Sunday, February 19, 2023

This Week in Barrons: Feb. 19th, 2023

Armageddon was a movie… about a group of officials who ignored the truth – until it was staring them (and the world) in the face. By simply walking through a grocery store – you’ll learn that inflation is higher than the 6% that we’re being told. The U.S. hitting all-time-highs in credit card debt – tells me that J.Q. Public remains incapable of managing personal finance. And continued layoffs – tell me that the 2^nd shoe is about to fall. Last week we had higher inflation readings, but our politicians spun that into: “Our economy is in such great condition that it’ll withstand higher interest rates for longer” – until it won’t. Traders are now concentrating on short-dated options (0DTE = Options that Expire today). They’re moving them in quantities not seen since the 2018 volatility implosion. It’s the rise of Vol-mageddon 2.0. The name was coined not only for the movie, but also for the VOL-atility that obscenely large amounts of Zero-Day Expiring Options cause. In a nutshell, we are one piece of bad news away from a +3-Sigma trading event to the downside. Janet, could you try Harry Stamper’s number again?

Our Learning Curves hi-lite milestones… Learning curves may be steep, but organizations (and people) work their way up them, one step at a time. Most learning curves are not smooth, but rather step functions that require leaps by the participants. The moment when both feet leave the ground in order to get to the next step – is the exact point when you need to speak or forever your peace. Those who succeed – look at these leaps as opportunities and not as doomsday events.

The Market:

Can you sue the VC’s? It was only a matter of time before frustrated customers of FTX went after its deep-pocketed VC backers. The most surprising thing about the class-action lawsuit that accuses Sequoia Capital, Paradigm, and Thomas Bravo of promoting FTX to the detriment of its users – is that the group waited this long to file it. Every VC had better hope that nothing comes of it, or the entire venture industry is in trouble. A trial (even a settlement) could have widespread ramifications. The complaint accuses the firms of bestowing upon FTX an ‘air of legitimacy’ via their actions including: Sequoia’s piece titled: “The Unstoppable Rise of FTX,” and Thomas Bravo’s: “Bankman-Fried combines being a visionary with being a phenomenal operator . . . That is rare.” None of this is new information. All of it makes the investors look foolish because they actively promoted a potentially criminal investment. But, is their promotion a crime? If it is, fair warning: the entire industry is guilty of it.

Tesla is opening up its EV Charging Network… in order to get a larger piece of the $7.5B federal charging network program. This could help turn Tesla into the universal gas station of the EV era. While they may lose a competitive advantage, Tesla will gain billions in gov’t funding and extra charging revenue from non-Tesla owners. As long as they can out-innovate their competition, there is no bad ending here for TSLA.

InfoBits:

- Credit card debt hit the highest level EVER recorded … and delinquencies are accelerating along with it.

- Some FED heads are talking about a 50bps hike in March.

- AI of the Tiger… officially kicked off as Google and Microsoft are racing to crank out genAI features even though concerns about their language models generating false info and biased answers abound.

- Corporate buybacks hit a record $1.2T last year… and are on pace to top that this year.

- Mastercard measured 8.8% growth… in consumer spending in January.

- What happens in Vegas… has not stayed in Vegas. FanDuel alone processed over 50,000 bets/second during the Super Bowl.

- Twillio is laying off another 17% of its employees… as another round of job cuts is starting everywhere.

- When was last time you could earn 5% on a 1-Year Treasury Bill? Answer: July 23, 2007, but we’re almost there – says CB.

- EU lawmakers approved a law that will ban the sale… of new gas and diesel-fueled cars starting in 2035 within its 27-member countries.

- 60% of all U.S. workers are living paycheck-to-paycheck... and 2022 was the second lowest personal savings rate on record.

- U.S. Industrial Output was flat in January and fell -0.7% in December. This confirms that the manufacturing sector is in contraction territory.

- Twitter will allow cannabis ads… in states where cannabis is legal.

- The Social Security Board of Trustees reported that… “Social Security will run out of money in 2034. Anyone 55 or younger today won’t receive a single full benefit.”

- January’s PPI had the largest increase since June. The latest housing starts fell -4.5% MoM and -21.4% YoY.

- Susan Wojcicki is resigning as YouTube CEO. She rented her Silicon Valley garage to Google co-founders Larry Page and Sergey Brin in 1998, and joined the company as its 16th employee a year later.

Crypto-Bytes:

- No one’s sleeping on crypto (regulation) anymore. Bankruptcies at Celsius, BlockFi, and FTX left some lawmakers asking if crypto regulation was asleep at the wheel.

- NEXO is officially ending their Earn Interest Product for all of the U.S.

- The EU is asking banks to restrict crypto activities… before expected laws are passed.

- Celsius has reached a deal with Nova Wulf… to purchase and restart its operations. People with claims of +$5,000 can opt for some of their liquid cryptos back OR get equity in the new company.

- Bitcoin NFTs (code-named: ordinals)… are picking up steam with +126,000 being added since their blockchain debut last month. It allows users to store audio, images, and videos directly on the bitcoin blockchain.

- The SEC accused Terraform’s founder Do Kwon… of transferring millions worth of bitcoin to a Swiss bank account following the collapse of LUNA in May 2022,

- The two largest Mt. Gox creditors… have opted to receive 90% of their recovery payments in BTC.

- Bitcoin is back over $25k… the Altcoin market cap is almost $600B, and the total Crypto market cap is close to hitting $1.1T.

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

Monday: FED Chair Jay Powell will deliver his semi-annual monetary policy testimony on March 7 at 10 am. That’s directly prior to the next set of job and inflation data – diminishing some potential shock factor. According to MS strategist Mike Wilson, US stocks are ripe for a selloff after prematurely pricing in a pause in FED rate hikes.

Tuesday: The CPI came in as +0.5%, and YoY we’re at 6.4%. Yep, we’re still running hot. The initial reaction to the numbers was that we plunged red, but then they decided that somehow – it’s all okay. If I'm right and Mr. Market is going to be funky for a couple weeks, trying to find long positions in a falling market will be difficult. Inverse ETFs may be a better option. SQQQ is an ultra-short play on the Q's. DOG is a short for the DOW. Our market is rigged to go higher and only goes down begrudgingly. Watch 4095 on the S&P, that’s the first level to break if it falls.

Wednesday: Yesterday’s boost to inflation shifted Fed funds futures higher, and now imply a peak rate of 5.25% in July and remaining above 5% throughout the year. Several Fed officials said on Tuesday that they will need to keep raising rates, with two signaling that borrowing costs may eventually need to go higher than is currently expected – but some markets still extended gains.

Thursday: Remember, every ‘official number’ comes with a catch. For instance, yesterday's retail sales were NOT inflation adjusted. So, are people really "buying more", or are they buying the same number of things but at a higher price? The real data suggests the later. Markets tend to trade on the official numbers, not the realistic numbers.

Friday: Yesterday FED head Bullard came out and said that he wouldn’t rule out a 50bps rate hike in March. Shortly after that, the market’s wheels came off. Yesterday, Art Cashin (who’s been a wise and trusted market mainstay for +60 years) said to keep an eye on 4090: “If the S&Ps lose 4090, we could see some serious selling.”

AMA (Ask Me Anything…)

How bad is inflation – really? Per CB, here are some price changes over last year: Utilities Gas = +27%, Transportation = +15%, Electricity = +12%, Food at Home = +11%, Food away from Home = +8%, Housing = +8%, New Cars = + 6%, and Medical Care = +3%. Fair Warning: the official CPI number (measured in YoY change) will continue to fall during 2023, but that doesn’t mean inflation is improving. It just means that inflation will be growing at a slower rate than it was in 2021 and 2022; therefore, don’t think we’re out of the woods when you see the CPI falling.

Next Week: Zero-Day Options Expiration Day Risk?

The S&Ps finished the week Unchanged: This past week (on the surface) nothing happened. Except, we had to move a long way – to get nowhere. Because every single day we are seeing an increasingly larger number of traders – gambling on the S&P Index via options (1 contract = 100 shares) and futures (1 contract = 500 shares). Every day there is a new options / futures contract expiring – so in essence – every day is Ground Hog Day for this new breed of S&P trader. My fear surrounding the S&P trade is the shear volumes that are being exchanged – and their potential for obscene amounts of ‘market-crashing’ gamma risk.

Zero DTE (Days to Expiration) Risk == the talk of the Trading Town: Looking at Friday’s SPY action (above), over 400,000 new options contracts were opened (and closed) on Friday’s $406 SPY option strike alone. That’s beyond huge volume and that’s not even including the SPX (10X the SPY) or the /ES futures. JPM estimates that Zero DTE Risk is now over $1T every single day. That is why you’re seeing these huge 40 to 70-point swings in the S&Ps – on an hourly basis.

The SPX, SPY, and the /ES are all trading what is directly in front of them: Traders no longer care about anything in the future (or the past) – if it’s more than 2 hours away. It’s a feeding/trading frenzy like we have not seen since Vol-mageddon 1.0 - the volatility collapse of 2018.

Dynamics of the Hedge: The scary part of Vol-mageddon, is not what happens on the trading side, but what happens on the Market-Making side. Market Makers (such as Citadel) take the ‘other side’ of every trade that’s out there, and they shelter their risk via stock and/or S&P futures. The goal of the Market Maker is to remain ‘net neutral’ on every trade – all the while taking a tiny percentage out of the middle as their fee (similar to Vegas – fyi).

What If… a Market Making firm (like Citadel) starts loading up on some ‘serious’ inventory positions due to its clients buying a ton of CALL options (400,000) on the SPY. [FYI: most Market Makers will be hedging in the same direction as the marketplace.]. The fear is: (a) What if unexpected bad news hits the marketplace? (b) Traders will begin to sell their positions, and Market Makers will respond in kind by selling their positions. (c) If this selling breaks thru 1 and then 2 standard deviations of a move – we could witness a collapse that our own marketplace created.

It’s coming… because we’ve seen this movie before. Vol-mageddon 2.0 will be a repeat of Vol-mageddon 1.0 back in 2018 – let’s just hope we’ve gotten smarter and faster in terms of recovery.

SBX Expected Move (EM):

- Last Week was $104 (5-day week)…

- This Week is $73 (4-day week)… Know your risk, and keep your hands and feet inside the vehicle at all times.

Tips:

For Oil (/CL):

- The former 2018 Resistance levels are now Support.

- Are they temporary or actual Support?

- Do energy prices move higher from these depressed levels, or is this a continuation of a downtrend?

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,851 & Silver @ $21.7/oz.

- 30, 60, & 90-Day Treasuries @ 4.4 to 5.1%

- **Bitcoin (BTC = $24,500 / in at $4,310)

- **Ethereum (ETH = $1,700 / in at $310)

- DNN – Denison Mines ($1.31 / in at $1.32)

o SOLD the April $1.50 CALLS

- GME – DRS’d and HODL

- Innerscope (INND = $0.0049 / in at $0.0052)

- MESO – Mesoblast Ltd. ($3.30 / in at $3.60)

o SOLD July $5 CALLS for $0.85

- NFGC – Newfound Gold ($3.59 / 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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Sunday, February 12, 2023

This Week in Barrons: Feb. 12th, 2023

Do you cheat-at-golf? We all know organizations cheat – and often when nothing is on the line. They say things, put in clever clauses, and even spam media lists. They cover-up their long-term strategy – while they steal our personal data. Their cheating is costing them the benefit-of-the-doubt. Losing the benefit-of-the-doubt is how OpenAI / ChatGPT knocked the legs out from under Google last week. Remember the adage: ‘Your worst enemy is the one that you never see coming.’

“We are the Champions”… is one of the greatest crowd anthems of our time. Just imagine how frightening it must have been for Freddie Mercury & Queen to play that live for the first time? What if you were the lead singer / entrepreneur and nobody sang along? Per SG: “That’s why anthems are so scarce.” Entrepreneurs have been trained to search ‘n discover a few early adopters. Nobody’s prepared to navigate everyone (or no one) singing along with you. Feast or famine is just another reason why only 1 out of 1,000 entrepreneurs make it.

Learn how to say: ‘NO’: John Q. Public wants: cheap, short, funny, and blending into the surroundings. But what if today’s audience wants something that’s thrilling, challenging, unique, and memorable for months to come. Or maybe your audience wants something that’s expensive, but worth more than it costs. Often, the only way to manage that fork, is to learn how to say: “This one is not for you.”

The Market:

Charlie Bilello noted:

1. With 68% of companies reporting, the S&P’s Q4 GAAP earnings are DOWN 20% YoY.

2. This is the 3rd consecutive quarter of negative YoY growth, and the largest decline since Q2 2020.

3. Last week mortgage refinancing applications rose 18% WoW, but are still down 75% YoY. Both weekly jobless claims and continuing claims increased.

4. And +50 S&P companies have issued negative earnings guidance for Q1 (on already reduced benchmarks) – a historically high share.

Entrepreneurial Investing / per HL:

1. The ‘Tourist Investor’ of the last three years will not disappear as quickly as most believe. They are price-takers, and not price-makers. That will keep startup prices higher for longer, and produce a drag on returns.

2. Great founders will recognize the shift in technologies and markets – and take advantage of the abundant capital, available talent, and experienced investors looking to create new opportunities.

3. The biggest challenge for founders and VC’s is valuation compression. It is vital to be aligned on valuation expectations throughout the lifecycle of a startup.

InfoBits:

- "The disinflationary process is isolated to the goods sector… because supply chains have been fixed, demand is shifting back to services, and goods shortages have been abated." - FED Chair J. Powell.

- “Most forecasts call for core PCE to go back up to 4%... by the middle of the year. So, that would suggest there's more work left to do." - FED Chair J. Powell.

- 2022 was the first time… that clean-energy matched fossil-fuel investment.

- OpenAI announced a $20/month premium subscription for ChatGPT.

- In Q4 2022, Softbank lost $5.8B… which beat its $10B loss in the previous quarter.

- Dell is cutting about 5% of its workforce / about 6,600 jobs.

- May the best bot win: After ChatGPT was released free to the public, Google (trying to protect their search biz) released their version before it was time – and their stock promptly cratered.

- Meta is asking managers and directors… to become independent contractors or leave the company – as it attempts to regain profitability.

- LeBron James became the NBA’s all-time-scoring-leader… moving past the legendary Hall-of-Famer Kareem Abdul-Jabbar.

- MSFT revealed how Bing’s AI will change the search landscape… as it will return conversational-style Q&A to customers – instead of links. For example, you can ask Bing: “Will this couch fit inside my car?”

- Ford has sold most of its Rivian shares… after writing-off $7.3B of its investment last year. Rivian is down over ~70% YoY.

- Investors are feeling a little ‘Un-Yeezy’… as Adidas issued a revenue warning over ~$1.3B in unsold Yeezy inventory. #Thanks-Ye!

Crypto-Bytes:

- Binance controls over 50% of spot trading… as crypto struggles with DeFi vs CeFi / centralization.

- Revolut (the European neobank with 25m customers)… will offer staking services for Ethereum (ETH). The offering will be available to customers in the U.K. and European Economic Area (EEA).

- FTX is sending confidential letters to politicians & influencers… who SBF showered with donations – asking them to return the funds by month’s end.

- The SEC issued an investor alert… about self-directed individual retirement accounts (IRAs) investing in crypto – along with increasing its scrutiny of broker-dealers working with crypto.

- Bitcoin network activity has increased to 2021 levels… due to the popularity of allowing NFTs to be stored on its blockchain.

- Kraken has settled with the SEC… and is shutting down its on-chain staking program.

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

Monday: Powell is speaking tomorrow, and after Friday's jobs number exceeding estimates by 300%, he could come out swinging. Yes, he said the word disinflation last week, but he also said that employment needs to soften – and that didn't happen. I'm watching TSLA fairly closely. It’s tried to get over $200 several times, and based upon the options chains – if it breaks over $203 it goes ballistic. So, TSLA over $200 works. FYI: the CEO of NOW sold 93% of his shares last week – that’s a big deal!

Tuesday: So, the Powell that I was watching live, was obviously different than the Powell the market heard. The one I heard said it was appropriate for more rate hikes, and then keep rates at an elevated level for a fair amount of time. When David asked him "Why 2% inflation? Couldn't the FED be happy with say 3%?" Powell shook his head and said: “Absolutely not and there will be no discussion about the 2% rate.” So, higher for longer and no deviation from aiming for 2% inflation. The market heard: "We are seeing the beginning of disinflation." They didn't hear the very next line which was: "Which we think has considerably longer to go before we are anywhere near our targets - something I'd also call declining inflation." When asked: “How long will it take to hit your target inflation rate – year end?” Powell said: “It will probably take well into 2024.”

Wednesday: The incredible start to 2023 has been led by communications, technology, and consumer discretionary. @BespokeInvest noted: 7 stocks have each added more than $100B in market cap YTD for a combined $1.377T. (These same 7 lost $4.86T in 2022) – referring to AAPL, AMZN, GOOGL, META, MSFT, NVDA, and TSLA. @BespokeInvest also noted that yesterday was the 12th trading day in the last 13 where the S&Ps were up from the open to the close. I’m watching those same 7 names for any follow through.

Thursday: This morning Disney announced that it is laying off 7,000 workers and restructuring its business units. Then Pepsi beat estimates, hiked their dividend, and announced a Billion dollar buy back – because people continue to drink soda and buy snack food. So, let’s get this right: (a) tossing folks in the street without a job is great news, and (b) doing billion dollar stock buy backs (which used to be illegal) is fantastic, and (c) therefore – Let the Good Times Roll. This world couldn't get any more bizarro.

Friday: Oil prices are jumping with WTI crude oil ~$80 per barrel and Brent ~$86.50 – after Russia announced oil production cuts of 5% = 500,000 barrels per day. The 10-Year is up to 3.715% and the 2-Year is above 4.5%. The DOW is now above its 50-Day moving average, and that’s NOT by accident, but rather 3^rd-party (governmental) mgmt. They've been using that 50-day for two weeks now as support. That said, next week is the CPI report (February 14^th @ 8:30am ET), and if it's ugly – look out below.

AMA (Ask Me Anything…)

“It seemed like such a good idea at the time…” The ‘Great Resignation’ is now being dubbed the ‘Great Regret’ by 80% of the job hoppers – who now wish they hadn’t quit their old (pre-pandemic) roles. Gen Z’ers (anyone born between 1997 and 2012) are the most regretful. 80% of those who quit are admitting that they would love their old job back. Of course, they remember the huge signing bonuses, but that old adage: ‘money doesn’t buy happiness’ continues to ring true. Also, it seems that current job seekers are finding it more difficult to secure a new job than the data may suggest = +6 months and +50 applications / interviews. The #1 reason job-hoppers gave for wanting to return to their former employers was that they missed their old colleagues.

“How does anyone trade this market?”

- Short Answer: You don’t.

- Longer Answer: Keep your trade sizes small, and your timeframes 40 to 60 days.

Our economy has become such a political football that you need to look toward well-run companies like Apple (AAPL) for advice. Apple is (a) in control of their own destiny, (b) doesn’t need an immediate cash infusion, and (c) not responsible to our government for endless favors. With our FED raising rates, it’s taken corporations back to pre-1982 (when stock buy-backs were illegal), and forced them to: ‘make money the old-fashioned way = Earn It.” On Tuesday (CPI day), watch how AAPL reacts and gauge your trading from there.

Next Week: Are we Back on the Bear?

Is the Bear Back? Nope, not just yet. BUT there are signs that 2-sided trading has returned. This past week the 30-Year (/ZB) dipped below the $129-level and that caused rates to fly higher and dissuaded tech buying. In turn, we tagged the lower-edge of the expected move, and as soon as that happened – traders opened their eyes and started buying hedges. As far as I’m concerned, those are good signs of Wall Street coming to meet Main Street. Other signals are the VVIX, Bonds and the Dollar.

The VVIX, Bonds and the Dollar – Oh My!

- The VVIX (Volatility of the Volatility Index) is an indicator I use to let me know if/when traders are hedging – and it lit up last week (breaking 100). So right now, all we can say is that traders are nervous about Powell and the upcoming CPI.

- BONDS were crushed this past week – to the order of 2 standard deviations. The 10-Year started the week at 3.4% and ended it at 3.75% - that’s a big boy move. Rate sensitive stocks (like tech) immediately moved lower.

- The Dollar remained flat – in a very guarded stance.

- With the VVIX moving higher and the BONDS breaking down – we are definitely getting ready-to-rumble IF/WHEN a market-battle breaks out.

TSLA, NVDA, MSFT, AAPL, and GOOGL:

- The moment interest rates went higher = TSLA, NVDA, and MSFT reversed, but not anything outlandish – just comfortably inside of their expected moves.

- Apple (AAPL) has stalled out since its earnings release.

- The mega-cap loser of the week was Google – that moved well outside its lower expected move on the fear of it getting crushed by ChatGPT.

Financials have been bending, but have not broken: You will know it when the financials breakdown. The Financials have been the corner-stone of this rally, and when they breakdown – so does this rally. Rates are heading higher, and that news may actually help the financials maintain their bid.

V-Day == CPI Day: I would not be surprised if we would close around 4106 in the coming days.

- LEVEL SET: Above 4106, I am Bullish and below it – I am Bearish.

- ALERT: At 8:30 am on Valentine’s Day = February 14^th … the latest consumer inflation (CPI) reading will be released – fasten your seatbelts.

TRADES:

- MS: is currently the out-performer of the financials, so I’m just looking for a slight move to the downside, and am buying the March In/Out PUT spread.

- PFE: has been getting crushed to the downside as part of a cyclical rotation, so I’m buying the March In/Out CALL Spread as a defensive move.

SPX Expected Move (EM):

- Last Week = $77 (5-day week) EM, and we tagged the lower edge of the expected move.

- Next Week = $104 (5-day week) EM: The market players are expecting 30% more movement this week than last. We are going to see a dangerous market; therefore, make sure you’re handling your risk appropriately.

Tips:

GS… Goldman Sachs experienced some volatility when the market turned lower last year, and buyers are now working on reclaiming that $375 level. If GS remains above $375, you can be long with a target of $577 over the next 6-12 months.

HODL’s: (Hold On for Dear Life)

- PHYSICAL COMMODITIES = Gold @ $1,876 & Silver @ $22/oz.

- AGG – iShares Bond Fund: (AGG = $98.4 / in at $93)

- BIV – Vanguard Bond Fund (BIV = $75.3 / in at $74.5)

- 30, 60, & 90-Day Treasuries @ 4.4 to 5.1%

- **Bitcoin (BTC = $21,600 / in at $4,310)

- **Ethereum (ETH = $1,500 / in at $310)

- DNN – Denison Mines ($1.36 / in at $1.32)

o SOLD the April $1.50 CALLS

- GME – DRS’d and HODL

- Innerscope (INND = $0.0047 / in at $0.0052)

- MESO – Mesoblast Ltd. ($3.69 / in at $3.60)

o SOLD July $5 CALLS for $0.85

- MS – Morgan Stanley (Downside PUTS)

o BOT Mar: +$100 / -$97.5 PUT Spread for $1.14

- NFGC – Newfound Gold ($3.70 / in at $3.75)