RF's Financial News

RF's Financial News

Sunday, September 25, 2022

This Week in Barrons: Sept 25th, 2022

Good vs Great:  Good service is the fulfillment of a promise to the customer.  Great service is designed to surprise and delight.  Great service creates a connection that demonstrates caring, respect, grace, and gratitude.  As soon as we start to wonder if ‘good service is okay’ – we may as well just do the minimum.  Great service is an investment that pays off in loyalty, word of mouth, and employee satisfaction.  Great service requires a commitment – or just don’t bother.

“It’s not that good”  Most of the time when we tell someone: “It’s not that good” – we really mean: “I just didn’t like it.”  Very few of us have the domain expertise required to utter: “It’s not that good,” because that would require an understanding of the target audience and the particular product/service fit.  So, normally we mean: “I just didn’t like it” – which tells us more about the person than the product/service. 


Small Business Marketing (SBM):  SBM is NOT paying for ads, changing the logo, or building a social media presence.  SBM is: creating a remarkable story, pricing, and measuring customer service & delight.  But the small business marketeer is not in charge of any of those things, but gets stuck making a commotion on social media.  If you’re hiring someone to be in charge of your small business’s marketing – then have them be in charge of all of it.  If it touches the market, it’s called marketing.



The Market: 



Where did all of this Inflation come from?

-       It came from our political and financial reactions to: COVID, disrupted supply chains, rate & gas hikes, and geopolitical conflict.  Our reaction was to kick-the-can down the road by throwing a ton of fake money at it and hoping for the best.

-       Our FED’s balance sheet has more than DOUBLED over the last 2 years, and they believe over the next 2 years they will reduce it back to where it was.  So, home prices will drop by 50%, food will come down, and wages (that haven’t kept pace with inflation anyway) will turn lower?

-       Unfortunately (and our FED knows this), most of these underlying price increases are permanent – unless you destroy demand and force a depression.  


Chairperson Powell are you serious?

-       Home prices and mortgages have exploded over the last 2 years.  Mortgage rates have doubled over the last 12 months, and our FED is still saying that: “Our housing market must go through a correction in the coming months.”

-       There are still twice as many job openings as people to fill them, and our FED is focused on crippling the existing labor market: “Higher interest rates, slower growth, and a softening of the labor market are all painful.  I wish that there was a painless way.”

-       Our FED’s screaming from the rooftops that the pain is coming: “Not the light pain we have all experienced over the past 9 months, but real economic pain that leads to people losing their homes and jobs.”

-       We’ve NEVER seen a FED aggressively hike rates while inside a recession. 

-       Markets are waking up to things becoming a lot worse before getting better.

-       Do you remember Michael Burry – the gent who shorted all the mortgaged back securities in 2009?  His 2023 target for the S&P is 1800.  That’s another 50% lower from where it is today.



InfoBits:



-       Google’s CEO told an all-hands meeting… “Do NOT equate fun with money.”  I’m betting that was a fun discussion to have from one billionaire to…


-       Design-software startup Figma was purchased by Adobe for… $20B.  Did you see the panic in Adobe’s eyes?


-       Chinese investments in US venture-capital funds…   are on pace to hit the second-highest level in over a decade.


-       Mortgage rates surpassed 6% for the first time since 2008…  and the average mortgage payment is now $2.3k – up 66% YoY.


-       Benz unveiled its longest-range electric truck…  over 600 kWh.  The battery can be charged from 20% to 80% in under 30 minutes.  Production in 2024.


-       48% of pre-pandemic office workers…   are back at their desks.


-       Microsoft raised its dividend by 10%...   trying to buoy its stock price.


-       Cancer victims urged the court to end the J&J subsidiary bankruptcy…   that is blocking thousands of lawsuits alleging their products caused cancer.


-       Electric-car rentals are getting juiced…   as airport staple Hertz agreed to buy 175K EVs from GM over the next 5 years. 


-       Amazon’s “Thursday Night Football” debut….  drew a record number of Prime signups over a 3-hour period.


-       FED Chairman Powell raised interest rates…   another 0.75%, and basically removed the ‘soft landing’ from being a possibility.  


-       We’ve gone over 240 days without a tech IPO over $50m…   surpassing the record set post-2008 crash and post-dotcom bust.


-       U.S. existing home sales fell 0.4% MoM and 19.9% YoY. 


-       JPMorgan CEO Jamie Dimon told Congress…   “to prepare for the worst. There’s only a small chance of our FED pulling off a soft-landing.”


-       For the first time in 24 years, Japan intervened to prop up the yen…   by buying yen and selling U.S. Dollars. 


-       The Conference Board’s Leading Economic Indicators…  showed a decline for the 6th consecutive month. 


-       The SEC said YES to Payment for Order Flow…   a known predatory practice.  I guess Gary Gensler wasn’t all that serious about transparency and fairness.


-       Palantir CEO believes our current economic conditions…   will crush companies with shaky fundamentals.  They were just awarded a $1B contract to develop prototypes for a hypersonic attack cruise missile.


-       Disney, P&G and LVMH have all invested in…  a Chief Metaverse Officer to help them through the next chapter of the internet.  My guess = this is FOMO.



Crypto-Bytes:



-       +4,000 crypto workers have been fired since April...   and over 80% are grappling with whether to trust their careers to Blockchain and Web3 again. 


-       Abra announced that it will launch a crypto bank…   in the U.S. and abroad.  It will be state-chartered as a full bank – launching by Q1 2023.  Its services will include credit cards, NFTs, and interest-earning accounts for digital assets.


-       The Nasdaq is starting a cryptocurrency custody service…   as it aims to cash in on the demand from institutional crypto investors.


-       Indonesia is now requiring domestic crypto exchanges…   to be 67% led by its citizens.


-       The founder/CEO of Kraken is stepping down…   replaced by the COO.


-       Democrats pushed for a digital dollar…   but negotiations concluded with a new directive for another FED study. 


-       JPMorgan’s CEO called Bitcoin…   a “decentralized Ponzi scheme.”


-       Russian officials approved the use of crypto…   for cross-border payments.


-       Celsius is planning to turn its debt into…   a new crypto ‘IOU’ token.   Customers could then redeem the wrapped “IOU tokens” (for cents on the dollar)trade them, or hold them hoping for a Celsius recovery.


-       U.S. VC’s have $290B in dry-powder… ready to deploy.  Firms will start deploying those funds next year at a pace that could match 2021.



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



Monday:  Last week, the majority of the selling pressure was as a result of a hotter than anticipated CPI report, with the headline print rising 8.3% YoY.  On a technical basis, the S&P decisively broke through the 3,931 level – signaling significant losses ahead.  Having a green day today makes sense after the pounding the market took last week.  It's not something I trust, but the market needed a breather from the falling.


Tuesday:  The next 2-day meeting of our FED begins today and culminates in the next Fed interest-rate hike on Wednesday – along with an updated batch of economic projections.  The 10-Year moved up to 3.59% this morning – scaring the equity markets and down we went.  The stock market does NOT like the idea of an unstable bond market.  Watch for some liquidity issues brewing in the background.


Wednesday:  Our FED raised rates 75bps.  From my perspective, J. Powell’s statement and Q&A were hawkish.  Reporters were trying to get him to say he's willing to pause, but he dodged all of that.  I think we're going to test the June lows, but it may be possible to put in a bounce here.  There's no reason for a bounce other than hopium.  I saw no change in Powell’s stance, and I believe the June lows are still on tap. 


Thursday:  Yesterday, our FED signaled even more upcoming rate hikes than investors had expected.  Our FED took their target range for the federal funds rate to its highest level since before the 2008 financial crisis.  The shorter end of the yield curve rose and the longer end declined, further widening the inversion gap to 50bps – the most since 1981.  Our FED believes we will have weak GDP growth of 0.2% this year, and unimpressive 1.3% growth next year.  The unemployment rate is expected to rise 0.7% to 4.4% by the close of 2023.  Our markets are broken.  What do we do in here?  If the DOW falls under 300, buy PUTS on the DIA.  If the DOW exceeds 302 – buy CALLS.  Remember, it’s a trade – not a marriage.


Friday:  BofA just said that the S&Ps are likely to test their 3,720’ish support, and do another "retest or undercut" their 3,636 June low.  I also have 3250 in October 2020 and 2250 in April 2020 in my sights.   Goldman lowered its year-end forecast for the S&Ps from 4,300 to 3,600.  Our 10-Year note hit 3.80 over night.  Over in England they're cutting taxes by issuing more debt – further rattling bond markets.  They’re doing it because there’s no energy, and people can't pay their bills.  There’s a lack of buyers, and liquidity is drying up.  At some point, a mindless "rush the doors" bounce will take place, but not today.  Closing this low makes us susceptible to a “Black Monday” situation.  We’ve effectively erased all market gains since November of 2020, and we’re at levels not seen since January of 2020.



AMA (Ask Me Anything…)



Chamath Palihapitiya, one of the biggest promoters of SPACs (Special Purpose Acquisition Companies), is pulling back from the SPAC game because he can’t find any attractive businesses for his SPACs to buy.  This is definitely a sign of what is to come.  Palihapitiya’s SPACs: Virgin Galactic, SoFi, Clover Health and Opendoor are down 49%, 43%, 79% and 67%, respectively.  As Chamath pulls back from the game he helped to make popular, it marks the end of an era.  The clock continues to tick down for the other 600 SPACs that hold $175B of investors’ cash, and scrambling to find partners.



Next Week:  Markets Coming Apart at the Seams…



-       Wow … what a week…   Everybody’s asking the same question: Are markets coming apart at the seams?  Ever since J. Powell finished his speech, our markets have been in turmoil, and some very serious damage has been inflicted to this marketplace.  One of the elements that bothered me this week, is a lack of capitulation-type volume.  Traders don’t consider ‘over-sold’ vs ‘over-bought’, but rather look for: the ‘rage in the trade’.  With ‘rage’ comes volume, and it’s just not there.  Even though patterns may suggest otherwise, we have further to go. 


-       Volatility is in backwardation… and the VVIX (102) is starting to react.  On Friday the October VIX (/VX) moved to 29.70 with the November VIX being at 29.  That means that there is more market risk in the next 26 days than there is in the next 54 days.  So, we’re beginning to see some marketplace ‘shock-n-awe’, and that is required for capitulation.  

o   Beware of volatility, it will get you to do EXACTLY the wrong thing at EXACTLY the right time.

o   9 out of the last 11 weeks the SPX has breached its Expected Move.  Our markets are operating inefficiently, and are showing signs of ‘coming apart at the seams’.  The SPX is not doing its job at handicapping risk.

o   In order to call a bottom, short term SPX volatility needs to be around 50%, and right now we’re at 30%.


-       The Dollar is moving relentlessly higher… and is continuing to act as a ‘duck-n-cover’ / ‘flight-to-quality’ asset.  

o   Tip #1: ‘Risk-off’ asset classes may soon shift to include Gold (GLD) and Bonds (TLT).  The Gold (GLD) and Bond (TLT) trades will only start to really move – when the Dollar (DXY) calms down and investors need somewhere to park their cash.


-       Financials and Energy are leading the market lower…  and energy alone was down 7% on Friday.  

o   The energy sector (XLE) is still up 23% YTD, while the S&Ps are down 23% YTD.  Tip #2: If we continue to see downside pressure on the XLE, then the S&Ps will be in trouble.  

o   The financials (XLF) are currently sitting at $31.05.  Their 5-year pivotal level is $26.50.  Tip #3: Watch the XLF as it continues to move lower and closer to its pivotal level of $26.50.


-       AAPL is leaving BIG risk on the S&P 500 table…  as it is the one asset that bothers me more than any other.  Apple is only down 17% YTD while the Nasdaq (QQQ) is off 31%.  It’s bothersome to see the largest market cap company NOT in synch with the rest of the marketplace.  Tip #4: With the S&Ps being almost 100% correlated, it’s potentially just a matter of time until AAPL falls in line with the Nasdaq.  


-       SPX Expected Move (EM):

o   Last Week’s EM = $117 … and we moved lower by about $180.  This is the single, most intense marketplace we’ve seen since the financial crisis.  

o   Next Week’s EM = $125 … are we kidding?  This doesn’t make much sense because at one point on Friday – we were down $110 on the day.



Tips:  



HODL’s: (Hold On for Dear Life)


-       CASH = Nexo @ 8% on USDC – waiting for The Merge dust to clear.

-       PHYSICAL COMMODITIES = Gold @ $1,652 /oz. & Silver @ $18.84 /oz.


-       **BitFarm (BITF = $1.08 / in at $4.12)

o   Selling more CCs for income,

-       **Bitcoin (BTC = $19,100 / in at $4,310)

-       **Ethereum (ETH = $1,340 / in at $310)

-       GME – DRS’d and HODL

-       **Grayscale Ethereum (ETHE = $9.17 / in @ $13.44)

-       Innerscope (INND = $0.012 / in at $0.0052)

-       SPY:

o   BOT Oct 21 / +$350 / - $340 PUT Spread

o   BOT Oct 31 / +$350 / -$340 PUT Spread

* * Denotes a crypto-relationship


Trading Tips:  


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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Saturday, September 17, 2022

This Week in Barrons: Sept 18th, 2022


Should I start at the top or the bottom?  People always tell you start at the top – with the power and authority.  Unfortunately, the days of power and authority residing at the same place are gone.  Real power lives at the ‘grass roots’ level.  The power brokers are often choosing between options dictated by the ‘grass roots’ leaders.  It seems that those revamping and building out the bottom, are also in charge of changing the top.


Who really cares anyway?  It’s rare that no one cares.  More often than not – someone cares.  And never does everyone care.  Therefore, your entire focus is just getting ‘someone’ to care.


Feature creep goes like this:  This specific feature is cheap compared to the benefits it offers.  Once that feature is added – it’s never removed.  And when enough features are added, the system fails.  This applies to everything from software to restaurant menus to vehicle dashboards.  Yahoo’s home page once had 183 links.  Google’s had two and grabbed all of the search traffic.  At some point feature creep causes system bankruptcy – and then the cycle resets.  It’s not easy to say NO to a feature.  It’s often easier to push the reset button, clear the slate, and start over.



The Market: 



U.S. Inflation rose to 8.3% YoY:  That guarantees our FED will remain aggressive in raising interest rates.  Services, shelter, transportation, and medical care rose the most in August.  Ask yourself:

-       Why does $4/gal. sound cheap?  Because electricity and water are up.

-       Why are croissants $9?  Because food prices rose nearly 1% MoM.

-       Why is rent grabbing my entire paycheck?  Because rents rose 0.7% MoM.


Things are NOT good out there:

-       Mortgage rates crossed 6% for first time since 2008.

-       FedEx and others warned of huge, shipping slowdowns.

-       Computer chip production is falling on weak demand.

-       Housing purchase prices are down 6% in 2 months, and 

-       Credit card debt is up 30% in the last 4 months.


Inflation causes Less spending power, and Rate Hikes cause More credit card debt; therefore, retailers should be worried about the holidays.



InfoBits:



-       Charging my new iPhone to my Apple Card = Seamless…   but paying that same iPhone on time – isn’t as easy as it sounds.  Goldman (admins of the Apple Card) are seeing card holders missing payments.  Goldman’s consumer side could lose over $1.2B if the recession really takes hold.


-       The Strategic Petroleum Reserves…  are at their lowest levels since 1984.


-       Goldman’s cutting hundreds of jobs…   as it performs its annual culling of low-performing employees.


-       U.S. stocks…   posted their worst one-day performance since June 2020 after hotter-than-expected CPI data sparked fears that our FED will need to be even more aggressive to rein in inflation.


-       Bank of America’s survey shows…   that fund managers are more bearish today than they were during the financial crisis of 2008.


-       Companies are finally doing what they need…   to retain their necessary workers.  Hard Rock is raising employee wages.  Starbucks is improving the employee experience.  Amazon is adding delivery driver perks.


-       Seniors could see a record 8.7% cost-of-living adjustment next year… which would be the largest since the 1980’s.


-       Alexa may soon answer your questions…  with ads.


-       The Seattle Mariners hosted a “Work from the Ballpark” day…   with Wi-Fi, lunch, and in-Ballpark cafĂ© seating.  They sold out of all $50 tickets.  Is Work from Home now: Work from Ball Park?  Who are we kidding?


-       Walmart plans to launch checking accounts…   and expand into loans and investing.


-       Starbucks’ cold coffee drinks…   account for 60% of all orders year-round.


-       A tentative agreement has been reached…   that avoided a rail-strike by +100,000 workers – that would have added to our supply chain issues.


-       FedEx pre-announced weaker global shipping…  noting that the speed of the global slowdown took them by surprise.


-       Adobe agreed to buy Figma for $20B…  that is 50 TIMES Figma’s reported year end annual recurring revenues.  WOW!


-       Apple has overtaken Tesla…   as our most-shorted stock.


-       The World Bank is seeing its steepest slowdown…   since 1970.  It expects rate hikes to continue, and the price to beat inflation will be negative growth.


-       Other named-investors…  expect the U.S. to experience a ‘rolling recession’ as our FED aggressively raises rates to fix its ‘credibility problem.’



Crypto-Bytes:



-       The U.S. Office for Science and Technology Policy…   released a report on bitcoin mining’s impact on the national electricity grid, and suggested standards to limit the industry’s environmental footprint.


-       Starbucks will offer an NFT-based loyalty program…   called “Starbucks Odyssey.”  Customers will buy-n-earn digital stamps that give rewards and experiences.


-       Fidelity is thinking about…   letting individual customers trade bitcoin.  They currently allow corporate clients to add bitcoin to their managed 401k’s.


-       Huobi and HashKey Capital received…   a virtual, asset manager’s license in Hong Kong to manage portfolios of 100% crypto investments. 


-       Schwab, Citadel, Fidelity, and other Wall Street firms…   have started a new crypto exchange called EDX Markets.  It’s just the latest evidence that Wall Street is forging ahead in digital assets – despite the crypto winter.


-       Ethereum’s transition to proof-of-stake was successfully completed…   at 6:42 UTC – immediately causing a 99.9% decline in ETH’s energy use.


-       FTX is raising capital to fund further retail-focused acquisitions:  It’s seeking the same $32B valuation as its last capital raise.



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



Monday:  This week is all about the CPI.  If the CPI comes in ugly, we have a good chance to fall out of bed.  The CPI comes out tomorrow at 8:30am.


Tuesday:  The CPI gained momentum in August, and we’re back to 8.3% YoY.  The report was horrid, and inflation is still out-of-control.  So, the gains from the last 4 days have evaporated, with the DOW now down +870 points.  The debt market is creaking and groaning – due to a lack of liquidity.  Why hunt for bargains when today's bargains could be even better bargains later in the week.  Tomorrow we get the PPI.  Most likely it will also be ugly, and we’ll see a 2nd day of carnage.  This week the S&P is doing some roll overs on Thursday, and then Friday is options expiration.


Wednesday:  The 2-Year Treasury yield, is more than 40bps above the 10-Year rate – further deepening an inversion.  Doubleline’s Jeff Gundlach said he expects the S&P 500 Index to fall to 3,000 or about a 20%-25% drop from its current level.  This morning’s PPI (Producer Price Index) showed a +8.7% YoY inflation rate.  So, after a 1300-point smackdown yesterday, I would think another day or two of small gains might make sense before another round of selling hits.  Next week our FED hikes rates and Powell speaks on Wednesday.


Friday:  S&P futures are down after a big profit warning from FedEx (FDX).  FedEx was hurt by global volume softness – which also caused them to withdraw their 2023 earnings forecast.  The British Pound also moved below the $1.14 mark (vs. the Dollar) for the first time since 1985.  Bulls keep telling me that things are getting better.  Politicians keep telling me that the market doesn’t reflect the real economy.  I wonder who’s right: the Politicians or FedEx?



AMA (Ask Me Anything…)



Will ‘the Merge’ push crypto to new all-time-highs?  I’m not anticipating all-time highs anytime soon, but hype from the Merge and also the U.S. midterms could push BTC up into the $35,000 to $40,000 range.


How did Adam Neumann raise $350m for an idea?  When Adam Neuman’s’ new rental-apartment startup received a $350m check from Andreessen Horowitz (a16z), it came with an unusual catch.  Neumann (in essence) agreed to effectively hand over part of his real-estate holdings as collateral in return for the money.  If Neumann’s new company were to fail, he stands to lose a significant part of a real-estate mini-empire that is valued in the hundreds of millions of dollars.



Next Week:  A Volatility Shock is Coming:



-       This could really get ugly under SPX 3931…  because quite a few stars are aligning.  The SPX closed Friday at $3,873 – well below its 200-day moving average = $4,286.  We could be witnessing a complete re-pricing of the S&Ps due to higher rates, lower growth, lower earnings, and lower sector ratios.  GOOGL and META have broken through their lows for the year, while MSFT is almost there.  Apple is what’s holding this market up, and it’s currently the most shorted stock.  My cause for concern is the SPX itself. 


-       Will 2-Sigma moves become normal?  Given we’ve had 7 breaches of the Expected Move over the past 9 weeks, I can only conclude that the SPX is just inefficient.  Last week we were expecting an SPX $97 move and we received a $200 move to the downside.  The ‘forward-looking’ risk in this market, is NOT being well-handicapped by the option markets.  2-Sigma moves can NOT become the norm.  Tip #1: This is a warning shot – that SPX & SPY options are being priced way too cheaply. Therefore, buying long-term options is far more preferable than selling short-term ones.  


-       Volatility is Ready to Rock…   as one of two things is going to happen: (a) we are in for a ‘shock-n-awe’ type of upcoming move that substantially increases volatility, or (b) markets will rally and bring volatility back into alignment at the lower end.


-       What to do when Volatility Spikes?  On Friday we traded 8,000 SPX ($3,900) contracts per minute.  With a firehose that fully open, it’s difficult to call a specific direction.  There’s currently only 0.2 points between October Volatility (/VX) 27.4 and November Vol. of 27.6.  If we had a spike in volatility that pushed us into Vol. backwardation (October Vol. over November Vol), this marketplace would be forced to react violently and instantly.  Tip #2:  If we enter volatility backwardation, institutions will have to sell SPX futures to mitigate their risk and then all charts would immediately collapse to the downside.


-       Bonds hit lows, and our 2-Year vs 10-Year inversion is getting wider:  Currently, the 2-Year Bond is at 3.8% while the 10-Year is at 3.4%.  This is one of the widest inversions since the 1980’s.  Bonds could continue to sell-off, until a duck-n-cover type move occurs – causing them to turn and rip to the upside.    


-       The Dollar (thus far) has not gone parabolic…  but is 1 point from the 111 break-out area – that would crush the S&Ps.  Tip #3: DANGER because we have all of these risk factors hitting at once: (a) the Dollar, (b) Volatility, (c) Bonds, and (d) an extremely inefficient marketplace (2-Sigma moves).  


-       SPX Expected Move (EM):

o   Last Week = $97EM … and we moved almost $200.

o   Next Week = $117EM … Why should I believe them after it just moved $200 last week?  And, the FOMC / interest rate announcement is coming on Wednesday.



Tips:  



HODL’s: (Hold On for Dear Life)


-       CASH = Nexo @ 8% on USDC – waiting for The Merge dust to clear.

-       PHYSICAL COMMODITIES = Gold @ $1,683 /oz. & Silver @ $19.57 /oz.


-       **BitFarm (BITF = $1.24 / in at $4.12)

o   Selling more CCs for income,

-       **Bitcoin (BTC = $20,040 / in at $4,310)

-       **Ethereum (ETH = $1,450 / in at $310)

-       GME – DRS’d and HODL

-       **Grayscale Ethereum (ETHE = $10.50 / in @ $13.44)

-       Innerscope (INND = $0.017 / in at $0.0052)

-       Starbucks (SBUX):

o   BOT Oct 31 / +95 / -90 PUT Spread

-       SPY:

o   BOT Oct 7 / +$385 / - $375 PUT Spread

o   BOT Oct 21 / +$378 / - $368 PUT Spread

o   BOT Oct 21 / +$380 / -$370 PUT Spread

-       Walmart (WMT): 

o   BOT Oct 21 / +$137 / -$135 PUT Spread

* * Denotes a crypto-relationship


Trading Tips:


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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