RF's Financial News

Sunday, August 11, 2024

This Week in Barrons: August 11, 2024

Figure AI just showed off its AI-powered humanoid robot (pictured above). Its capabilities include working autonomously as well as with humans, in complex environments like… a BMW factory. [Elon: There could be a new Sheriff-in-Town.]

You might not know it from the news… but we’re in the dog days of August. So, I put my Meta Ray-Ban smart glasses on for size and really tried them out. Honestly, Meta’s CEO Mark Zuckerberg could be on to something – if they conquer the invasion of privacy thing. I find them a good way (instead of earbuds) for: making phone calls, listening to music / podcasts, and taking photos. I tried Meta’s built-in AI assistant and found it completely useless. While looking at my son’s Irish Terrier, I asked Meta what kind of dog I was looking at, and Meta responded: “There is no dog in this picture.” My assessment is based on the quality of the Ray-Ban glasses, and their audio/video capabilities that are a good product/market fit for me right now.

Silence vs Noise: Per Seth G: when a group comes together, it naturally makes noise. Any commotion made by a few people will trigger the noise. On the other hand, silence requires everyone to be in sync and ignore those triggers – and that is much tougher.

The Market:

The Japanese Carry-Trade:

1. For 30 years Japan has had negative or 0% interest on their currency.
2. As a result, for 30 years investors borrowed YEN at no cost, converted YEN into DOLLARS, and invested it in T-Bills and equities.
3. Ten days ago, the BOJ (Bank of Japan) took the world by surprise by increasing interest rates by 0.25%.
4. Investors quickly realized that their borrowings were no longer free, and because of that started to unwind their trades, convert Dollars to Yen, and send the funds back to Japan.
5. The estimates for this risk-asset sell-off range between $4T and $20T.

The Timing of the Sell-Off: Overleveraged institutions were forced to de-risk over the August 4th weekend – leading them to initially sell their crypto due to its 24/7 nature. Then they sold currencies, equities, and other assets once the futures markets opened later on Sunday evening / Monday morning.

This Drop is a Gift… but moves like these normally take weeks/months to settle out. Be patient, and compile your shopping list. Wait to see some stabilization and positive price action – then buy with confidence.

Going forward… history tells us that returns over the next year will be above average; however, the path will not be an easy one. Bear markets bring large numbers of stocks reaching oversold conditions – and we are not seeing that. Recessions bring widening credit spreads – and we are not seeing that. Thus far, this is a buying opportunity.

Things I use: I believe that most of our financial decisions should not be done alone, and for that purpose - Advisor.com is around to help. I like them, but please examine them for yourself at no cost… R.F. Culbertson.

[ Learn about Advisor.com here… ]

InfoBits:

Tim Walz (the Democratic VP candidate) … has something in common with ~80% of Americans. Neither Tim nor his wife directly own any stocks, mutual funds, bonds, crypto, or real estate. He’s a true working-class American.

Big Tobacco is asking for enforcement. Tobacco and vape companies are facing a knockoff nightmare as Chinese vapes are flooding U.S. shelves.

Warren Buffet’s Berkshire cut their stake in Apple by 49%.

A federal judge ruled that Google violated antitrust laws… by monopolizing online search.

Over 3,200 companies have announced mass layoffs in 2024.

X has a new business model: suing its customers. Elon (the owner of X) filed a lawsuit alleging that a coalition of major advertisers conspired to withhold advertising dollars from X. [FYI – more advertisers dropped X as a result.]

"Sell the first rate cut'… says B of A’s top global strategist – as the economy heads toward a hard landing and our FED gets set to slash rates.

The FDA approved the first nasal spray to treat severe allergic reactions: Neffy is a needle-free alternative to the EpiPen.

‘Mo Money … Mo Losses…’ As more insurers make Wegovy part of their coverage, Novo Nordisk (Wegovy owner) is facing a complex web of rebates, commissions, and price concessions to pharmacy benefit managers. Add to that supply chain constraints and pricing pressure from Eli Lilly’s Zepbound – and you have a recipe for skyrocketing sales and dwindling profits.

Europe said NO to Elon… as Elon admitted to training his AI company’s chatbot using Twitter’s personal data. [‘But your honor, there is no such thing as PRIVACY within Twitter or Google – just read the Terms ‘n Conditions.’]

Paramount Global is laying off 15% of its U.S. workforce… in preparation for their merger with Skydance Media.

30-year mortgage rates have dropped to 6.47%... lowest level in 15 mos.

Crypto-Bytes:

BTC dropped to $49,000 early on August 5th: The last time BTC dropped by this much was November 2022, and then in March 2020. Each of these moments turned out to be a tremendously great buying opportunity. This time will likely be no different.

Jump Crypto, in a move that screamed: ‘Volatility Forever’… unloaded $91m of ETH over the August 4th weekend, turning the market into a rollercoaster. They contributed to ETH’s price tanking below $2,200 – leaving traders fuming and pointing fingers.

It’s NOT Bitcoin’s fault… as analysts see no extra bad vibes for crypto during this market tumble, and believe that Bitcoin may bounce back as a ‘hard asset’ when the dust settles. Institutional money is still flowing into Bitcoin ETFs; therefore, crypto’s not going anywhere, even during its rough patch.

SEC swings and misses against Ripple (XRP)… this week the high court reinforced the ruling that XRP wasn't a security when sold to regular folks, but XRP does have to pay a $125m fine – a 94% reduction (a ‘nothing burger’) when compared to what the SEC was asking ($2B and being found guilty of securities violations).

Vladimir Putin legalized Bitcoin mining in Russia… coming as no surprise on the heels of Trump’s commitment to “mine all Bitcoin in the United States.” Game theory says that all nations will compete for a stake in the Bitcoin network.

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

Monday August 5th: The Carry Trade is cracking. Global markets were shellacked last night when the Japanese market fell 12% (its largest 1-day drop in history).

Every major global market has been hammered.
Bitcoin tumbled more than 10%, sinking below $50k for the first time this year.
Berkshire Hathaway dumped more equities in Q2 than during any other time in its history.
The Mag-7 will erase $1.5T in market cap today – bringing the total drawdown in Mag-7 stocks to over $4.5T since their most recent peak.

This is a Black Monday, and how long it stays with us is anyone's guess. The Carry-Trade has been going on for 20+ years and it's ~$20T wide. This resembles a margin call for the planet. The game plan is probably this:

The BOJ will convene, and talk about intervening,
That conversation will cause a rip-your-face-off rally,
But that rally will be sold as the dust settles.
Proceed with Patience ‘n Caution.

Wednesday: They have rushed back into stocks, as they feel everything has been settled and we can get back to the business of only going higher. I still feel there's a trap being set here, but maybe I'm nuts – I’ll admit that. This all feels too cute to me – especially with Warren Buffett selling. Fair warning.

Morgan’s Moments…

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Next Week: Volatility is Sticky…

Bkdg: Mr. Toad’s Wild Ride ended the week virtually where we started. Volatility has backed-off, but I don’t believe that the fun is over because the bond market is signaling more turbulence ahead. If this week’s CPI release comes out too soft == ‘look-out-below’. By combining a too soft CPI with rate cut expectations, traders could find themselves in a street fight for the rest of the summer.

We are in a Volatility Channel… We are in the beginnings of an SPX volatility box. The longer that the SPX remains between 5200 and 5360 – the more open interest it accumulates and its resolution (either higher or lower) will be that much more violent. Tip #1: Pay less attention to ‘talking heads’ and more to the 5200 & 5360 levels. The market will define its move by those levels rather than by any fundamentals.

VVIX and SKEW… Spikes in volatility never correspond to market bottoms. Pay less attention to the VIX (a 30-day indicator) and more attention to the VVIX (the volatility of the VIX) and the SKEW (the relationship between out-of-the-money PUTS vs CALLS). The VVIX (118) is still in the red/danger zone = above 110 – which indicates heavy hedging activity. The SKEW is confirming market fear as it’s ~150 – indicating that traders are putting on their hedges by buying PUT options. Tip #2: A high VVIX and high SKEW tell me that more volatility is nearby.

Bonds have room-to-run higher… following their sell-off last week. If more volatility is right around the corner (VVIX > 110, High SKEW, and Higher Dollar), then bonds will be a natural flight-to-quality. Tip #3: Rather than buying bonds, you may wish to consider buying an out-of-the-money Call Option in TLT such as the one listed below.

Short META… because Meta is the Mag-7 member that has been most unaffected by this correction. META is at the top of its pricing channel, and it finished outside of its expected move the last 2 weeks. Tip #4: If you believe that move volatility is on the horizon – then META is an obvious candidate to go lower.

Effects of a Hard/Soft CPI this week… Watch for our Government to produce a goldilocks CPI this week. They will need to release a CPI (inflation) number (Wednesday @ 8:30am ET) that is not too high or low, but rather: just right. If the CPI comes out too high, it could be a deterrent for FED rate cuts. If the CPI comes out too mild, that could trigger a market sell-off due to deflationary thinking. I’m guessing that our Government releases a number that is extremely close to what the market is expecting.

SPX Expected Move (EM):

Last Week’s EM was $138 … and we moved all of it lower then higher – and ended the week unchanged.
Next Week’s EM == $115 … which is less than last week, but still high. Keep your head on a swivel. Please, keep your hands and feet inside the vehicle.

TIPS:

In Summary, the inevitable bounce from oversold conditions and logical support levels has come and run its course. Markets will probably find another excuse to selloff as stocks run into short-term overhead resistance.

Tip #5: Congrats to those that participated in ~100% increase in Harrow Health last week. In my opinion, there’s more to come.

HODL’s: (Hold On for Dear Life)

13 to 17-Week Treasuries @ 5.04%
Physical Commodities = Gold @ $2,470/oz. & Silver @ $27.5/oz.
**Bitcoin (BTC = $61,100 / in at $4,310)
**Ethereum (ETH = 2,600 / in at $310)
HROW – Harrow Health = $35.9 / in at $12 = ~Doubled on Aug 8th earnings
**MARA – Marathon Digital = ($17 / in at $12)

Weekly: BUY Puts for protection & SELL Covered-Calls for income

INDA – India ETF ($55.8 / in at $50)
**IBIT – Blackrock’s Spot Bitcoin ETF ($34.6 / in at $24)
**RIOT – Riot Bitcoin Mining ($8.00 / in at $12.5) / Sold Sept $16 Cov-Calls

NEW’ish ADDS:

+NEE ($77.46) – Energy: Jan ’25: $80 / $100 CALL Spread
+TLT ($96.2) – Bonds: Jan ’26: $110 / $130 CALL Spread – hedge
+SPY ($533) – S&Ps: Jan ’25: +$520 to -$500 PUT Spread – hedge
+SPY ($533) – S&Ps: Jan ’25: +$500 PUT – hedge

** Crypto-Currency aware

Please be safe out there!

Disclaimer:

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Sunday, August 4, 2024

This Week in Barrons: August 4, 2024

Trading thoughts by Howard L:

If you are going to panic, panic early – then raise cash.
Markets do not care how you feel.
Complacency is a bug in humans.
Volatility is a market feature that squashes human complacency.

99% of an athlete’s training is devoted to the last 1% of performance. After all, the entire point of the competition is how extreme the last few steps are. On the other hand, options for an entrepreneur are clear:

(a) focus on activities where you’re in the sweet spot of the curve – where more preparation, focus, and effort get you 80% there and lead to huge benefits.
(b) walk away from competitions against people who are committed to finding that last 1% - it’s just too expensive. If you refuse to walk away, then embrace the unreasonable and accept that you’re at the whim of your competition.

While the last 1% is thrilling, it’s difficult to build a sustainable business around it.

In terms of JOBS:

Hiring is down -8.1% YoY and down -2% since May.
Miami is the only U.S. metro above pre-pandemic hiring levels.
Tech and retail jobs have fallen sharply – while gov’t, construction, education and healthcare have fallen less.
Job searching is harder, and requires more time.
Employees are quitting at a slower than pre-pandemic pace.
Unemployment has climbed past November 2021 levels.

The Market:

Why are Markets Falling…

Follow-the-Money… The Japanese Carry-Trade is being unwound. The Carry-Trade blossomed because of ZIRP (Zero Interest Rate Policy). Basically, you could borrow cheap money from Japan (negative rates), invest it at much higher rates in other areas of the world, profit on the interest rate differential, and pay back your Japanese loan – Rinse ‘n Repeat. A 3-month dollar-yen carry trade can earn ~5% free-money on an annualized basis, and this has gone on for ages with untold billions/trillions in the pipeline. Well, Japan raised their interest rates on Thursday, causing their markets to drop 5.8%, and drastically cutting profits on the Carry-Trade. Much of the selling we’re seeing is due to the debt crisis caused by the Carry-Trade unwind, falling U.S. interest rates, and rising Japanese rates.
Earnings were Kryptonite for Tech… Non-stellar MAG-7 earnings fueled an increase in market volatility. Multiple +$100B and +$1T companies have erased +30% of their value in a matter of days. INTC just erased 33% of its value over the past 2 days while NVDA is behaving like a meme stock. The Mag-7 have lost a combined +$3T over the past 3 weeks.
We LOST Jobs in July… The latest JOBS report stunk, but don’t believe the numbers. The headline showed that we added +114k jobs in July, and the unemployment rate rose to 4.3%. Unfortunately, those +114k jobs included 246k (fake) birth/death model jobs. In real terms, we LOST -132,000 jobs in July, and the unemployment rate rose to ~12%. [Birth/Death Model explained == https://www.bls.gov/web/empsit/cesbd.htm ]

In a nutshell… the loss of the Carry-Trade eliminates a profit source for large banks and hedge funds, corporate Tech Earnings just sucked, and nobody’s Hiring. That puts us on the edge of a Stagflation Recession == Inflation + Slowing Economy.

[ Learn about VinoVest here… ]

InfoBits:

Last week the Big 3… (the Bank of Japan, the Bank of England, and the US FED) met expectations: BoJ = raised interest rates, BoE = cut interest rates, and FED = stood pat.

Credit Card Interest Rates are at 13-year highs… and car repos are up +23%.

McDonald’s sales are softening… as lower-income customers reduce their number of visits.

A $1 million starter home is increasingly the norm… across 237 U.S. cities.

+65m Americans will face higher electricity bills next year... as the U.S. grid is seeing rising demand and less supply.

‘Mo Money’… The U.S. Treasury will need $1.3T additional (that we don’t have) – to make it through 2024.

Starbucks saw their second straight quarterly sales decline.

AMD’s revenue grew +9% YoY… and both AMD and NVIDIA plan to release new AI chips annually.

Meta has agreed to pay Texas $1.4B… for collecting facial recognition information on millions of users.

U.S. job openings moved lower… with the ratio of job openings to available workers at its lowest level since June 2021.

Germany’s economy unexpectedly contracted during Q2.

Meta can stay in the AI race because… they grew revenue by 22% in Q2, and are using AI to accelerate revenue by 32% in Q3.

TikTok is paying MSFT +$20m/month… to buy OpenAI models.

Taco Bell will roll out AI-powered voice drive-thru’s… by EOY.

Intel laid off 15,000 employees after miserable Q2 financials.

Apple’s sales grew 5% in Q2… and Buffett sold half of his shares.

Crypto-Bytes:

Despite Mt. Gox (BTC) distributions… BTC has risen ~12% since the distributions began.

Web3 gaming has raised billions in VC funding since 2018… but no crypto-game (as of yet) has broken through in a truly mainstream way.

Stablecoins are the best business model in crypto…

Step 1: Users give stablecoins electronic dollars, and they give the user digital dollars in return.
Step 2: Stablecoins then deposit the users’ electronic dollars in Treasuries – earning +5% interest.
Step 3: Stablecoins exchange digital dollars for electronic dollars when the user wishes – keeping the interest.
Tether (a stablecoin issuer) made $5.2B in profit for the first half of 2024 – with about 60 employees. [That’s an amazing business model.]

Morgan Stanley ok’d their wealth advisors… to recommend Bitcoin ETFs.
Bitcoin miners require ~$60,625 worth of energy… to produce 1 BTC.
The U.S. Gov’t plans to sell its $130m in Bitcoin linked to Silk Road.
Bitcoin ETF inflows surged while Ethereum struggled.

[ Learn about Value Investor Daily here… ]

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

Monday: This week: AMD & MSFT report earnings on Tuesday, ARM & LRCX on Wednesday, and INTC reports on Thursday. If +2 of these companies can report strong earnings and guidance – NVDA can make it back to 125-130. Tuesday is the beginning of the 2-day FOMC meeting.

Tuesday: U.S. futures are higher before some economic data, and ahead of earnings from MSFT and AMD. Hopefully MSFT and AMD will produce good numbers after GOOGL and TSLA disappointed. In economic data, job openings are declining from 12m in March 2022 to ~8m now.

Wednesday: I can’t explain why the S&Ps are up +95, and the NAS is up +550 – on a couple earnings announcements last evening. The FED’s statement didn’t cut rates, but laid the groundwork for a cut in September.

Thursday: The indexes screamed higher out of the gate, but are now very red. Part of this fall is organic, and part was the ISM report which produced an inflationary ‘Prices Paid’ number. The final piece was the Bank of Japan raising interest rates and all but eliminating the Carry-Trade. Investors are also concerned that because our FED was late to decide to raise rates – they’ll be late when it comes to lowering them as well. Calling for a serious pull back has been futile, but if we're going to get one – this is a good start.

Morgan’s Moments…

Remember July… the S&P 500 rose ~1%, the Dow jumped ~4.4%, the Russell 2000 was up over +10%, and the NAS lost -0.75%. Gold prices rose over 4% in July, especially after Powell hinted that a September interest rate cut could be on the table. The U.S. dollar added to losses following rate cut hopes, and treasury yields ended at lows not seen since March. Middle East tensions continued to rise, but WTI crude oil still fell -4% in July and Brent crude fell -7%.

The VIX also Rises… My favorite time to look for new stock ideas is when the market is falling and the VIX (volatility index) is rising. It is also a time to build a list of growth stocks that are in uptrends that are currently 20 to 30% off their highs.

Remember: “BUY when the VIX is high”:

The S&Ps and NAS have broken key short-term support, and now face a major technical level test.
Growth concerns, monetary policy, and a crowded currency unwind are driving market behavior.
Stretched valuations and a Mag-7 focus elevates the stakes.

Last Friday displayed a clear sense of investor fear, which was surprising due to previous market euphoria. Honestly, most market indicators are little-changed. Why wouldn’t our FED, the PPT, and/or Big Banks just step in and ‘buy-the-dip’ – especially during an election year? We will see over the next several weeks.

Next Week: Volatility Strikes Back…

Bkgd: Bad news is bad news once again. The unwinding of the carry trade, terrible jobs numbers, and tech’s kryptonite earnings are all pointing to an economic slowdown. Crude oil is pricing in a recession, and bonds are in a duck-and-cover stance.

Volatility has spiked signaling intense market uncertainty.
Despite Wednesday’s FED comments, speculation is circulating about potential emergency interest rate cuts.
Friday’s options volume was a record high, and the SPX expected move for next week is ~$144.

Volatility continues to emerge: On Wednesday, markets ripped higher on our FED playing nice and hinting at a September rate cut. Thursday, the S&Ps were sitting at the upper-edge of their expected move – before collapsing. However, the S&Ps ended the week moving slightly outside the lower edge of their expected move. This was NOT A CRASH. Having said that, we are seeing some damage within the NASDAQ – specifically inside the MAG-7 (excluding AAPL).

Volatility: VIX, VVIX, Vol futures: On Friday, the VVIX touched 160, the VIX hit 30 – and those 2 events have only happened a handful of other times over the past 3 years. F-E-A-R was in the air, and every trader (even those in the Hamptons) was put on notice. Everyone welcomed Friday and the weekend to regroup ‘n rethink. Make no mistake, this market will have issues as long as Volatility is this elevated.

Bonds are pricing in: ‘Duck ‘n Cover’: Last week the Bonds (/ZB) went parabolic to the upside – driving interest rates dramatically lower. Some other areas of safety were: gold, utilities (XLU) and healthcare (XLV). Meanwhile, oil prices have dropped (pricing in an economic slowdown) which is interesting given the increased temperature of the Middle Eastern conflict.

Correlation/Capitulation was close… but not all-the-way there. 80% of the S&P100 were down on Friday, and the ones that moved higher – didn’t increase by much. FYI: a true measure of capitulation looks for 95% downside correlation.

Markets are asking for a FED rate cut of 50bps… based upon a couple reports generated from fictitiously suspect and statistically limited sample-sized groups of data. In my opinion, our FED will not and should not respond to such calls for action. They can (and will) work their magic behind-the-scenes because this is still an election year.

SPX Expected Move (EM)…

Last Week’s EM = $104, and we moved $135 to the downside.
Next Week’s EM = $144 … showing a 40% increase in risk.
Tip #1: FADE any bounce higher.
Tip #2: Do NOT jump in and buy-that-first-dip. This could be the market correction we have not seen for a decade. This market has been controlled by our FED & Treasury for 15 years; therefore, it could have forgotten how to solve problems on its own.
Tip #3: “Remember to BUY – when the VIX is high.”