“I’m not that smart.” When someone said that to me the other day – I was depressed. The number of tasks that require someone with off-the-charts intelligence are extremely limited. Just about everything we do, is the result of effort, practice, and caring. Sure, variations of the work come easier to some, but no one finds everything easy. Just stop saying: “I’m not that smart,” and tell the truth. Just say: “I don’t care enough…” to do the required homework, to fail along the way, or to even show up – in order to get better at the job. Because, you’re most certainly smart enough.
“Get Big Fast…” Are the words that are mouthed by 90% of the VC’s. Unfortunately, when the stakes are high and everything has to be a home run – people tend to go: All-In. The problem with over-investing is that creative risk and flexibility decline. In place of creativity and innovation, come inflated budgets and exhaustive meetings - instead of getting stuff done. A community that insists that it must work perfectly – virtually guarantees that it won’t work at all. The way to ‘Get Big Fast’ is no secret – you start small, and expand outward with demand.
Moore’s Law… tells us that the number of transistors that can be put on a chip – will double every 2 years. That doesn’t sound like much, but if you constantly double a small number – you ‘Get Big Fast’. Ever since the law was spoken, critics & experts have pointed out that nothing goes on forever. Maybe it won’t, but that doesn’t mean it’s over or bad. I always wonder what would happen if we were required to create the conditions for things to flourish, rather than to predict their demise?
The Market:
“Don’t fight the FED...” Remember when our FED was lowering rates and printing a bunch of new dollars? Companies were borrowing at cheaper rates, expanding their production capacity, and people were buying more stuff. They were buying new homes which created demand for furniture, appliances, etc. The stock market was moving higher – as the DOW ran from 8,800 in 2009 to 34,000 in 2021. There was no question that it ran up because of all the FED stimulus: Cars for Cash, QE1, QE2, the Twist, and dropping rates from 6% to Zero. Nobody was Fighting the FED. Even COVID, with its tens of thousands of businesses closed, no travel, and a slowing economy - couldn’t stop the expansion. Our FED is currently raising rates into a slowing economy in order to get inflation under control. Consider this:
- Current treasury yields are above the pre-financial crisis (2008) highs.
- The demand for home mortgages is at a fresh 25-year low.
- Home prices are falling at the fastest rate since 2011.
- And our GDP has been negative for +2 consecutive quarters.
Our FED is attacking inflation by destroying demand, but the bulk of our current inflation is not demand related, but rather caused by supply chains and services (wages, rents, and healthcare). With limited supply, everything becomes an emergency – and nobody ever asks the ER Doctor how much they cost? Compound that with fewer people who can solve the problem, and the price for that fix will naturally increase. Our FED can’t fix supply chains or service issues via raising rates – and they know it.
Our FED is trying to orchestrate a ‘controlled destruction’ – not a crash. If the debt market and all of its derivatives break – then we crash. Tip #1: Trouble’s everywhere. Consider buying some precious metals, and long-dated PUTS on the indices.
InfoBits:
- Bloomberg predicts… a 100% chance of a U.S. recession in 2023.
- Intel has slashed Mobileye’s valuation… by over 50% to under $20B.
- JPM and Wells Fargo reported home-lending revenue is way down… as spiking mortgage rates cool the market.
- BP is buying biogas Archaea Energy for $4B. It will get them in the renewable-gas game, and net them tax breaks for green investment.
- Kanye West is buying the social platform Parler. Ye was locked out of Twitter and Insta after his anti-Semitic remarks.
- Federal Reserve officials will raise rates 75bps in November… but are worried that inflation is now feeding on itself via the service sector.
- Cadillac and Rolls-Royce are launching luxury EVs… for $300,000 and $413,500, respectively.
- The U.K. has ordered Meta to unwind its $400m purchase of GIPHY: It’s the first time a global regulator has unwound a completed Mega-Cap Tech deal.
- Jeff Bezos says… “It’s time to batten down the hatches.”
- The Inflation Reduction Act eliminated the $7,500 tax credit… for plug-in hybrid and electric vehicles that are imported and sold in the U.S.
- U.S. housing starts fell 8.1% in September… led by a 13.1% decline in multi-unit projects. Demand is at its lowest level since 1997.
- Inflation in Canada = +6.9%, the U.K. = +10.1%, and the Eurozone = +11%.
- Retailers want you to buy their 2021 leftovers this holiday… at a discount.
- The Bank of Japan conducted emergency bond buying… as global debt markets continue to creak and groan under economic pressures.
- Twitter’s workforce will be cut by 75%... as Elon plans to get rid of 5,500 of Twitter’s 7,500 workers.
Crypto-Bytes:
- Shark Tank’s Kevin O'Leary says… “Once a specific stablecoin bill is passed and institutions smell policy, then you’ve got a real move up. That’s when Bitcoin breaks out of the $19,000 to $22,000 trading range.”
- Mastercard partnered with crypto trading platform Paxos… to help financial institutions offer cryptocurrency trading.
- Avraham Eisenberg claimed responsibility for last week’s $114m exploit. He returned $67m to Solana, and his DAO will vote in the coming days to decide how to divvy up the remaining funds.
- Out of 180+ active crypto exchange-traded products… more than half launched after the crypto market peaked. So, as retail investors ran for the sidelines, institutions kept playing ball despite crypto winter's chill.
- A former Celsius exec… joined JPM as director of crypto regulatory policy.
- BlackRock and BNY Mellon ($10T in managed assets)… have expanded their crypto offerings.
- Starting 10/28, Fidelity’s institutional clients will be able to trade ETH.
- Electric car maker Tesla did not sell any of its bitcoin holdings… or purchase any additional bitcoin in Q3.
TW3 (That Was - The Week - That Was):
Monday: I’m hearing rumblings of some form of a Ukrainian peace process, but I’m also hearing we get one more escalation before a peace deal is reached. People are talking about a small nuclear explosion. Imagine what happens to the stock market if a low density, low volume nuke goes off in Ukraine. We could see a one-day 2000-point drop. I am hearing that a peace deal would be announced immediately after that – which would send the markets roaring higher. So, I’m buying some inexpensive PUTs on the indices – into any market strength. Expect major earnings cuts in Q4 – not in Q3, and most strategists see an upper bound of 3,800 and then 4,150 to this rally.
Tuesday: The market decided to crush the shorts yesterday, held us up over +500 points all day, and they're not done. We’re witnessing a short squeeze that hurts the traders that were convinced the market couldn't put in a big bounce. Always remember that the market can rip your face off in either direction. You know the drill: watch for the DIA, SPY and or QQQ to mark an early morning high, then jump on it if it exceeds that high later in the session.
Thursday: 3 market gurus are out there saying that everything is aligned for a crash. Unfortunately, when the news just couldn't get much worse (and we're in one of those times) it's the market's job to confound everyone and remain irrational. Rising from here seems irrational, but AAPL over $146 seems like a trade, and AMD over $60 could work. NEM looks like it's warming up, but miners are often one day wonders. This is one strange market – so don’t get careless.
AMA (Ask Me Anything…)
“How do I preserve my capital?” A component of every portfolio is precious metals (PMs). Currently, you need to look beneath the surface for the real PM prices. Silver Eagle coins may be $18.50 on the spot market, but that price doesn't really exist. The coins are going for $35 – almost double. And yes, if you buy them now, they will double in the future. If you’re in the market, try www.cornerstonebullion.com and ask for Chad or Bill – they’re good people.
“What happened on Friday?” Friday morning the futures were down -240 because the bond markets were giving off horrific vibes. The 10-Year was at 4.3%, and it was 16% cheaper (3.6%) just last month. Bonds are not supposed to do this. Liquidity is drying up, and monetary velocity is in the toilet. If the credit markets freeze-up, then everything grinds to a halt. Bank of America announced that the treasury markets are at risk of a “large amount of forced selling” or a surprise that leads to a breakdown. Our world is being torn apart, and the global financial system is creaking and groaning under the weight.
The market opened red, but then like magic – it suddenly ran bright green to the tune of over 300 points. What happened? The WSJ ‘leaked’ a story that our FED was going to do a 75bps raise in November, but is considering 50bps or less in December. Instantly the market went bananas. The WSJ ‘leaked’ the story to take some pressure off of the bond markets. Sure enough, it halted the pace of the increase, and the 10-Year went from 4.33% to 4.22%. On the same day, the Bank of Japan stepped in to save the yen, and FED-head Daley suggested that they may hike in smaller increments.
On Friday, the entire global financial structure was about to blow up. Friday wasn’t about a stock market rally, but rather another attempt to halt an end to our global financial nightmare via coordinated actions. Will this work going forward? It’s strictly an election aid, but after that = we’ll go right back to being in the soup.
Next Week: The Damage is DONE in Bonds:
Price Action last week was a volatility slop-fest: Anytime the S&Ps can gain 2.5% on a Friday afternoon AND the VIX increase – you know that your markets are in trouble. The price action in last week’s S&Ps is all for naught – because the focus is on the action in the bond and currency markets. By virtue of the bond and currency markets, you really can’t read anything into last week’s equity price activity.
We’re still inside the 3600 to 3800 volatility box: By virtue of remaining range-bound, the explosive nature of the final directional move will be that much more dramatic. We moved 130 S&P points on Friday (3641 to 3769), and we’re still just moving inside this range. If we break to the upside, look toward 3931 as the next gravity point. If we break to the downside, look toward 3400 and 3000. This coming week we not only have GDP numbers to report, but also mega-cap tech earnings. The element to watch for in earnings, is listen to see if any tech companies suspend their internal stock buybacks due to high interest rates and the need to maintain a high cash position through a recession.
This market is highly correlated… and will potentially remain that way until after the mid-term elections. Last week was a short-covering exercise – while all of real decision-making remained on the sidelines. In fact, Tip #2: Try not to maintain any directional bias (zero delta). I could easily see a bond rally occurring next week that rotates capital out of the S&Ps and into the bonds. Our equity markets need to stop moving as a unit, return to normalcy – so that each individual stock can be evaluated on each own merits… again.
The VIX is alive, living in the 30’s with backwardation: I can count the number of times on one hand, that in the last 50 years – the S&Ps have been up 2.5% and the VIX has moved higher. This is a troublesome statistic. This market is a powder-keg of risk, that will use an external event as a trigger – and we don’t know what or when that particular event will occur.
Bonds have collapsed. Is this capitulation? As bonds go lower, interest rates move higher. Last week our bond markets collapsed (down 35% YTD) and that sent interest rates through the roof. The spike in rates will be felt on main street for at least the next 3 to 6 months. It has serious consumer implications from holiday spending to home buying, and from credit card debt to financing an education. The consumer is caught between higher interest rates on one side, and inflation on the other.
What are the implications of spiking yields on:
- (a) buybacks – Tip #3: watch to see if any of next week’s mega-cap tech earnings announcements discuss delaying their internal stock buybacks in order to maintain a higher cash position going into a recession.
- (b) rising consumer credit – Walmart (WMT) is only down 5% YTD. With rising credit card interest rates, this could signal a tough holiday season for both WMT and Costco.
- (c) collapsing housing markets – The index of homebuilders (XHB) is already down 35% YTD, but with a spike in mortgage rates – this could be just the tip of the iceberg.
Have the S&Ps bottomed… Tip #4: ABSOLUTELY NOT. We have yet to see the implications of spiking interest rates (doubling over the past 6 months) on mortgages, car loans, tuition payments – and let’s not forget: heat, groceries, and gasoline.
Currency markets are moving like there’s no tomorrow… The British Pound moved 10% last Thursday and Friday. The Japanese government was forced to intervene on behalf of its Yen – to avoid global trade imbalances and catastrophic debt responsibilities. The bond market (liquidity and potential capitulation), the currency markets (global liquidity and debt), and our internal FED/PPT team – will decide the fate of U.S. equities prior to the mid-term elections.
SPX Expected Move (EM):
- Last Week’s EM = $120 … we breached the EM to the upside last week.
- Next Week’s EM = $114 … After we moved $130 points on Friday afternoon, I’ll take the ‘over’ on our market’s ability to predict their upcoming behavior. Keep your hands-n-feet inside the vehicle at all times, because these next couple of weeks are going to be a rough ride in market-land.
Tips:
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,662 /oz. & Silver @ $19.40 /oz.
- **BitFarm (BITF = $0.95 / in at $4.12)
o Selling CCs for income,
- **Bitcoin (BTC = $19,200 / in at $4,310)
- **Ethereum (ETH = $1,300 / in at $310)
- GME – DRS’d and HODL
- **Grayscale Ethereum (ETHE = $8.51 / in @ $13.44)
- Innerscope (INND = $0.0169 / in at $0.0052)
- SPY (Downside PUTS):
o BOT Oct 31 / +$350 / - $340 SPY PUT Spread
o BOT Dec / $285 DIA PUT
* * 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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