“Learning how to choose…” is tough. When abundance showed up (first in stuff and then in information) – it seemed like such a simple win. But of course, more of too many things – is too much. We are entering the ‘Learn how to Choose’ age. That includes choosing: Who we will become / Who we will connect with / and Who we will trust, respect, and believe. The toughest of all is choosing: Who we will leave behind.
“Compared to what?” Satisfaction is driven by the story we tell ourselves. How does this rank compared to what we expected? Or how does it compare to what we used to have, or to the person sitting next to us? After all: Everything is relative. The good news is that your perception of comparison – is totally up to you.
“Are they insane?” Last week, PayPal explicitly stated that they would target anyone “sending, posting, or publishing any messages, content, or materials that promote misinformation,” and would deduct $2,500 from their PayPal accounts per violation. So, PayPal was prepared to financially penalize any customer if they posted a message on the internet that PayPal believed was “misinformation.” Per SG: everyone from Elon Musk to X-PayPal President David Marcus spoke out against this encroachment on personal freedom, individual liberty, and free speech. PayPal is now saying that it was just a joke. PayPal, where you’re going is a very slippery slope without clear guardrails, and has historically led to overreaches that were later regretted. The entire ‘mis-information’ sector is becoming exciting, and if we’re not careful – we won’t be able to talk about it.
The Market:
J.P. Morgan closed Kanye West’s accounts… under the guise of financial censorship. The issue isn’t initiating or justifying it, but rather: Where does it end?
JB had a great piece titled ‘You Weren’t Supposed To See That‘ – some excerpts:
(1) It seems widespread prosperity is incompatible with the American Dream. The only way our economy works is when there are winners and losers. If everyone’s a winner, we all fail. For one brief, shining moment everyone had enough money to pay their bills and the financial freedom to choose their own way of life – and it broke the friggin’ economy.
(2) We (as a country) have not had a balanced budget since 2001, and in the last 50 years have only broken-even 4 times. Our total debt is $259T = immediate debt of $90T and unfunded liabilities of $169T. Subtracting all of our $193T assets = we get a negative balance of -$66T. We are BROKE and are bad for business.
(3) Our authorities are panicking, and corporations are demanding that employees return to normal – the way things were: in-person, in-office, all-the-time. Our FED is trying to put toothpaste back into a tube by doing the fastest pace of interest rate hikes in 40 years, while concurrently unwinding their balance sheet. The post-pandemic jubilee gave too many options and economic liberation to too many people. “Companies can no longer find workers”, who are willing to accept the wages that they are offering. After decades of stagnating wages, the bottom half of the pyramid is finally gaining some bargaining power – and the system is imploding because of it.
(4) Today our FED is willing to sacrifice stocks, bonds, and housing – as there’s nothing they’re not willing to do to get it all back to normal. [Normal is 2019, where the rich had unlimited options, and the not-so-rich had the chance to join them someday by helping to maintain the status quo.] It was when the working poor had no options, but lots of obligations. Every time you hear a FED official use the word “pain” they are really saying “recession,” and when they say “recession” they are referring to people losing their jobs so that wage gains return to a “slower trajectory.” The Greater Good requires a lot of pain and recession to be a part of millions of worker’s lives.
InfoBits:
- The worst returns in 100 years... is what the traditional 60/40 stock/bond portfolio has on the horizon. Portfolios that hold equal parts cash, commodities, stocks, and bonds are seeing their worst drop since the financial crisis.
- Americans are more likely to stop spending on food… than cancel their AMZN Prime subscriptions.
- The U.N. asked Central Banks to stop interest-rate hikes… because the global economy is “on the edge of a recession”, and further tightening will push it into a prolonged downturn worse than the financial crisis.
- Jamie Dimon warned… that the U.S. and global economy would likely tip into recession within 6-9 months, and stocks could fall another 20% - 30% from here.
- X-FED chief Ben Bernanke won a share of the Nobel Prize in economics... for his research that redefined monetary policy during a financial crisis (0% interest rates and < 0% loans to banks).
- Bank of America warned that the U.S. economy… will start losing 175,000 jobs a month in late 2022, early 2023… right after the elections!
- Intel is pre-announcing thousands of job cuts… given PC sales have had their steepest drop in 20 years
- GM Energy will sell energy mgmt.. products… like batteries, solar panels and software to link EVs and homes to energy grids. Use the batteries and panels to keep the lights on during outages, and make $’s selling solar energy back to the grid.
- Honda’s building a $4.4 billion EV battery plant in Ohio.
- Despite higher rates, lenders reduced their appetite for mortgages… as they know a weaker economy will lead to a rise in mortgage delinquencies.
- The BBC found that TikTok… is pocketing up to 70% of all donations given to its charitable live stream events.
- Canadian energy giants Cameco and Brookfield… are buying Westinghouse Electric / Nuclear for $8B.
- Social Security’s cost-of-living increase… will be 8.7% in 2023 – the highest increase in 40 years!
- Kroger (#2) is buying Albertsons (#4) for $25B.
- Furniture icon IKEA reported record annual sales… as the cost-conscious shopper snaps up $30 rugs and minimalist desks.
- The Conference Board’s quarterly survey of business leaders showed… that 99% of CEOs are bracing for a recession in the next 12-18 months.
- Harvard University’s endowment lost money (-1.8%)… for the first year in a long time – leaving their total endowment with only $51B.
Crypto-Bytes:
- The C-Suite of Celsius is truly BAD NEWS… Alex Mashinsky (x-CEO) has cashed in $1m in CEL and USDC since the beginning of October – in addition to the $27m that the C-Suite withdrew prior to declaring bankruptcy.
- Google will start accepting crypto payments… via an integration with crypto exchange Coinbase for cloud services early next year. The tech giant will also use Coinbase's custody service, Coinbase Prime.
- The European Union Commission called for a study… aiming to develop, deploy, and test decentralized finance – to get a better feel before proposing additional regulations.
- Crypto startup funding has fallen off a cliff… declining 37% from the same period in 2021.
- In an SEC Lawsuit… Grayscale called the rejection of its spot ETF ‘arbitrary, capricious, and discriminatory’.
- Ethereum reached a post-Merge milestone… it became deflationary for the first time since the blockchain transitioned to Proof-of-Stake.
- BNY Mellon is getting into the crypto-custody biz. The US's oldest bank said it would hold customers’ bitcoin and ether.
TW3 (That Was - The Week - That Was):
Monday: Last week the S&Ps managed to close above their June low of 3,636 on Friday. The S&Ps are now down 13 of their last 17 trading days, and down -24% from their record close. The Nasdaq is off -33.5% from their record highs.
Tuesday: We are heading into several high profile, and potentially market moving catalysts later this week. We get the FED minutes, reports on inflation in September (PPI on 10/12 and CPI on 10/13), and the start of the third-quarter earnings season (big banks JPM, WFC, MS, Citi all reporting Friday morning). The Bank of England intervened in the bond markets again last night, warning that: “dysfunction in this market could cause a ‘fire sale’ – posing a material risk to the financial stability of the UK.” The move marks the UK’s second expansion package.
Wednesday: Today we got wholesale inflation (PPI) and it was bad. We came in twice as hot as the estimates, and are now running +8.5% YoY. We haven’t seen these levels of inflation in 40 years. At 2pm the FED minutes said that our FED needs to keep raising rates even if the labor market slows. (Notice they are NOT talking about pivoting rates lower.)
Thursday: The Consumer Price Index (CPI) for Sept. gained +0.4% when we expected 0.2%. Core inflation (without food and energy) it’s 0.6%. YoY we're up 8.2%. So, inflation is still with us and our FED can’t stop it. In November, our FED will hike another 75bps. The VIX isn’t behaving as you'd think it is. Something just triggered a massive buying program. My only guess is that our FED is supporting things, so we don't literally crash outright.
Friday: Yesterday was one of the top 3 market reversals of all time – as we went from being down 540 to up 820. We saw our FED step in to halt what could have been a significant sell down. Our FED is looking for controlled demolition - not a crash. Banks have kicked off earnings with somewhat of a yawn performance. Jaime Dimon (CEO of JPM) is not only predicting a hard-landing and a 30% crash, but also said that the Fed funds rate will probably have to rise higher than the 4% to 4.5% level many economists are predicting, as inflation persists. He then attended a private investor seminar for JP Morgan clients and said the following three things: (1) "The President of the U.S. needs to stand up and say we may not meet our 2050 climate objectives because this is a friggin’ war.” (2) “It’s time to stop going hat in hand to Venezuela & Saudi, and let’s start pumping more oil & gas in the USA.”And on ESG (3) “Investors don’t give a shit, and I’m asking you NOT to cede governance to do-gooder kids on a committee”. And across the pond, the UK finance minister was just fired.
AMA (Ask Me Anything…)
‘Apple killed the radio star:’ Back in 2021, Apple changed its privacy policy, and that change adversely affected Facebook. It forced apps to first ask users before tracking their behavior across different services for personalized ads. Per HL: This effectively killed the tool that is used by apps to track iOS users. That changed the landscape of social media and all of the businesses that relied on FB ads to grow their customer base. It’s forcing companies to pay a lot more for customer acquisition. The inflation that this single act is causing for e-commerce and software growth companies is a major factor in the valuation compression going on as companies seek new funding. In fact, it wouldn’t surprise me if the next generation of software engineers and venture capitalists might need to actually study MARKETING’s 4 P’s … again.
Next Week: Will this Volatility End with a Bang?
- The S&Ps are yawning at 200-point moves. They moved 200 points on Thursday, and gave it back on Friday. 2% moves cannot become the norm.
- We are in a Volatility Box that runs between 3600 and 3800. The longer that we’re in this range, the more violent the break-out will be.
o There is high correlation and ultra-concentrated liquidity associated with this volatility box. Nobody’s watching individual stocks – just the S&Ps.
o Friday’s options on the: SPX + SPY + QQQ + the VIX = 17m contracts; which is over 40% of all options. The SPX is about 20X the size of the average product; therefore, this market belongs to the S&Ps.
- There is an astronomical amount of Open Interest in the S&Ps – which translates directly into catastrophic levels of Gamma risk. Everything market makers have done for the last month is between 3600 and 3800 on the SPX. So, the minute we significantly pierce either of those levels, violent moves will begin.
o The key is the bond market (/ZB). Tip #1: If bonds remain under 124, the Nasdaq will break first – and then the S&Ps. There is a thin red line at 124 in the bonds. If bonds continue to fall under that, our FED will be forced into a corner, and that’s not good.
o Bonds moving lower == S&Ps moving lower.
- The Dollar appears to be in a short squeeze… as nobody wants it to go down. Tip #2: If the Dollar breaks above 114, the S&Ps will begin to come apart.
- The Energy complex: Oil is not performing the way it needs to perform to form a bottom. The XLE is still up 40% YTD. Tip #3: If we’re going into a global economic slowdown, then oil (/CL) and the XLE will need to start behaving like it and move lower.
- Earnings are coming, and there are concerns about buy-backs: Nobody cares about earnings, but everybody cares about share buy-backs. None of the big tech companies (as of yet) have suspended their buy-backs due to a rising interest rate environment. This market can’t bottom, until buy-backs diminish.
- SPX Expected Move (EM):
o Last Week’s EM was $125. We travelled over $200 points, but ended just $40 lower on the week.
o Next Week’s EM = $120. We moved $100 in one hour on Thursday, only to turn around and move $200 points higher – in the same day. This level of volatility will absolutely end with a bang.
Tips:
HODL’s: (Hold On for Dear Life)
- CASH = Nexo @ 8% on USDC – waiting for Merge dust to clear.
- PHYSICAL COMMODITIES = Gold @ $1,650 /oz. & Silver @ $18.20 /oz.
- **BitFarm (BITF = $0.95 / in at $4.12)
o Selling CCs for income,
- **Bitcoin (BTC = $19,500 / in at $4,310)
- **Ethereum (ETH = $1,325 / in at $310)
- GME – DRS’d and HODL
- **Grayscale Ethereum (ETHE = $8.31 / in @ $13.44)
- Innerscope (INND = $0.0173 / in at $0.0052)
- SPY (Downside PUTS):
o BOT Oct 21 / +$350 / - $340 PUT Spread
o BOT Oct 31 / +$350 / - $340 PUT Spread
* * Denotes a crypto-relationship
Trading Tips:
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Please be safe out there!
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