RF's Financial News

Sunday, October 20, 2024

This Week in Barrons: 10.20.2024

This Week in Barrons: October 20, 2024:

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With the markets at all-time-highs, why is volatility ~20% higher than average?
Why have real interest rates moved even higher than before our FED cut rates?
Why is everyone suddenly fading the FED?

One of the cool things about being a contrarian is that you’re generally standing alone – as an outsider looking in. When skepticism and pessimism become the norm – something just smells wrong.

It’s not easy seeing time … A snapshot is a useful way to capture the moment, but moments rarely offer as much insight as seeing how something moves over time. Time intentionally obscures the details. I often think of time in the same breath as I think of forecasting ‘n strategy - always knowing that the: “Devil is in the Snapshots”.

Per Charlie B: Over the last 30 years, the purchasing power of the US dollar has been cut-in-half by inflation. All the while, the S&Ps have gained ~1,000% - after adjusting for inflation. On paper, the average hourly wage has risen $5.30 since Jan '21, but has actually fallen ~50 cents – after adjusting for inflation. In our minds, we’re getting paid a lot more, but in reality – we can buy substantially less.

The Market:

Tesla had a PR event last week … where its Optimus humanoid robots were walking around, dancing, mixing drinks, and talking to guests. The attendees were amazed at how advanced the bots were. But after pulling back the curtain, it seems that the robots relied on humans to do just about everything. Yes, the robot magic was all just ‘Smoke n Mirrors’.

Apple tested over 20 Large Language Models (LLMs) … (from OpenAI to Google to Meta) and found that their ‘intelligence’ was a result of "sophisticated pattern matching and NOT true logical reasoning." Meta’s chief scientist concurred: “Current models can spot patterns, but can't yet understand complex real-world situations.” [FYI: There’s a high probability that current LLMs can only answer questions correctly – because they have been pre-trained on the answers.]

Per Anthony P: Bitcoin is starting to price in its own scarcity. Interest rates are moving lower and the M2 money supply is expanding – causing investors to become more bullish. All political parties are enacting policies aimed at pushing asset prices higher. But with the US dollar LOSING ~50% of its purchasing power over the last 30 years and the inflation-adjusted hourly wages being DOWN, it’s easy to see why Bitcoin and Gold are solid trades going forward.

[ Gain access to Med-X here… ]

InfoBits:

Bombs away … EV prices (old and new) are coming down.
Going Nuclear … as Amazon and Google are investing big bucks in nuclear small modular reactor projects – to supply the massive needs of their cloud computing divisions. [FYI: Let’s watch the cash-rich, AI tech sector – single-handedly revive the nuclear power industry.]
‘Terrifier 3’ topped the box-office last weekend … It cost only $2m to make, and still beat the ‘Joker’ which cost +$200m. [FYI: Both flicks are about killer clowns, but only one of them is laughing now.]
A federal judge rejected Meta’s bid to dismiss lawsuits … from more than 30 U.S. states accusing it of engineering Facebook and Instagram to be addictive to teens.
Per the Financial Times: Elon Musk has "given nearly $75m … to influence the outcome of next month’s U.S. presidential election."
Uber is considering bidding $20B for Expedia… which is a bit tricky, given that the current Uber CEO ran Expedia for 12 years, remains on the board, and probably has equity in BOTH companies.
Is smaller better? While NVIDIA’s chipmaking triumphs are well-known, their software LLM models are off-the-charts. NVIDIA’s showing that smaller, more efficient models can compete with the giants.
Remember Netflix’s password-mooching crackdown… well, this week NFLX reported that its profit increased 41% YoY. They also gained +5.1m subscribers QoQ – with over half coming from its new: ‘ads included tier’
LVMH falls from grace … as the owner of: Dior, Louis Vuitton, Fendi, and 70+ other luxury brands – saw its sales FALL 3% (for the first time) last quarter.
Tesla owners can test drive Full Self-Driving software… for the next 30 days free of charge. [FYI: Tesla’s FSD software is being investigated for its role in four low-visibility crashes – including one that killed a pedestrian.]

Crypto-Bytes:

Web3 Gaming is the next big mover in crypto … As 8,000 gaming employees are being laid off and +40 gaming shops are closing their doors, Web3 gaming is gaining popularity by using blockchain tech & tokenization. Web3 players can actually buy, sell, & trade their very own in-game assets.

I’ve been hurt before … This week’s rally was exciting as Bitcoin broke through resistance at $68,000. [FYI: I want to believe that this time is different.]

Reaching a coin-sensus… The Harris’ campaign finally announced support for a “regulatory framework” surrounding crypto and other digital assets.

D. Trump is hawking the World Liberty Financial token … but it cannot be sold or traded – which is dumb because that’s the point of owning a token. [FYI: This is like selling snake oil to imaginary friends, or debating how many magic beans your fairy dust is worth. This is fake wrapped in crazy.]

[ Learn about VaultCraft - here… ]

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

Tuesday: WOLF makes chips here in the U.S. for vehicles. They just secured $750m in grants to expand their factory, and another $750m in funding. FOMO if you must.

Thursday: We are going to open up-big today - because of Taiwan Semi (TSM). After ASML scared the chip sector with a lousy outlook earlier in the week, TSM just said the opposite. Not only did they crush earnings, they say demand is so strong they can't even keep up. So following the plot: with TSM making more chips – they will need more chip-making machines (SMCI & DELL). They (in turn) will require more cyber security software (CRWD, ZS, PANW, ANET & NET), needing more memory chips (MU) – which triggers a need for more equipment (AMAT, KLAC & LRCX). The whole space will be going crazy today. Also, the ECB has cut interest rates by 25bps. This market is going a lot higher – as wild as that sounds considering where we are.

Morgan’s Moments…

“Let it go … Let it go …” Props to James Howell who for years has been trying to get permission to dig up a landfill. It seems James discarded a computer hard drive into that landfill – that held over 8,000 Bitcoin (+$500m). Even after offering the town a hefty cut, the town-council is said NO due to environmental issues. [FYI: James, lately direct bribery seems to work for everything else in the world – just sayin’.]

Fidelity are you trainable? You just had your second data breach inside of 8 months. I would have thought that the first data breach would have been a cyber-security wake-up call. Well Fidelity, the good news is that your latest hack of +77,000 client accounts has triggered a class-action lawsuit against you. [FYI: The loss of $ billions has a way of causing change.]

Mom & Dad (OpenAI vs MSFT) – Please don’t fight:

It seems that OpenAI’s finances and instability have strained the relationship.
MSFT engineers downloaded the OpenAI software without going thru channels.
MSFT paid Inflection (an OpenAI competitor) $650m to train on the software.

Next Week: Inflation vs Election Risk

Bkgd: The Nasdaq has broken through resistance, and Bitcoin is scheduled for a seasonal boost. However, volatility season is not over yet as the election is scheduled to deliver a binary corporate tax outcome (up = Harris vs down = Trump). There is a market optimism as there has been no major bad news since our FED cut rates. Do NOT sell your hedges just yet, as there remains unfinished business.

We had an Upside Breakout in the S&Ps … admittedly on light ‘n fluffy volume – even with Friday’s $5T worth of options expiration. Financials were the main driver of last week’s move higher with the NASDAQ (QQQ) and Energy (XLE) finishing the week unchanged and lower respectively.

The U.S. Dollar (DXY) and the VIX … The Dollar is screaming higher, and one theory is because Wall Street believes that a Trump presidency with its tax breaks and higher tariffs is inevitable. I believe the Dollar’s gains are due to geo-political factors and our volatility (VIX and VVIX) moving lower. Currently, we have the lightest VIX Call option buying that we have had in the past 2.5 years. However, the high SKEW is telling us that traders are simply moving their hedges from the VIX over to the S&Ps (SPX).

Tip #1: Oil could be a buying opportunity … if it gets down to the $65 to $66/barrel range. I would then look for a bounce in oil that would be playable using a mid-November, In/Out Call Spread.

Tip #2: Gold is smashing to the upside … now that inflation is making a comeback. Every market is at or near all-time-highs, and precious metals (GLD, SLV) and the Dollar (DXY) are being used as liquid hedges. Interest rates are self-regulating back above the 4% level – in spite of our FED rate cuts. The only commodity that is not inflationary is oil.

Tip #3: Look for the SPX to dip back below 5800 … only because we did NOT expel all of its pre-rangebound energy. I was looking for us to blast ourselves out of the 5700 / 5800 SPX range, and instead we came out in an extremely orderly fashion. These past 4 weeks were the first time since 2017 that our S&Ps have remained inside their weekly respective moves without touching their upper or lower boundaries.

SPX Expected Move (EM):

Last Week’s EM = $88
Next Week’s EM = $69 which is ~22% below the previous week’s EM.

Tip #4: Consider BUYING inexpensive Butterflies around SPX (CALLs) ~$5,950 and/or SPX (PUTs) ~$5,800.

TIPS:

HODL’s: (Hold-On for Dear Life)

13 to 17-Week Treasuries @ 4.75%
Physical Commodities = Gold @ $2,736/oz. & Silver @ $33.9/oz.
**Bitcoin (BTC = $68,600 / in at $4,310)
**Ethereum (ETH = 2,640 / in at $310)
HROW – Harrow Health = $57.5 / in at $12
INDA – India ETF ($56.6 / in at $50)
**IBIT – Blackrock’s Spot Bitcoin ETF ($39 / in at $24)
GLD – Gold ETF ($251 / in at $212) // Jan ‘25: +$260 / -$265 CALL-Sp.
SVM – Silvercorp Metals = ($5.06 / in at $4) // Jan. ’25: +$5 Calls
DSVSF – Discovery Silver = ($0.7799 / in at $0.62)
BRK/B – Berkshire = ($464.8 / in at $439)

Options to Reduce Risk:

XLU – Utilities: Jan ’25: $85 / $89 CALL-Sp.
WEC – Wisconsin Power: Jan ’25: +$100 / -$105 CALL-Sp.

Options as Hedges:

SPY – S&Ps: Jan ’25: +$520 / -$500 PUT-Sp.
SPY – S&Ps: Jan ’25: +$500 PUTs

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!

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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.