This Week in Barrons: October 27, 2024:
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“WTF is wrong with our parents?” … was the title of a Reddit post that made waves on social media by highlighting the wealth gap (and frustrations) between parents and their children. In the post, the ‘child’ explained how he has ‘scraped and suffered’ to afford a small home where he can raise two children and pay off a mountain of credit card debt. Meanwhile, his father and father-in-law have millions sitting in the bank. Three thoughts come to mind: (A) It’s the parents’ money, and they earned the right to do with it what they want. (B) I’m betting the words: ‘scraped and suffered’ have a different meaning to your father and father-in-law. (C) Any financial discussion should start with a granular budget and cash-flow – so that both sides can discuss and answer the tough questions with specifics.
Five minutes of what Paul Tudor Jones is buying & why: “I own gold and bitcoin. I think commodities are under-owned, so I'm long commodities. And I own the Nasdaq. I own zero fixed income.” Per Hank T: “Clearly the U.S. is inflating itself out of debt. Position yourself accordingly.”
The Market:
Problem Solving 101: Problems range in ‘degree of difficulty’ from easy to difficult. Solutions range from simple & elegant to complicated & convoluted. Per Seth G: It’s Tempting to solve the easy problems that require a complicated solution, but it’s a trap because their solutions are multi-disciplinary, emotional, and time-consuming. Concentrate on the Important problems that have a simple and elegant solution. They require guts and coordination. Yes, they’re Simple & Difficult, but they’re also: Important & Worth it.
The S&P 500 has risen for 6 out of the last 7 weeks, has finished 10 of the last 11 months in the green, and has posted a 13% annualized return over the last 10 years. But that didn’t stop Goldman Sachs from publishing a rather glum projection that the S&Ps will only deliver a 3% return during the next 10 years. Why? Because the S&Ps are more expensive now than during any other time in our history (excluding the Dot-Com crash). It will take the next 10-years to work off the hangover associated with the AI party we’ve been having.
Tip #1: A couple facts during earnings season:
- The Mag-7 drive ALL S&P earnings growth.
- The Mag-7 have doubled all S&P earnings in 2024.
- Nvidia accounts for a majority of the Mag-7’s 2024 out-performance – because its biggest customers are the other members in the Mag-7. BofA just raised its NVDA ($141) price target from $165 to $190.
[ Gain access to Upmarket here… ]
InfoBits:
- “Don’t Buy the Dip – buy the strength after the dip” … Brian Shannon
- Gloom-man Sachs predicts that the: “S&P 500 will deliver an annualized nominal total return of 3% during the next 10 years, and roughly 1% on a real basis.” Goldman is predicting a decade-long bear market.
- Polymarket has seen +$2B in bets on the U.S. presidential race. Thus far, only 12% of all Polymarket betters are profitable.
- Walmart is widening its prescription-drug delivery program… to 49 states by the end of January. Its 4,600 US pharma-capable stores will be able to deliver to 86% of households in as quickly as 30 minutes.
- Meta’s Ray-Ban smart glasses… are the best-selling frames in 60% of European stores - according to EssilorLuxottica.
- Tesla's operating income jumped +54% YoY … on an 8% revenue increase. Their own Cybertruck was the third best-selling EV in the U.S. – beating out every other EV not made by Tesla.
- Freshman enrollment fell 5% … in U.S. colleges and universities.
- Existing home sales fell … to their lowest level since Sept. 2010, and on track to eclipse the 1995 all-time-low.
- Boeing's 33,000 production workers voted to continue their strike … rejecting a 35% pay raise over four years and $7K in bonuses. Boeing is our largest exporter (in $’s) and still has failed to turn a profit since 2018.
- UnitedHealth (UNH) finally disclosed that +100m Americans… had their data stolen during a February ransomware attack on one of UNH’s subsidiaries.
- Waymo just closed on $5.6B in funding… led by parent company Alphabet, and joined by a16z, Silver Lake, and a Who’s Who of venture firms.
Crypto-Bytes:
- BTC ETF inflows were massive over the past week … with Blackrock’s IBIT leading the pack with +$1.6B inflow. ~9% of totally available BTC (under 2m) is available on exchanges for trading. 71% of Bitcoin hodlers have been holding for over a year. [Bottom Line: There’s a supply-side shock coming for buyers.]
- Kraken is taking a page from Coinbase’s playbook… and launching a blockchain using Base’s tech, because why reinvent the wheel? Expect cheaper, faster transactions, and maybe some better tools to play with.
- Payments giant Stripe acquired Bridge … a stablecoin payments company for $1.1B
- Farcaster’s revenue is down 96% from February’s peak… Once hyped as a “SocialFi” hotspot – it seems the platform’s user engagement is fading fast. Even with a billion-dollar valuation, getting non-crypto users to care is proving tricky.
- Tether, the most traded stablecoin cryptocurrency in the world … is being investigated by the DOJ for possible violations of money laundering statutes and U.S. sanctions against entities such as terrorists and arms dealers.
- BTC Price Action … Bitcoin bulls are now worried because yesterday it closed below a head-and-shoulders neckline ($67,100) – yet above a major trendline ($67,000). The neckline and trendline will cross on Nov. 2 – so let the games begin.
- ETH Price Action … It’s weird to see Bitcoin look exceptionally bullish and Ethereum the total opposite. ETH is below its 200-day and 20-day moving averages, but it’s the ugly bear flag that bulls are worried about. A daily close below $2,339 could indicate an even deeper dive south.
TW3 (That Was - The Week - That Was):
“Don’t change your story when you or your team are bored. Change your story when your accountant is bored.” … Jay Levinson
Friday: Major averages had their first weekly decline in 7 weeks, as mixed earnings and rising Treasury yields were enough to create a pullback. In addition to earnings, the currency moves, and bonds – the Presidential election is less than 2-weeks away. News out of China overnight indicated that their top legislative body would meet from Nov. 4 thru 8. The benchmark 10-year Treasury note yield remained above 4.2%. Next week brings out the tech heavy weights with AAPL, AMD, MSFT and GOOGL as well as the October Jobs Report on Friday. Keep an eye on the DOW (DIA) as it’s down ~1,500 points in the last 6 sessions.
Morgan’s Moments…
Per Anthony P: “The U.S. is on an unsustainable path. Our national debt is growing to the sky and our currency is being debased at a rapid rate. If you think inflation is only going to be 3% per year for a decade, I have a bridge in Brooklyn to sell you. Valuations, earnings, market sentiment – nothing matters nearly as much as currency debasement. As long as the world will buy our debt – our markets are going higher.”
Recession: J.P. Morgan is on the pessimistic side of the recessionary fence, believing that there’s a 35% probability of a recession before the end of 2024 – and a 45% probability of one in 2025. A couple thoughts to prepare for a recession: (a) Focus on consumers as ‘Consumer Staples’ was the best-performing sector in the 2008 recession. (b) Kimberley Clark (KMB) is a low-risk option trading under 18X earnings. And (c) Target (TGT) trades at 15.5X earnings vs. Costco’s 55X and Wal-Mart’s 35X.
Next Week: 2-Sided Trading is Back…
Bkgd: More interesting than last week’s 60-point S&P reversal, is that the QQQs haven't moved in 5 weeks – despite sectors rotating like crazy beneath the surface. The VIX is telling us something big is brewing, and gold's unexpected rally alongside the strong dollar has me worried. Combine these pieces with next week’s massive tech earnings, and the wildest interest rate action I've seen in months – and you have a Perfect Opportunity Storm. Next week's SPX expected move jumped to $105 (from $69) – which is the kind of increased volatility that makes my trader heart skip-a-beat.
Sector Rotations are underway… On Friday, we had the S&Ps move from 5900 down to 5840 – and traders everywhere smiled. They smiled because the weekly Expected Move (EM) for the SPX was $69; therefore, we remained within the weekly EM (nothing crazy) and we moved around enough to comfort the day traders. Although the Nasdaq has done nothing for the past month, the financials, utilities, consumer staples, materials, and healthcare are getting clobbered – and that is weighing on the overall market. Currently, we’re seeing broad-based weakness across the S&P – except for technology.
Big Bad Earnings week… is coming for technology. A simple (small risk – big reward) way to potentially play this week’s tech earnings is:
- The day of a particular company’s after-the-bell earnings,
- At 3pm – Buy (for a small fee) 1 Call and 1 Put Butterfly – positioned an Expected Move away from the company’s 3 o’clock market price.
- The following morning sell the winner for a 1X to 3X multiple.
VVIX sees Risk Returning… The VVIX exploded above the 110 level – so it’s time to: ‘Put on the Big Boy Pants’ as hedging activity is back. This past week was all about Tesla and Nvidia holding the entire market away from the brink of collapse.
Is this market uneasiness about the election? Market uneasiness is about Mag-7 earnings, guidance, and AI going forward.
What keeps me up at night is:
- Watching gold, the Dollar, Bitcoin, and interest rates all move higher in tandem.
- Watching the SPX expected move increase by +150% from $69 this week to $105 for next week.
- Tip #2 - #6: Hope for Tech earnings to be spectacular, otherwise move into:
- GLD, SLV, & DXY,
- +MSFT over $432 – could run to $460,
- +BTC over $68k – could run to $73k,
- +COIN over $210 – could run to $260, and
- +MARA over $18.5 – could run to $26.
TIPS:
Overall, there is a clear sense of apprehension starting to set-in, and stocks are pulling back as everyone de-risks prior to the election. The election will probably clear the path for a year-end rally, but it’s currently causing a re-think surrounding asset allocation.
HODL’s: (Hold-On for Dear Life)
- 13 to 17-Week Treasuries @ 4.75%
- Physical Commodities = Gold @ $2,760/oz. & Silver @ $33.9/oz.
- **Bitcoin (BTC = $67,000 / in at $4,310)
- **Ethereum (ETH = 2,460 / in at $310)
- HROW – Harrow Health = $50.6 / in at $12
- INDA – India ETF ($54.7 / in at $50)
- **IBIT – Blackrock’s Spot Bitcoin ETF ($38 / in at $24)
- GLD – Gold ETF ($255 / in at $212)
- o Gold ETF: Jan ‘25: +$260 / -$265 CALL-Sp.
- SVM – Silvercorp Metals = ($4.7 / in at $4)
- o SVM – Silvercorp Metals: Jan. ’25: +$5 Calls
- DSVSF – Discovery Silver = ($0.75 / in at $0.62)
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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