This Week in Barrons: 8.18.2024

• The problem with the lottery is…? people actually believe that it’s an investment vehicle.? In a similar vein, a survey showed that ~25% of the population believe that they could qualify for the Olympics if they trained for the next 4 years.? Now, that is absurd. ?But saying: “I could do that,” is easier when you’re sure that you can’t. ?Even if we had the talent, the resources, and the time – the odds against us are so slim that it essentially becomes a lottery ticket.? And like any lottery ticket buyer (versus an investor), the world leaves us ‘off-the-hook’ for not winning.? Someone will Win Gold, and someone will Win-the-Lottery – but it probably won’t be any of us.
• It doesn’t matter if it doesn’t ship…? makes mediocrity and perfection virtually the same thing.? They are both places to hide.? Per Seth G: when we ship average work, it’s not our fault. ?We’re simply doing what the manual says, and if you don’t like it – blame the culture and the system.? And when we hold back on shipping because it isn’t perfect, we’re also hiding. ?After all, who would sign off on something if you could still find things that could be improved?? Unfortunately, if it doesn’t ship – it doesn’t count. ?You need to ship when it’s good enough, and you define good enough in advance.? You need to ship – just don’t ship junk.

The Market:

• The last time we saw bearishness spike like this…? we had the greatest 52-week period in the history of the US stock market. ?So, for the past 2 weeks, with the spike in volatility and some selling pressure in equities, I've been looking for those companies whose relative strength continues to outperform (see above chart).? I want to buy into them because they are likely to continue to outperform in the back half of the year.
• Greg Brockman, OpenAI's president… ?and one of 11 cofounders of the artificial intelligence firm, is taking an extended leave of absence. ?Another cofounder and key leader, John Schulman, has decamped to Anthropic, a fierce rival founded by ex-OpenAl researchers. ?Peter Deng, a product leader who joined the company last year after leading products at Meta Platforms, Uber and Airtable, has also left OpenAI.? Fair Warning: You have an entire company at the forefront of AI – being run by their B-Team.

[ Learn about Betterment.com here… ] ?

InfoBits:

• Research out of Harvard is proving that…? an optimistic outlook slows age-related physical declines in women.
• “Diversification is only required when investors do not know what they are doing.” … Charlie Munger.
• It’s less than 6 months until Super Bowl kickoff…? and FOX has sold virtually its entire commercial inventory for the broadcast for $7m / 30 second spot. ?
• Tally is shutting its doors…? after raising $172m in funding.? It was last valued at ~$1B with 183 employees.? [“Life comes at you fast.”? … Ferris Bueller]
• CEO poaching season is underway…? as Starbucks grabbed Chipotle’s CEO as their new head, and Victoria’s Secret nabbed the Savage X Fenty CEO as its new leader.
• Google unveils Pixel 9 with Gemini AI integration…? offering in-depth voice chats with Gemini, and a hands-free experience that allows Gemini to run in the background.
• The 2024 Paris Olympics…? brought in over 30m viewers a day across NBC platforms – an 82% increase from the 2021 Tokyo Olympics.
• It’s no longer a matter of IF…? but by how much.? The market is predicting a 63% chance of a Sept rate cut of 25bps, and a 37% chance of a 50bps cut.
• “Date the rate - Marry the home” … As mortgage rates drop in anticipation of a FED rate cut, current homeowners are using the opportunity to refinance their mortgages at the fastest pace since 2022.
• Warren Buffett’s Berkshire Hathaway sold…? BofA, Chevron, in addition to already announced Apple.
• Walmart’s Sam’s Club attracted record-high Q2 memberships… ?with half of the new sign-ups coming from Gen Z’ers and millennials.
• Walmart’s grocery prices are ~25% lower… ?than traditional supermarkets, giving it an edge as consumers prioritize value.
• U.S. housing starts were down 16% YoY…? a 4-year low, ?June’s numbers were revised lower, and residential permits dipped 4% MoM.?

Crypto-Bytes:

• Bitcoin Miners are doubling down…? as now is the time to spend $’s to upgrade equipment efficiency.? Some miners are eyeing mergers, and some are pivoting to become AI datacenters as a path to profitability.
• Goldman Sachs now holds $418m in Bitcoin ETF shares …? And as the third-largest holder of BlackRock’s fund, they’re signaling strong institutional interest in Bitcoin.
• Binance re-enters India after settling a $2.25m penalty.
• Marathon Digital (MARA) closed a $300m offering of convertible debt…? and immediately purchased ~4,144 bitcoin with the proceeds.?[Sounds like MicroStrategy Part 2.]
• After Pump.fun made it free to launch Solana-based coins…? users created +1.7m new meme coins.? FYI: only 41 have maintained any kind of value.
• The State of Wisconsin bought 447,651 more shares of IBIT…? bringing their total to nearly 3m shares.?
• Sen. Chuck Schumer is on a mission… ?to push crypto legislation through Congress before the year wraps up, calling for a balanced approach that fosters innovation while laying down some guardrails.
• South Korea’s National Pension Service…? just spent $34m on MicroStrategy shares – basically doubling down on the Bitcoin proxy.
• Uncle Sam might be fiddling with the Silk Road BTC?stash…? and the idea of ~20k BTC getting dumped on the market has traders in a cold sweat.?
• Chainlink (LINK) just hooked up with Base… ?bringing their full suite of DeFi tools to?ETH’s L2. ?Think fast, low-latency market data, and secure random numbers – all ready to supercharge Base that jumped ~20% this month.

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

• Monday:? Investors await a power packed week of key inflation data, starting with July Producer Price Index (PPI) data on Tuesday followed by consumer price (CPI) data on Wednesday 8/14.? These will provide strong cues about our FED's interest rate move in September. ?Current FED predictions for September are torn between 25 and 50bps of easing with ~100 bps for the entire year.? Walmart is the world’s largest retailer, and is gaining ground in groceries - which make up 60% of its US sales.? It captured a record 37% of all US online grocery sales in Q2 – beating all supermarkets.
• Thursday:? Early this morning, the futures were green but not crazy – now they’re just crazy.? WMT’s revenues and earnings were better than expected.? The initial jobless claims came in less than estimates.? Retail sales came in at +1% - beating expectations.? And import prices only increased +1.6% YoY. ?These ‘Goldilocks’ numbers were ‘just right’ for the economy. ?Along with the usual suspects, there are some interesting gold miner set-ups: NGD, EGO, AU, and AEM.? They are all at double or triple-top resistance levels, and if they can get through – they have room to run.? NGD over $2.46, EGO over $17.43, AU over $31.35, and AEM over $78.16 all look great.? If they break-thru, have them hold the breakout overnight before investing.? Remember, this is one of the most manipulated sectors of the entire market.
• Friday:? The S&Ps turned positive for August as recession fears eased, and the SPX just put in its biggest 6-day rally since November 2022.? The S&Ps have risen 8.3% from the panic Aug 5 low.? The Nasdaq also posted a 6-day win streak as mega cap tech and semis extended their rally off August lows. ?This is a super impressive 6-day run for U.S stocks as the SPY goes 6 for 6 = closing higher 6 days in a row, and gains more than 6% in the process.?

Morgan’s Moments… ?

• Cash-Flow Tricks in growing a small to medium-sized business: Marathon Digital (copying MicroStrategy) announced a private offering of $250m in convertible notes.? These are 7-year notes – convertible into cash or shares of MARA common stock.? The advantage of convertible notes over traditional debt financing is that MARA will be able to acquire a much lower interest rate due to the fact that the notes may be converted into equity.? Marathon plans to use these funds to?“buy more bitcoin and for working capital, strategic acquisitions, expansion of existing assets, and repayment of debt and other outstanding obligations.”? The financing is much needed after MARA lost nearly $200m in Q2.

Next Week: The Dip, the Rip, and the Now?

• Bkgd:? We’re in the calm of Mr. Toad’s Wild Ride.? The S&Ps had their best week in almost a year, and are just 2% off of all-time highs.? But don’t raise the Mission Accomplished banner just yet. ?The ‘Goldilocks’ scenario that everyone is buzzing about has: inflation, unemployment, and growth being ‘just right’.? We are seeing: strong retail sales, an in-line CPI, and a September rate cut.? Unfortunately, every economic report has the capability of sending Mr. Toad's Wild Ride flying around the next turn.?
• Vol will NOT go quietly into this good night…? We started last week approximately 200 S&P points lower than where we ended.? We had an almost 2 Std. Deviation rally that brought us within 2% of all-time-highs.? What’s puzzling is that volatility (VVIX) is still hanging around the 110 level.?
• VVIX, SKEW, Bonds, Dollar and /ES levels…? Last week we saw Bonds back off from their previous duck-n-cover trade, and even the dollar to fade (causing Gold to make all-time-highs).? Our markets are making over-sized moves (both higher and lower) – often due to limited liquidity.? Institutions are exhibiting extremely heavy hedging activity – for example over 1.2m VIX options were traded on Friday alone.? Tip #1: It wouldn’t surprise me if the S&Ps did a little back-filling next week to the 5500 level.
• Goldilocks = retail + inflation + unemployment = ‘just right’…? It was just 2 weeks ago that traders were worried about this being a crash and our FED would have to do an emergency rate cut, but now all’s right with the world.? That’s a sign of real nervousness / volatility being in the air.? Everybody is expecting an interest rate cut in September, and the only question is whether it’s 25 or 50bps.? Tip #2: I’m looking for every economic release (from now until the election) to resemble Goldilocks (be ‘just right’).
• $100B issues: SBUX, INTC, DIS & NKE…? We are seeing statistically impossible moves (8 to 10 Std. Deviation moves) in $100B+ corporations like: Starbucks, Intel, Disney, and Nike.? Tip #3: If you’re SELLING NAKED PREMIUM in this marketplace - dramatically reduce your size.? ?
• Smashing expectations…? Currently, the equity marketplace is not doing a very good job of handicapping forward risk.? Be aware, we often go through periods of ‘spot-on’ handicapping; however, this is NOT one of those periods.
• SPX Expected Move (EM):

-?????? Last Week = $120 EM …

-?????? Next Week = $76 EM.? Are you kidding?? Last week’s EM was $120 and we moved $200, so this week’s EM is reduced by 40%.? “Without conflict, there is no interest.” … Fred Wilson

TIPS:

• At the risk of sounding overly bullish, things are looking up.? Market technicals have improved, and some of the ‘land-mines’ seem to be a little less scary. ?Several risks remain, and we’re still late in the market-cycle.? But, with rate cuts on the way, technicals turning up, geo-politics calming down, and nothing else happening – maybe it’s as simple as: “Laissez les bons temps rouler” == [“Let the good times roll.”]
• Tip #4: SHY = BONDS will go higher when our FED cuts rates.
• Tip #5: GLD = Will go higher as rate cuts lead to a weaker dollar.
• Tip #6: Various Gold & Silver Miners: NGD over $2.46, RUM over $6.45, EGO over $17.43, AU over $31.35, and AEM over $78.16.
• HODL’s: (Hold On for Dear Life)

-????? 13 to 17-Week Treasuries @ 5.04%

-????? Physical Commodities = Gold @ $2,546/oz. & Silver @ $29/oz.

-????? **Bitcoin (BTC = $59,500 / in at $4,310)

-????? **Ethereum (ETH = 2,620 / in at $310)

-????? HROW – Harrow Health = $38.9 / in at $12 = ~Doubled on Aug 8th earnings

-????? **MARA – Marathon Digital = ($16.2 / in at $12)

o? Weekly: BUY Puts for protection & SELL Covered-Calls for income

-????? INDA – India ETF ($56.3 / in at $50)

-????? **IBIT – Blackrock’s Spot Bitcoin ETF ($34 / in at $24)

-????? **RIOT – Riot Bitcoin Mining ($8 / in at $12.5) / Sold Sept $16 Cov-Calls

• NEW’ish ADDS:

-????? +TLT ($97.4) – Bonds: Jan ’26: +$110 / -$130 CALL Spread – hedge

-????? +SPY ($554) – S&Ps: Jan ’25: +$520 / -$500 PUT Spread – hedge

-????? +SPY ($554) – S&Ps: Jan ’25: +$500 PUT – hedge

-????? +SLV ($26.4) – SLV: Sept 27: +$25.5 / -$27.5 CALL Spread

** Crypto-Currency aware

Please be safe out there!

?

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