RF's Financial News

RF's Financial News

Sunday, March 5, 2023

This Week in Barrons: March 5th, 2023


‘Keep your friends Close, and your enemies Closer’… because we are about to witness something special – a tidal wave of growth in speculation, strategy, and risk taking.  It’s already taking shape with the explosive growth in 0DTE (Zero Days ‘till Expiration) options and in micro-futures.  Per TS:  This is great news for capital raising, liquidity, financial literacy, and the next growth stage of an innovative economy.  The only hurdle for innovation of this magnitude are the regulators.  New tech, creative products, and powerful content has put the financial regulators decades behind the times.  History shows us that regulators will stupidly choose brute force regulation over learning, adapting, and adopting legislation.  Unfortunately for governments, regulatory bullying is unsustainable and non-scalable.  Between DAO’s and innovation hungry governments, regulators are simply a speed-bump and no longer a blockade.


‘Cash is Trash’… NOT ANYMORE!   What our FED giveth (zero-rate environments) – our FED hath taken away.  The yield on six-month US Treasury bills rose as high as 5.14% Tuesday, the most since 2007.  The ability to change one’s mind – is the single most common trait among great entrepreneurs / investors.  T-Bills are now out-performing the 60/40 diversified portfolio.  Our economic environments are leaving many investors scratching their heads, and even questioning their investing rules.  Keep your head on a swivel because ‘earnings quality’ could be the next shoe to drop.  TIP #1: Take the 5% to 6% and let the game come to you.



The Market:



Here’s an idea…  How about an AI engine that reads all of your organization’s past emails, and can now answer any question about what your entire organization knows.  Per SG: People could not find the time, bandwidth or privacy authority, but one accessible & unembarrassed database tool could quickly become a huge asset for any organization.  Tell me what you know about ABC, or Should I talk to you about XYZ? Think of the productivity, customer acquisition, and customer support enhancements that could come along with this.  Of course, there are huge privacy implications, but your work email has never been private anyway.


‘It’s scary how fast the VC spigot gets turned off…’  Per HL:  Venture Capital fundraising just hit a 9-year low, as firms raised 65% YoY less monies – the lowest Q4 since 2013.  It was over 50% LESS than in the preceding three months, and the first-time fundraising volumes decreased from the Q3 to Q4 since 2009.  Limited Partners invested in the fewest funds since 2012 – so everybody’s taking the hit.



InfoBits:


-       America’s 30-somethings are learning about debt.  No other age group has accumulated debt at a faster pace than 30 to 39 year-olds. 


-       “You'll probably hear inflation numbers that start to sound lower…  but that inflation is on top of the 1 year earlier 15% - and that’s still a problem for our customers." - Walmart CEO Doug McMillon.


-       Snap is adding an AI chatbot to its subscription service.  ‘My AI’ is powered by OpenAI’s ChatGPT, and will write poetry and recommend gift ideas. 


-       Apartment rents have fallen for 6 months in every US metro area.  And with 500k new rental listings this year, the real-rental market has finally cooled.


-       The Chicago PMI came in below 50 at 43.6…  and marks its 6th straight month in contraction. 


-       Consumer Confidence fell again in January.


-       Employees will be able to use their AMZN shares as collateral…  when buying ahome.  Better.com is providing the mortgage, and it further protects AMZN from any continued slide in its stock price,


-       Recent college grads have never made a student loan payment…  as the pause has lasted almost 3 years.  The average $400/mo. loan pmt. will weigh on those with already record household debt and inflation.


-       The US has criticized China for being a censorship state…   now, the U.S. wants to ban TikTok for national-security reasons.  FYI: TikTok is where 33% of all US users get their news.


-       Women out-number men in the U.S., college-educated labor force.


-       TikTok has earned more YTD money on in-app purchases than…  Facebook, Twitter, Snap and Instagram combined.


-       50% of Americans aged 18 to 29 are living with their parents.


-       ChatGPT introduced an API that will allow any business…  to build ChatGPT tech into their apps, websites, products and services.


-       Eli Lilly is lowering the price of its insulin drugs…  for the millions with diabetes. 


-       Delta pilots agreed to a new contract…  that features 34% raises over 4 yrs.


-       February tech layoffs remained around 28,000/month…  as mega-tech layoffs are not slowing, and startups continue to trim their ranks.


-       Amazon paused construction of its second HQ amid cost-cutting…  and due to the remote-work trend.


-       Twitter reported a -40% YoY decline…  in both revenue and earnings.



Crypto-Bytes:


-       Stripe has cut its valuation about in half...  for its latest fund-raising round.


-       U.S. payment giant Visa affirmed…  its commitment to the crypto sector.


-       Ethereum has finally activated account abstraction…  a feature that rewrites certain wallet functions and makes recovery easier in cases of lost crypto keys. 


-       Silvergate told the SEC that…  it may be “less than well-capitalized” and that it was “re-evaluating its business.”  Yet another crypto insolvency story. 


-       Holy sh*te FTX…   As FTX finally inventoried all of their associated wallets, they identified a $9B shortfall between what’s owed and what liquid assets remain.  It seems that Alameda borrowed / laundered $9.3B from FTX. which would account for all of the bankruptcy gap.  This plot just keeps getting better.


-       Today marks the culmination of ETHDenver…  probably the most important gathering for smart contract and DeFi developers on Ether… and beyond.


-       “Last year’s ETHDenver was held in a refurbished parking garage…  where the bathrooms were always partly broken. You couldn’t see the stage from a third of the seats, and people talking drowned out the speakers anyway.  When the 500 pizzas were delivered – it became almost impossible to move.  You know what?  It was awesome.”… David Z. Morris



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


Monday:  Friday was a sell-off until the S&P used its 200-day (3940) as support.  So, are we looking at a bounce this week?  Honestly, Friday's PCE gave our FED license to do more rate hikes.  On the bounce side, we had a horrid week last week, with the S&P losing over 150 points, so a dead cat bounce isn't out of the question.


Wednesday: Stronger than expected Chinese manufacturing data will stimulate demand for stocks, but also boost the case for higher inflation fears as the Chinese economy re-opens.  The U.S. ISM manufacturing numbers came in hotter than forecast.  It seems that our Post Office is buying 9,000 EVs from Ford, and 14,000 charging stations.  That woke-up BLNK and CHPT.  I'll take CHPT over $11.62.  We just broke under the 50-day at 3,980 – under the 200-day (3,940) and we fall right to 3800.


Thursday:  The battle over the 200-day looks to be in full swing again today.  Yesterday they defended that level several times; however, this morning the futures are showing the S&P down by 15 points.  In an early data dump, Continuing Jobless Claims fell by 5,000 and Unit Labor Costs rose 3.2% vs estimates of 1.6%.  Those are NOT FED-friendly numbers.  We can't go short with the inverse ETF's yet, because we need a close or two below the 200-day. Yikes, FED-head Bostic came out and said that a 50bps March hike should be off the table, and that they should be done hiking by end of summer.  That was music to the markets’ ears and we ended up gaining 351 DOW points and 29 in the S&P. 


Friday:  The ISM non-manufacturing index came in lower than last month, and after a brief sell-off – they got their bravery back and decided that UP was a better idea.  So, what happened?  We held the 200-day, bonds caught a bid, and up we went.  Also, Salesforce (CRM) had a great earnings report that at one point accounted for 200 DOW points all by itself.  Without CRM, I think the 200-day would have fallen.



AMA (Ask Me Anything…)


The SEC is currently investigating whether Voyager’s crypto lending business involved the sale of unregistered securities.  Our SEC wants to make sure that all crypto transactions comply with U.S. securities law.  Judge Wiles is handling the case and the dialogue went like this last week:


-       Judge Wiles: “SEC, does the Voyager sale violate securities laws?”

-       SEC Attorney: “We can’t take a position at this point. The SEC is a deliberative body, and its process is a nonpublic one by federal law.”

-       Judge Wiles: “Deliberative is one thing, but what have you actually done?  If there are reasons to be concerned, I need to hear specifics.  You’re asking the debtor to prove that the cryptos being transacted are not securities, but you’ve giving no regulatory guide as to what that is.“

-       Both sides adjourned for the weekend.  Finally getting the U.S. to ‘step-up’ or ‘step-out’ of the way!



Next Week:  How is 0DTE Changing Markets?


We touched 3931 and 4050:  0DTE (Zero Days ‘till Expiration) trading is quickly becoming the retail trader’s way of having the tail-wag-the-dog.  On Thursday we had a huge intra-day reversal – bouncing off the 3931 level, and ending Friday exactly on the upper edge of the ‘expected move’.  FYI: Next week watch SPX = 4106.


Bonds recovered and the Dollar faded:  Thursday’s bounce was due to bonds catching-a-bid and on better-than-expected CRM earnings.  Our markets are listening to both: 0DTE trades and the latest data drop.  Separately both are dangerous – together they are like tossing gasoline on a fire – on a daily basis.


Next Week == J. Powell & the JOBS Report:  Another powerful data drop will be when J. Powell speaks on March 8th at 10am.  As the chance of a 50bps hike at the next FED meeting continues to rise, a glimpse of that becoming reality could be embedded inside J. Powell’s testimony.  Also, the JOBS Report will be released this Friday @ 8:30am, and if it’s hot – look out below.


0DTE is Moving Markets:  The Expected Move’ is a daily, calculated, estimated range of where the S&Ps have their highest priority of landing.  The expected move is expressed as a number – that is added or subtracted from the previous day’s close.  For decades, this was a week-to-week opportunity – used throughout the option community to handicap risk.  In 2023, the retail trading community increased (by 10X) the daily options expiration trading volume associated with the SPX & SPY options.  Retail traders are using 0DTE options to introduce real swings into a market.  Currently, between 15% and 25% of all volume is being traded on a 0DTE basis.


Daily Expected Moves (EMs):  Trading SPX & SPY options affect the upcoming day’s expected moves (EMs).  Every day has a new S&P expected move and corresponding trading limits.  When any daily limit is reached, the market listens for new data drops – and it’s that limit-data combination that turns into a bet-able binary event.  So, instead of markets adhering to a single, weekly expected move – they now have DAILY expected moves that create massive intra-day reversals and marketplace casinos.


TIPs: To reduce your risk trading 0DTE options:  

-       BUY that day’s slightly out-of-the-money Option (not so expensive), 

-       BUY that day’s Option Spread (less-expensive), and/or 

-       BUY that day’s balanced or un-balanced Option Butterfly (least expensive).


SPX Expected Move:

-       Last Week = $76 (EM for 5-day week) – and it hit EXACTLY spot-on!  

-       Next Week = $78 (EM for 5-day week), and even though we had a rippin’ rally – volatility increased slightly.  With 0DTE, you’ll need to watch your daily levels, and levels such as: 4211, 4106 and 3931 come to mind.

o   #1     = Sell longer-dated Premium & hedge-off the risk, and 

o   #2     = ALWAYS be on the BUY side of any 0DTE options.



Tips:  


HODL’s: (Hold On for Dear Life)

-       PHYSICAL COMMODITIES = Gold @ $1,862 & Silver @ $21.4/oz.

-       30, 60, & 90-Day Treasuries @ 4.6 to 5.1%

-       **Bitcoin (BTC = $22,200 / in at $4,310)

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

-       DNN – Denison Mines ($1.28 / in at $1.32)

o   SOLD the April $1.50 CALLS

-       GME – DRS’d and HODL

-       Innerscope (INND = $0.0055 / in at $0.0052)

-       MESO – Mesoblast Ltd. ($3.18 / in at $3.60)

o   SOLD July $5 CALLS for $0.85

-       NFGC – Newfound Gold ($3.74 / in at $3.75)

o   SOLD the 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!


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