The fear of artificially intelligent machines replacing humans… is an awfully powerful and intriguing narrative. But at least for the next decade, AI will concentrate on making things available to us – that were previously either too expensive or completely unobtainable.
Investing requires trust and understanding, and Per HL: A while ago I took the stance that our markets are rigged. That’s allowed me to yell less at my screens, own less stocks, watch less TV, and read less news. Investing still requires understanding, trust, and integrity. In a world where ‘kicking the tires’ is a requirement, technology works against you. But the winners keep finding a way to fill-the-gap / crossing-the-chasm – before everyone else.
The Market:
Pessimism is pseudo-priced into the markets. In startup-land, Series B valuations fell 50% YoY, a smaller percentage of early-stage startups raised new money, and more startups have raised down rounds than in any other time in history. VC’s have a record $289B of dry powder to deploy. When I ask what they're looking for in an investment, they always tell me the same top 3 items: hard-work, honesty and integrity.
The stock of every company that announced layoffs – went up. Wall Street is sending a clear message: if/when you cut costs and improve efficiency – you will see a positive market reaction. As more CEOs get-the-message, the more likely they are to adopt the playbook. Layoffs to increase efficiency – are feeding on themselves.
Q4 GDP came in at 2.1%... spurred by significant non-consumer (governmental) additions. Meanwhile in Q4:
- Residential housing continued to decline, and exports fell by 1.3%,
- Bank credit losses rose as consumers used CC debt to keep their lives afloat,
- New car / truck demand increased minimally,
- Excluding government, new orders fell for the 3rd time since 2021,
- Business investment dropped by 0.2%,
- U.S. manufacturers are in a recession. The new order slowdown has caused production cuts, and further reductions will cause layoffs – which is what our FED is looking for.
InfoBits:
- Microsoft’s CEO Satya Nadella said: "We’re seeing organizations in every industry and geography exercise caution. Some parts of the world are in a recession and other parts are anticipating one."
- Consumers are running out of cash… as 20% admit that their monthly expenses are higher than their earnings. Credit-card debt is at an all-time high, and the personal-savings rate fell to a 17-year low.
- Inflation is cooling but eggs aren’t cracking… US egg prices soared 11% in December MoM, and Americans are smuggling cheaper eggs in from Mexico.
- Big banks are joining forces to launch a digital wallet… that could rival Apple Pay and PayPal – allowing their 150m card holders to check out without plastic.
- Brazil and Argentina are in talks to develop a common currency.
- Welcome to Amazon’s $5/mo. unlimited meds – delivered: 67% of pharmacy customers already are AMZN Prime members. Delivery of your meds is a powerful way for AMZN to architect controlling healthcare.
- The Justice Department sued Google… for its monopoly over online advertising tech. Its aim is to make Google sell off its ad tech.
- Ford is cutting 3,200 jobs, and 3M 2,500 jobs.
- Diageo (the world’s largest spirits maker)… grew revenues 9.4% in the past 6 months. They beat forecasts by raising prices and increasing demand.
- AI ChatGPT just passed the law, medical, and business school exams: Look out kids, ChatGPT can perform at a C+ student’s level.
- Per MJP: North Dakota is following West Virginia… introducing legislation that would allow educational presidents to fire tenured faculty at any time – without employee appeal.
- Upper-Earners are reducing their number of hours worked.
- UK car production hit its lowest point in 66 years.
- Hawaiian life expectancy is 5 years longer than in the U.S.
Crypto-Bytes:
- Binance’s banking partner Signature Bank… will no longer handle transactions of less than $100,000. Signature (like many banks) is actively retreating from the digital asset industry.
- “The digital euro will never be programmable money.” That means there will be no restrictions on how this digital currency is created or spent. So what step-forward are we making again?
- Genesis follows other crypto lenders into bankruptcy… signaling the end of crypto lending as we know it.
- Cumulus Data, in the PA. Susquehanna Valley… expects to start hosting a nuclear-powered Bitcoin mining operation in Q1 2023.
- Binance said that it made a mistake… when it kept customer funds and collateral for its tokens in the same digital wallet.
- 30,000 crypto jobs have been lost over the past year.
- Stripe, the payments platform, has set a 1-year deadline… to either go public or pursue a private market transaction. So they’re raising money – gotcha!
- Polygon’s MATIC is up 48% YTD… amid a spike in daily transactions and anticipation of its next-gen tech. It’s now the second largest chain in terms of daily active users.
- Who’s on the hook for $8B of FTX’s losses… was revealed and includes: Coinbase, Apple, Amazon, Google, Meta, Microsoft, and for some reason: Netflix, Door Dash, Uber Eats, Coachella, and Southwest Airlines.
- FTX’s X-CEO’s mother and brother… are NO LONGER co-operating with the probe into who received stolen funds from FTX. Guess the kitchen got too hot?
- Sen. Ted Cruz… proposed requiring gov’t vendors to accept crypto as payment.
TW3 (That Was - The Week - That Was):
Monday: Copper is at 7-month highs, and crude oil is back at 2-month highs as China’s reopening continues to lift commodities.
Tuesday: In the big picture, asset managers are still playing a game of Chicken with our FED. They are convinced that our FED will pause and pivot very soon. They’re totally ignoring the FED heads that are still saying: “It is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis. Taming inflation will require below trend economic growth. It is critical that we stay the course until the job is done.” Does this sound like our FED believes that inflation is tamed, and it's time to sit back and relax? To me it doesn't, but the street likes to cherry pick what they hear, and right now they're hearing Dovish comments.
Wednesday: Earnings will be the focus again today as markets await GDP and PCE core inflation data tomorrow, and then CPI consumer prices on Friday ahead of next week’s FOMC meeting. Is the market so desperate for higher that it can ignore Microsoft fading? Granted, this is a rigged market where anything can happen, but lower at least makes sense.
Thursday: Our FED keeps saying they won't cut rates this year. The market disagrees and is doubling down on rate cuts by September. At the end of last year, traders were pricing a year-end Fed-Funds rate of 4.6%, and today they think it will be 4.4% instead.
Friday: American Express missed EPS and revenues – yet they moved higher. MSFT said things aren't going to be rosy – yet the tech sector melted up. Intel stunk out loud on every metric – yet the futures are pretty flat. We've seen powerful bear bounces before, and this feels quite similar. The PCE is out and for the most part it came in near expectations. Income was up 0.2, and spending was down 0.2. Service inflation was up 0.5, and core inflation was up 0.33. This economy isn’t healthy, but asset managers seem to feel otherwise.
AMA (Ask Me Anything…)
If inflation is falling, why aren’t prices? The good news is that inflation has started to cool off when measured on a YoY basis. Unfortunately, YoY measurements are diluted when there is an abnormally high inflation reading the prior year. For example, the CPI reading in December was 6.5%, which is on top of the 7% CPI number that was reported in December 2021. Compounding inflation at +6% for multiple years is a gut punch to the consumer whose wages have yet to keep pace. Also, businesses price their goods-n-services on where they ‘believe’ their costs will be 6 to 12 mos. from now. Business owners are now worried about getting caught in a forever ‘price changing’ situation, so I’m expecting prices to continue to increase rather than decrease.
Next Week: Layoffs + Poor Earnings = Rally?
Is Good News really Good News again? Q: How can more layoffs and poor earnings trigger a rally? A: Gamma Squeeze. Too many investors were betting on this market going lower, and they were forced to cover their short positions.
Durable Goods, GDP, and PCE: The amount of durable goods purchased last month was horrific. GDP came in hotter than expected, but mostly due to heavy governmental orders. And doesn’t a hot GDP number signal our FED raising rates for longer? The PCE indicator showed a slowdown in consumer spending.
Layoffs: IBM, DOW, SAP, MSFT, GOOG, AMZN, & META: Currently, there’s a fundamental disconnect between Wall Street and Main Street. Wall Street is looking past a recession while Main Street is staring it in the eyes. Nvidia is an example of this – as a chip stock that is up 43% in less than one month even AFTER Intel (another chip stock) came out with a terrible forecast for the remainder of the year. Tip #1: If you’re going to take a position in a stock like NVDA, define your risk by using CALL or PUT spreads.
How can BX rally – when $5B of their assets are under redemption? It’s not that uncommon to see newbie asset managers sprint out-of-the-gate into a new year. Tip #2: Keep some powder dry to put on shorts if/when the SPX hits 4211. We fell from 4700 YoY and have experienced a greater than 50% retracement. The volatility has moved below 20 – so it’s just about ‘rug-pulling-time’ (say the markets).
This next week is: FOMC, and AMZN, META, & AAPL earnings. I’m hearing that: “All of the negative news is priced into the markets.” My issue with that is when Intel comes out and tells us that the PC/chip business sucks – how can Nvidia rally 43% in one month? How is Blackstone (BX) rallying (26% YTD) when 7% of their assets are under redemption – and they have STOPPED redemptions? [FYI: We didn’t even see numbers as large as 7% during the financial crisis!]
Will our FED crush the rally or fuel it? Tip #3: I’m looking for the FED to fuel the rally to 4211 and then drop us down to 3931. We have one of the most anticipated recessions – in the history of recessions. I’m looking for one last ‘hurrah’ before a gigantic ‘rug-pull’.
TRADES:
- Tip #4: QQQ == BUY the March +$284 / -$274 PUT Spread
- I’m still hunkered-down in: T-Bills (5%), Bond funds, and in metals.
- Watch Lockheed Martin (LMT) as Director John Donovan reported a fresh $250,000 purchase of LMT’s stock.
- Watch if traders can force a new bull market in Bitcoin.
Bonds… will have broad implications next week:
- If rates move lower, growth stocks should continue to print fresh highs.
- If yields turn higher, then more pain lies ahead for growth stocks.
- If rates continue to move sideways, this mess will continue.
SPX Expected Move (EM):
- Last Week = $72 … and we finished outside the EM to the upside.
- Next Week = $94 … expect more volatility. TIP #5: With the Wall St. vs Main St. disconnect = DEFINE YOUR RISK.
Tips:
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,940 & Silver @ $23.91/oz.
- AGG – iShares Bond Fund: (AGG = $100.1 / in at $93)
- BIV – Vanguard Bond Fund (BIV = $76.7 / in at $74.5)
- 30, 60, & 90-Day Treasuries @ 4.2 to 4.9%
- **Bitcoin (BTC = $22,950 / in at $4,310)
- **Ethereum (ETH = $1,550 / in at $310)
- DNN – Denison Mines (DNN = $1.44 / in at $1.32)
o BOT shares and SOLD the April $1.50 calls against them
- GDX – Metals Miners ETF: (GDX = $32.3 / in at $30)
- GDXJ – Metals Jr. Miners ETF: (GDXJ = $39.5 / in at $37.50)
- GLD – Gold ETF: (GLD = $179.2 / in at $176)
- GME – DRS’d and HODL
- Innerscope (INND = $0.006 / in at $0.0052)
- NFGC – Newfound Gold (NFGC = $3.95 / in at $3.75)
- SLV – Silver ETF: (SLV = $21.7 / in $20.5)
- SPY (Downside PUTS):
o BOT Feb: +$355 / -$365 PUT Spread
- XLF (Downside PUTS):
o BOT Feb: +$32 / -$30 PUT Spread
o BOT Feb: +37 PUT
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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