bank… focusing on BTC-based capital market instruments. He believes Bitcoin will make up 7% of global financial capital by 2045, with a projected price of $13m/BTC.

Fidelity will introduce a blockchain-based money market fund… to take advantage of blockchain’s transaction efficiency.

~Half of U.S. investors are planning to invest in crypto ETFs… over the next 12 months.

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

Thursday: The CPI inflation report came at +2.4% YoY, and core inflation was reported at +3.3% YoY. The Washington Post spun it as: “More good news on inflation. US inflation was close to the Federal Reserve’s 2% target and the lowest since February 2021. For the month of September, inflation rose just 0.2%. Rent continues to be the key driver of inflation. Food also had a higher than usual month.” Honestly:

Inflation is not under control. The CPI came ~25% higher than the 2% target, and core inflation remains ~50% higher than the target.
This is shedding doubt on whether our FED should have done a 50bps interest rate cut in September.
Our FED now finds themselves in a tough spot: If they cut interest rates further, they risk having the US enter a period of accelerating inflation. If they leave rates alone, they risk the US falling into a recession.

[FYI: Charlie B’s prices over the last 4 years: New Cars: +20%, Electricity: +30%, Gasoline: +44%, US Home Prices: +47%, and Auto Insurance: +60%.]

Friday: Today the US Labor Department delivered its latest wholesale inflation report (PPI). It came in unchanged vs an estimate of +0.1%. The Dollar along with interest rates fell, while precious metals and bitcoin rose.

Morgan’s Moments…

Happy Birthday 2022 Bull Market… The stock market’s bull-run officially turned 2 years old yesterday. The S&P 500 is up 61% since October 12, 2022 – when the index hit its bear-market bottom of 3,577. We’re about halfway through the average 46-month bull market, so if this ends up being a typical upswing – investors have about 22 months of runway left.

Zoom … Zoom … Zoom: During its annual developer conference, Zoom announced a upcoming feature that will allow users to create custom, AI-animated, photorealistic avatars of themselves – that they can use to send messages to their work colleagues and to attend meetings.

To create their digital avatar, users will record a video of themselves talking. Zoom’s AI will then translate this into a digital clone that mirrors their appearance and voice.
Users will then write what they want their digital clone to say, and Zoom will create the audio ‘n synch it with the avatar's lip movements. Users can then send the video update to their teammates.
The avatars (available in Q1 2025) should enable video chats among teams, and allow employees to send their “digital twin avatar” to meetings in their place.

[I sure hope bad actors won’t use this to create deep fakes and spread mis-information.]

Next Week: High Vol + High Mkts. = FEAR

Bkgd: We are in a high volatility market - trapped inside of a tight range. The longer we’re trapped inside of this range (SPX between 5720 – 5840), the more violent the resolution (upside or downside) is going to be.

We have gone 3 weeks without even touching the edge of an S&P Expected Move. The only behavior resembling this occurred back in June of 2020 (COVID trade) and its resolution was violent.

Trading when the VIX is over 20:

Trade with small allocations and using OPTION SPREADS.
BUY rather than SELL into this volatility because it allows you to further define your risk and behavior.
Let the range resolve itself BEFORE diving into a conclusion. We will NOT break outside this range without heavy degrees of correlation. There is no FOMO in this environment. If the SPX breaks higher, so will +90% of the equities.

Beware of the: FAKE LEFT – GO RIGHT move:

IF we pop to the upside, watch for a CRUSH in CALL option volatility, and a temporary decrease in the value of your upside CALLs. This too shall pass.
Many of the PROS are ready to FADE any market move higher – believing that only the election will be the final resolution to the range.

TIPS:

Tip #1: Commodities: I remain bullish on commodities given improved technicals, a global policy pivot toward rate cuts, cheap valuations, and supply-side tailwinds.
Tip #2: Commodity Equities: I remain bullish due to reasonable valuations along with the bullish outlook for commodity prices in general.
Tip #3: Oil/Energy: Crude oil looks technically primed to rally and corresponding equities appear ready for an upside surprise. Energy stocks look attractive as a cheap alternative hedge (given increased geopolitical risk and inflation returning). Remember 2022 when oil prices surged over 70% in the wake of the Russian invasion of Ukraine – the S&Ps went into a bear market, while energy stocks rallied more than 50%.

SPX Expected Move (EM):

Last Week’s EM = $106 and we moved $60 total.
Next Week’s EM = $86 – but Monday and Tuesday will be a bit of a slop-fest due to the holiday.

TIPS:

Bounce vs Break:

Tip #4: Bonds are setting up for a move: Watch the /ZN around $111.
Tip #5: The U.S. Dollar is setting up for a move: Watch DXY around $103.60.
Overall, it’s fair to say that the energy sector is an overlooked and undervalued part of the market with macro catalysts in the wings. It’s worth a second look if only for diversification and risk management purposes.

HODL’s: (Hold-On for Dear Life)

13 to 17-Week Treasuries @ 4.75%
Physical Commodities = Gold @ $2,674/oz. & Silver @ $31.7/oz.
**Bitcoin (BTC = $63,200 / in at $4,310)
**Ethereum (ETH = 2,460 / in at $310)
HROW – Harrow Health = $50.7 / in at $12
INDA – India ETF ($57 / in at $50)
BRK/B – Berkshire = ($460 / in at $439)
**IBIT – Blackrock’s Spot Bitcoin ETF ($35.9 / in at $24)
SVM – Silvercorp Metals = (4.86 / in at $4)
DSVSF – Discovery Silver = (0.683 / in at $0.62)

Options to Reduce Risk:

Materials / Utilities: Long Call Verticals…
XLU – Utilities: Jan ’25: $85 / $89 CALL-Sp.
WEC – Wisconsin Power: Jan ’25: +$100 / -$105 CALL-Sp.
SVM – Silvercorp Metals: Jan. ’25: +$5 Calls
SLB – Schlumberger: Jan. ’25: $47.5 / $52.5 CALL-Sp.
HAL – Halliburton: Jan. ’25: $31 / $34 CALL-Sp.

Options as Hedges:

SPY – S&Ps: Jan ’25: +$520 / -$500 PUT-Sp.
SPY – S&Ps: Jan ’25: +$500 PUTs
GLD – Gold ETF: Jan ‘25: +$255 / -$260 CALL-Sp.

Options for Income:

**RIOT – Riot Bitcoin Mining
Bi-Weekly: BUY the Stock
BUY Puts 1 Std. Dev. OTM for protection
SELL Covered Calls ½ Std. Dev. OTM for income

** Crypto-Currency aware

Please be safe out there!

Disclaimer:

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Sunday, October 6, 2024

This Week in Barrons: 10.06.2024

Markets are worried… To subscribe: https://rfsfinanicalnews.beehiiv.com/subscribe

Baker Mayfield: “The Tampa Bay locker room was ‘too stressful’ when Tom Brady was their QB.”

Tom Brady: “I thought stressful was NOT having Super Bowl rings. There was a mindset of a champion that I took to work every day. This wasn’t daycare. If I wanted to have fun, I’d have taken my kids to Disneyland.”

A cure for political ad overload… As we near the 2024 presidential election, the total ad spend is mind-blowing. All kinds of records are going to be set and watching anything on television (including your favorite sports teams) is becoming brutally painful. So, here’s a potential solution to voter apathy and the torture of political ads: (a) By Registering to Vote and Voting … (b) You get the ability to: 'Block ALL Junk & Political Ads’. That will reduce the ad spend, and have 99% voter registration overnight.

Global liquidity is rising, and so will asset prices… Cheap capital is coming fast and furious, and global liquidity is in a cyclical uptick period. As rates continue to decline, investors won’t be able to help themselves, and borrowing & investing will accelerate. We will also see: fiat currency devaluations, eroding purchasing power, and a return to inflated asset prices.

“For me, it was never about the money. I thought if I could make people happy, then they would like me. And if they like me, I’ll feel good about myself. And all I can say about that is: ‘Thank God for the money’.” … Ellen DeGeneres: For Your Approval.

The Market:

“I’ll buy THAT for a dollar” … This week (for a buck) you could have bought: (a) a small fry at McDonald’s, (b) a Big Gulp at 7-Eleven, and (c) a satellite TV company with nearly 9m subscribers – as DirectTV is acquiring Dish Network for $1.

China’s main issue… is that their property prices are declining, and it’s hurting consumer psychology. The Chinese consumer is saving 30% of their income, and there’s double-digit youth unemployment. In terms of Chinese stocks, I would rather not buy into a parabola created by momentum monkeys. The momentum bet has less than a week or two left in the tank, and then China will pull back. Tip #1: Invest AFTER you see the PR piece on how China’s stimulus isn’t enough or must be backed by stronger fiscal supports.

In Q3, the Equal-weighted S&P crushed the Market-Cap weighted index. When this occurs, it signals:

Small and Medium-sized companies are doing well relative to large ones.
Investors are rotating out of the dominant growth names.
And optimism exists for different market sectors (outside of tech).

[ Gain free access to Bullseye Trading here… ]

InfoBits:

Tesla’s Elon Musk will reveal a Cybercab prototype this wek… and share the latest advancements in Tesla's full self-driving technology. Musk has said that Tesla will be ready to launch its robotaxi service in 2025.

Harvard students hacked Meta's new AI-powered smart glasses … to instantly reveal ALL of someone’s personal information simply by looking at their face.

Older adults that can cope with life’s difficult circumstances… have a lower risk of death. When measuring qualities like: a sense of purpose, calmness, perseverance, self-reliance, and the recognition that certain experiences must be faced alone, those who scored higher – had a significantly lower (-38%) risk of dying.

Jenson Huang (Nvidia CEO) said: “It will be impossible to win the AI race without nuclear power.”

Flippin’ the switch one reactor at a time. Nuclear-tech company Holtec secured a $1.5B loan from the DOE to restart Michigan’s Palisades nuclear plant.

Boeing is contemplating a $10B stock sale due to its on-going strike.

The U.S. quit rate fell to its lowest level since June 2020… as the hiring rate also slumped to its lowest level since 2013 (excluding the pandemic).

U.S. new-car sales fell about 2% last quarter… as consumers balked at high prices.

Hurricane Helene hit the town of Spruce Pines hard … forcing the town that mines most of the world’s quartz (needed for chip-making) – to shut down.

Apple will use its upcoming iPhone SE 4 … as the guinea pig for its new internally developed 5G modem. It’s trying to move away from its current Qualcomm-made modems. The 5G modem will also offer Wi-Fi and Bluetooth – allowing Apple to replace Broadcom’s chips as well.

OpenAI:

Raised the largest round ($6.6B) ever… at a $157B valuation.
Could lose ~$5B this year … largely due to computing costs associated with training and operating large language models.
Told its employees that… they will soon be allowed to sell some of their equity at the company's latest valuation. [So, let’s all say goodbye to the remaining OpenAI employees!]

Crypto-Bytes:

Bitcoin’s Up-tober… In October, Bitcoin has gone up ~71% of the time, with an overall October performance of +21%.

HBO is set to release "Money Electric: The Bitcoin Mystery" … claiming to reveal who Satoshi Nakamoto really is.

Someone dropped ~$56m on a CryptoPunk … which makes it one of the biggest NFT transactions ever – and one of the biggest in over 2 years.

Stablecoins are now 43% of crypto transactions in Sub-Saharan Africa … as local currencies continue to devalue. Nigeria and Ethiopia are experiencing massive growth in stablecoin usage due to its financial stability. Institutions prefer stablecoins over Bitcoin due to better liquidity and reduced volatility.

Our national debt is growing astronomically… while our FED cuts interest rates. Bitcoiners are withdrawing their coins into self-custody. Republicans and Democrats are finding common ground with a decentralized, supply constrained, monetary asset. This all seems bullish to me.

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

Monday: Our FED seems hell bent on not letting things implode: the money spigots are wide open, more rate cuts are coming, QE is upon us, and the AI bubble continues to inflate. Tip #2: Fair Warning: Warren Buffet has sold $131B worth of stock since 2022. He knows that this bull market will stop, a bear market will come, and he would like to be in a better position to buy.

Friday: The dockworkers strike has been put off until January, and in terms of Friday’s JOBS Report:

Estimates were for 150,000 jobs created in September,
our BLS said we created 254,000 jobs,
August’s hiring was revised higher,
and the unemployment rate ticked down a bit.

I have mixed feelings about a JOBS number this Goldilocksy large.

Morgan’s Moments…

Meta ain’t talkin’… about whether it’s using the images taken by its AI-powered Ray-Ban smart glasses (with their built-in discreet camera) to train its AI models. This raises huge privacy concerns, as it comes after Meta admitted that, since 2007, it’s been using all public US Instagram and Facebook posts to train its AI models. History at least rhymes – which means that the Zuck is going to claim ‘publicly available data’ with the images taken by its Ray-Ban glasses. [Darn, just when I was beginning to like the Zuck.]

On Tuesday, for the first time since 1977… over 45,000 U.S. dockworkers went on strike from Maine to Texas. Then on Friday the strike was officially postponed until January, 2025. 70% of Americans support labor unions, and that’s just 1% shy of the highest approval rating since 1965. The 2 major dock worker requests: a 70% wage increase and a ban on port-automation technology. [I can’t comment on the economics, but the technology ban hinders innovation.]

Next Week: Markets are worried…

Bkgd:

We have uneasy financial conditions.
Resistance levels remain in place.
Tip #3: Risk == U.S. tech stocks (goldilocks & policy perfection), and the U.S. dollar (China stimulus).
Tip #4: Rotate into: commodities, emerging markets, and small caps.

Overall, equity valuations, sentiment, and allocations are elevated. It’s a positive sign that the market has done this well thus far. I’m concentrating on risk management and sector rotation.

S&P Movements are muted… because markets are ‘floating’ rather than ‘trading’. We ended the week as close to where we started as possible. We are still inside an 80-point S&P range that extends from 5740 to 5820.

Sector Movements are large… as bonds have tanked and corresponding 10-year interest rates have gone from 3.6% to 4% in 2-weeks. That means that rates are moving exactly opposite the direction our FED had intended with its rate-cutting cycle. Markets tagged Friday’s incredibly large JOBS number as inflationary, and are back to fighting inflation on their own terms – by raising market interest rates.

The Dollar, Yen, and Gold… It seems that the Japanese have backed off their raising rate stance, so the Yen is back to falling, and the Japanese Carry-Trade is back-on. With the Yen’s fall comes a U.S. Dollar rebound higher. Tip #5: It’s scary when you see the U.S. Dollar explode higher and you do NOT see gold move lower. That’s when you realize how wildly inflationary current global monetary policy is.

Earnings season… is upon us, and with the 10-year flying high – banks are moving higher. This week the energy sector also moved 2-standard deviations higher – mostly due to geo-political risk. Meta moved higher (outside its expected move), while Apple, Microsoft, Tesla, and Amazon were all lower.

Gamma will expand… The longer you remain inside of a range, the more open interest (gamma) you will accumulate – making the velocity of the breakout/breakdown that much more intense.

The Binary Outcome…. The instant this large ball of risk decides to breakdown or breakout of this range – then the entire market weight will move with it. Until that time, volatility (VIX and VVIX) and skew (SKEW) are not backing down.

SPX Expected Move (EM):

Last Week’s EM = $99 and we moved all of $5.
Next Week’s EM = $100. Volatility is not backing down. There is a ton of risk in this market right now – just waiting to be directionally resolved.
Tip #6: If you are wildly bullish or bearish – please trade using ‘defined risk’ strategies!