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Happy Monday.

This week will not be for the feint of heart.

The momentum remains negative and the earnings season is getting into full gear.

The indexes remain well below their 200 day moving averages and the US dollar keeps rising with rates. The rising US dollar is crushing stocks and putting pressure on countries outside the USA and rising rates are putting pressure on our own debt service payments at home.

Ivanhoff and I cover this and more in this weeks Momentum Monday. You can watch or listen right here (please subscribe) on YouTube. I have embedded it on the blog just below as well:

Here are Ivanhoff’s thoughts:

What a crazy week! It wasn’t a big surprise that both PPI and CPI came above estimates on both year-over-year and month-over-month basis. What was somewhat unexpected was the initial market reaction. Most stocks sold off hard in the pre-market on Thursday when the CPI news broke out. The second the market opened, all we saw was relentless dip buying all day. What started as short sellers taking some profits after the indexes went down multiple days in a row and gapped down; ended up with a full-scale short squeeze that brought SPY and QQQ back to their declining 20-day EMA. You know what happened afterward – quick and complete rejection on Friday.

All and all, we saw more distribution last week. 155 stocks went down more than 10% last week. More distribution. Interest rates keep perking up which is a big headwind for tech. 22 went up more than 10%. The minimum price requirement for this universe is $10, the minimum average daily volume is 300k. Tech was hit the hardest. Semis, cloud, internet, and mega-cap tech stocks had a new YTD low on a weekly closing basis.

The new earnings season has just begun. Expectations are already low as most stocks have been declining ahead of earnings season. This doesn’t mean that valuations are still low. Another 10-15% flush to the pre-Covid high seems like a more reasonable base for a potential bear market rally. If SPY loses last week’s lows around 348, it is quickly going down to 340. If 340 doesn’t act as major support, the next level is 320.

The silver lining for the bulls:

The silver is very grey and it is not shiny at all but here it goes. Last week, we saw some positive market reactions to the first reported earnings. Dominos Pizza (DPZ) and JPMorgan (JPM) missed estimates and still went up after their earnings. Can we see something similar for the rest of the earnings season? This was the story of the last earnings season. We will keep a close eye. Every earnings season has its pattern – be it a market reaction to earnings surprises or misses, be it notable strength or weakness in a certain industry. Finding out that pattern early on is a big source of edge for the remainder of the season.

There is still a chance for the so-called follow-through day next week if the indexes don’t go below their lows from last week and rally more than 1% on volume higher than the volume of the previous day. The problem is that there’s nothing to buy. There are almost no stocks setting up above their 50-day moving averages. For me, the availability of good stock setups overwrites any follow-trough day in the indexes. Besides, correlations remain high. Most stocks move in tandem, up and down, regardless of individual characteristics. Why would you pick an individual stock in an environment like this? If you have/want to buy something on a follow-through day, using an ETF is a viable substitute. If you want more volatility, you can pick up a triple-leveraged ETF – SPXL, TQQQ, LABU, SOXL, etc.

Keep cool and have a great week.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.

Good morning!!!!

Before I get started…I’m doing some maintenance to my website this weekend and there is a potential for some internet access issues which would take site down for 24 hours.

Onwards…

Congrats to the Padres on beating LA which is all that seems to matter to people here in San Diego and I stand with my San Diegoans.

My buddy and next door neighbor here on Coronado (Eliot) took me to the Padres game on Friday night (game three) and it was fun. I grabbed a video of the last pitch of the game.

Ellen and I have been back and forth to Coronado and Phoenix as we deal with the damages from a water leak in Coronado (a reminder you don’t own things but things own you).

Last week I was in Phoenix at the office for a few days and to give a talk at Arizona State University, my MBA alma mater in 1989, to the venture capital class of the business school. The professor Timothy Haitaian is a successful entrepreneur (redshelf.com) and he is doing it for the love of the game.

I shared a bunch of my entrepreneurial and investing stories which they seemed to enjoy and a few of my overall thoughts on what makes a good entrepreneur and investor. Back when I was in graduate school, the ASU MBA students had two highly recruited paths – work at Dial or Proctor and Gamble in consumer products or at Intel in procurement. I chose ‘stock broker’ and passed on a purchasing job at Intel.

Not one of the students had seen the movies ‘Wall Street’, Trading Places’ or ‘Back to School’ and that is a crime. I told them to head to their favorite dispensary and do their homework!

I also told them that the fact that ASU had a venture capital class was the reason that venture capital was going into a nuclear winter (not a judgement on them or their abilities).

I shared the anecdote on Twitter and Kyle Harrison had the ‘truthiness’ response of the day:

I explained ‘the joke’ and how I stumbled into ‘venture’ from my roots at ASU and that I am proof that there is no ‘roadmap’ to be an investor; that their generation was likely to be an ‘investing class’ so the more they read, write, network and build domain expertise the better.

I hope to teach a class at ASU one day myself which of course the school can’t risk.

Now to some reads and listens…

Speaking of investing movies, this old podcast with Bill Simmons and Brian Koppelman is great.

Every Friday, Tadas at Abnormal returns does his business podcast linkfest which is a great way to find some weekend podcasts worth listening. I always check it and listen to one or two.

If you have read this blog, you know I don’t trust BNPL (Buy Now Pay Later). While the SEC and FTC have had their noses on Citadel, Robinhood, confetti, Crypto, Razor Blades, Facebook etc, the BNPL lending hack has proliferated and the ‘bagholding’ has just begun as the deliquencies are set to explode. I would add sports gambling here but I am not looking for more enemies this weekend.

Have a read of Marshall Lux’s paper on BNPL.

Kudos to Jack at Square, now the ‘Block’, for ringing the bell at the top of the BNPL scheme by paying $29 billion for BNPL company ‘AfterPay’ (I call it ‘NeverPay’)…the damage so far to The Block and shareholders:

Have a great Sunday.

Good morning.

Back in 2021 Apple put a stake in the growth of Facebook and it seemed like only Facebook cared.

Facebook CEO Mark Zuckerberg has slammed Apple’s privacy change multiple times and, during Q3 results, stressed that the Cupertino-based company’s new privacy change will adversely affect small businesses.

In April last year, Apple introduced its ATT policy, which forced apps to first ask users before tracking their behaviour across different services for personalised ads. This killed the IDFA (Identifier for Advertisers) tool that is used by apps to track iOS users, leaving advertisers in the dark for having no option to offer targeted ads.

“We believe the impact of iOS overall is a headwind on our business in 2022,” Meta CFO Dave Wehner said on a call with analysts after the company’s fourth-quarter earnings report. “It’s on the order of $10 billion, so it’s a pretty significant headwind for our business,”

I think we can say that Mark was right about how their $10 billion loss was painful for more than just Facebook.

I would guess that most venture backed businesses (at least growth ones) relied on facebook ads to grow their customers. Love it or hate it, that was the way it worked.

Now companies are faced with having to pay a lot more to grow customers. It is the inflation that is not discussed when the world/media/FED discuss inflation.

The cost of customer acquisition is exploding for many.

The inflation that it is causing for ecommerce and software growth companies is a major factor in the valuation compression we continue to see.

The next generation of software engineers and venture capitalists might need to be studying marketing instead.

It’s been so long since my own MBA that when I ‘googled’ ‘The 4 P’s’…there were now SIX!

Even the p’s are inflating.

Good morning everyone…

I really like this thought from Byrne Hobart that ‘Newsletters Don’t Stay Newsletters’…

My daily newsletter, Stocktwits and my tweets have been a great way for Social Leverage to network with founders and source investments on the one hand, but I have also been exploring what else my newsletter might become or morph into as the audience/community grows.

A recent example of how writing helped us source an investment we made is ‘beehiiv‘ the newsletter platform built for growth.

I am currently transitioning my blog/homepage/newsletter to beehiiv but I already have a sense for newsletters on beehiiv that won’t stay newsletters.

One of those is ‘Exec Sum‘ (Litquidity Capital on Twitter and Instagram) and another is Milk Road’. The founders of both of these newsletters have actually now invested in beehiiv as well. Here is Exec Sums newsletter explaining why they invested in beehiiv.

As the world turns…

Have a good day.

My sisters Robyn and Fern came to visit us in Phoenix last week and it was fun (and loud) having everyone in the same house. We did a lot of hiking and eating and I have did a lifetime of the Kasrdashian’s on HULU.

I will say that I would rather give my hard earned investment dollars to the Kardashian’s (any of them) than Cathie Wood. The Kardashian’s have less drama too!

Cathie took some time away from being down 75 percent to type a letter to the FED. You can read it here. Cathie makes some points that I agree with because I too hate losing money in stocks. I do not recall her writing any letters to the FED when they printed so much money her stocks went up in the first place.

The one ‘truth’ about the markets has been and continues to be…’Do NOT Fight The Fed’. I think this letter confirms the fight she has been in.

Anyhoo, my ‘good sisters’ are off and back east in Toronto and Ellen and I have been binging ‘Bad Sisters‘ on Apple TV plus.

These ‘bad sisters’ make the Kardashian’s look like nuns.

The show is fantastic!

It’s like the Irish Dallas in the sense that everyone in Ireland wants to kill the brother in law John Paul.

I’m off to participate in yet another day of the real life drama/thriller titled ‘Bad Markets’.

Have a great day.

Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith.

I will open with a great summary riff on the health of the market from ‘Rotation Report‘…

Stocks sold off Friday on news the economy is doing too good while simultaneously selling off on news the economy is doing too poorly via AMD. That’s two Friday’s in a row where all that matters is SELL.

I call this market ‘The Dead Sea’ because it is seeking out any weakness right now.

It is going to be an interesting week in the markets.  Throwing fuel on the volatile fire will be earnings starting with the banks leading the way.

I will get right to this weeks Momentum Monday video where Ivanhoff and I lay out the negative momentum that has been building up in most markets.

You can watch/listen to this weeks show right here on YouTube.  I have embedded it below on the blog as well:

It is important to let the power of this negative momentum run its course.

Here are Ivanhoff’s thoughts:

We are in the sentiment cycle where good news for the economy is bad news for the stock market. September jobs number came a bit above estimates and the market sold off on Friday erasing most of its gains for the week. The Fed won’t pivot until it sees a significant uptick in unemployment or a decline in inflation. More interest rate increases mean a lower valuation for most stocks.

The silver lining from last week is that we might have caught a glimpse at the future market leaders. The second the market bounced, we saw quite a few biotech stocks try to break out to new 52-week highs. These are the future leaders of the next more sustainable bounce – be it a bear market rally or a new bull. The former is way more likely. I am not saying that biotechs won’t get hit if the general market has another leg lower. They will get hit but they’ll probably also build new bases to work with.

The other names showing relative strength lately are oil & gas. Most have had a tremendous bounce lately and are now back to their 52-week highs. It’s a big conundrum – higher oil prices mean sustained inflation for longer; Sustained inflation means Fed will continue to rise interest rates. Higher interest rates mean a higher likelihood of a recession next year. Recession means lower demand for oil & gas and therefore lower prices down the road. This is how the cycle usually goes. I don’t think the market is looking that far ahead. Oil companies are likely to report robust earnings this quarter and the market is discounting that.

The past few weeks were perforated by lowering guidance news from various sectors. AMD is the latest more notable example. Companies are actively trying to reduce market expectations. It could be because their business is really deteriorating at a fast pace or because they want to be able to surprise or at least look less bad during earnings season. The latter is knocking on the door. Everyone was afraid of the last earnings season. The fear of weaker-than-anticipated earnings reports was confirmed in many cases but the market reaction was predominantly bullish because of the expectations for Fed to pivot. Will we see something similar this time? So far, the data doesn’t confirm it. Let’s see how the market will actually react to earnings. Seasonally, stocks tend to do well past the mid-term elections which are in a month.

One thing is clear. The new earnings season will provide good opportunities on both the long and the short side. They might last only a few days. We will take what the market is offering.

Here are Charlie’s 10 charts of the week, on why ‘fear is good‘ and ‘living with drawdowns in your accounts‘

It feels like the markets have been trying to price in the higher interest rates and a recession. It also feels like there are some other shoes to drop that are not priced in and we get little warnings, like the UK pension liquidity scare. Ben Hunt has a great post up on the scary possibilities from the monetary policy here .

Keep calm this week.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security.

Good morning…

I have a bunch of great reads this week to share. Unfortunately, they are all pretty grim on the economy and markets. I share them today because the trend lower in stock prices seems to be gaining momentum and the authors are making sense.

Josh Brown had a great titled ‘You Weren’t Supposed To See That‘ that covers his thoughts about the Fed and Current Policy. One of the riffs:

Widespread prosperity, it turns out, is incompatible with the American Dream. The only way our economy works is when there are winners and losers. If everyone’s a winner, the whole thing fails. That’s what we learned at the conclusion of our experiment. You weren’t supposed to see that. Now the genie is out of the bottle. 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 fucking economy in half.

The authorities are panicking. Corporate chieftains are demanding that their employees return to the way things were, in-person, in-office, full time. The federal government is hiring 87,000 new IRS employees to see about all that money out there. The Federal Reserve is trying to put the toothpaste back into the tube – the fastest pace of interest rate hikes in four decades and the concurrent unwind of their massive balance sheet. Everyone is scrambling to undo the post-pandemic jubilee. It was too much wealth in too many hands. Too much flexibility for too many people. Too many options. Too much economic liberation. “Companies can’t find workers!” the media screams but what they really mean is that companies can’t find workers who will accept the pay they are currently offering. This is a problem, we are told. After decades of stagnating wages, the bottom half of American workers finally found themselves in a position of bargaining power – and the whole system is now imploding because of it. Only took a year or so.

The War on Inflation™ is the new War on Drugs. In the 1980’s they were willing to sacrifice entire cities and communities to the War on Drugs. A million brothers and sons behind bars, a million children in fatherless homes in service to some nebulous goal of a drug-free society that’s never actually existed at any time in human history. We figured out how to ferment barley to get intoxicated more than 13,000 years ago, which predates the invention of the wheel for god’s sake. The War on Drugs had less of a chance of working than Prohibition did. We went ahead and destroyed countless lives with it anyway.

Now we have a new war.

Today they’re willing to sacrifice the stock market, the bond market, housing values, anything – there’s nothing they’re not willing to do to get it all back under control. Over $10 trillion in wealth wiped out this year, a sacrifice on the part of wealthy Americans in order to ensure a return to normal. You’re hearing the term “normal” a lot these days or normalization. Normal is 2019, where the rich had unlimited options and the not-quite rich had the chance to join them someday by helping to maintain the status quo. The working poor had no options in this world but had lots of obligations. It’s just how things were. This kept the economy humming on an even keel. It was necessary. It was “normal.” It’s what the Federal Reserve is willing to crush the stock market and the real estate market in order to return to. Every time you hear a Federal Reserve official use the word “pain” they are really saying “recession” and when they say “recession”, which they are loathe to do, they are actually referring to people losing their jobs so that wage gains return to a “slower trajectory.” You are being fucked around with, assaulted with the English language and all its inherent trickery. The Greater Good requires a less good circumstance for millions of workers. Too many Chiefs, not enough Indians for the game to run smoothly.

On my first bike ride of the fall around Phoenix, Scottsdale and Paradise Valley I noticed a lot more homes for sale than before I left this summer. It’s not much data but Josh and Batnick had Zillow economist on their podcast to discuss the fastest drop in home prices since 2009.

Too many investors are looking ahead right now because they are not used to feeling market pain. I think it is more important to wait until we see the whites of the FED’s eyes and add more stocks on fresh uptrends than to try and game the FED. Bridgewater believes the FED will keep tightening until things get worse.

Last up..Stanley Druckenmiller gets interviewed on global instability.

I do not enjoy being the messenger of negativity and caution, but it seems too risky to look past it for growth at this moment in time.

Good morning …

I am going for a ride today in Phoenix on my first gravel bike.

The gravel bike is something new but it is exploding in popularity. I am excited to use a gravel bike because I want the feeling of a road bike and the ability to go off road just a bit. What is a gravel bike?

Gravel bikes are “jack-of-all-trades” bikes, said Kala Riester, a dietitian and cyclist in Salt Lake City. They have lightweight and compact frame shapes like road bikes for speed but also the low gearing of mountain bikes so you can climb steeper hills without working so hard. Most are equipped with drop bars (handlebars that curve downward, offering multiple hand positions for long rides) and are fully rigid (they don’t have soft mountain bike suspension), which makes them fast. The frames allow for wider, grippier tires — though not as large as mountain bike tires. Taken together, these features allow gravel riders to move efficiently and handle rugged terrain over long distances.

On this past cycling trip in Italy, my friend Michael rode a gravel bike up and down the mountains with us and had no problems with his speed going up and plenty more comfort going down with the wider tire.

I want the feeling of more rubber on the road especially for descents and the often dirty roads of Phoenix.

Between disc brakes, gravel bikes and e-bikes, the joy of road biking can be enjoyed well into your 70’s and I intend to be one of those people.

Gravel bikes are another reason I am bullish on the fashion and ‘software’ sector of the industry as different form fits of clothing are used which more lend itself to ‘off bike’ fashion.

At portfolio company DSTNC.com, the curated marketplace has many gravel clothing items to choose from.

Good morning…

“We get this question a lot from the enterprising young. It’s a very intelligent question: you look at some old guy who is rich and you ask, ‘How can I become like you, except faster?’” Charlie Munger

I really enjoyed this post by Frederik Grieschen titled ‘Thinking About The Next Warren Buffett‘

The media and a new generation of investors are fascinated with how to spot or become the next Buffett.

I liked this riff at the end of the post:

Asking a better question

In The Big Short, Michael Lewis described how Michael Burry studied Buffett and found that the more he learned, “the less he thought Buffett could be copied.” Rather, the lesson from Buffett’s life was that “to succeed in a spectacular fashion you had to be spectacularly unusual.”

“If you are going to be a great investor, you have to fit the style to who you are. At one point I recognized that Warren Buffett, though he had every advantage in learning from Ben Graham, did not copy Ben Graham, but rather set out on his own path, and ran money his way, by his own rules.” Michael Burry

Munger has said as much, explaining that Buffett, “the former protégé,” surpassing Ben Graham was “a natural outcome.”

“It’s what Newton said. He said, ‘If I’ve seen a little farther than other men, it’s by standing on the shoulder of giants.’”

Speaking of giants, during the 2019 annual meeting Munger was in a chattier mood. He shared one of my favorite little stories:

Munger: “Young lawyers frequently come to me and say, ‘How can I quit practicing law and become a billionaire instead?’ I say, well, it reminds me of a story they tell about Mozart.

A young man came to him, and he said, ‘I want to compose symphonies. I want to talk to you about that.’ Mozart said, ‘How old are you?’ ‘Twenty-two.’

And Mozart said, ‘You’re too young to do symphonies.’ And the guy says, ‘But you were writing symphonies when you were ten years old.’

He says, ‘Yes, but I wasn’t running around asking other people how to do it.’”

This is a key point. The next Warren Buffett, whoever they are, will not be afraid to ask the question that is on everyone’s mind. But they will also not be sitting in the audience waiting to be handed enlightenment. They will not be content to adopt their teachers’ methods and ideas. They will, to quote Bruce Lee, “reject what is useless” and add what is uniquely their own.

They will be on a quest to surpass the masters of prior generations. And they will be a joy to discover, follow, and study.

Have a great Friday.