Daily JAM

Bookkeeping: I added NVDA, MSFT, and Adobe to my Volatility Portfolio on March 24

Bookkeeping: I added NVDA, MSFT, and Adobe to my Volatility Portfolio on March 24

In Step #3 of my Special Report: 5 Moves for the Next 5 Months, on March 24 I added three Big Tech stocks–Microsoft (MSFT), Adobe (ADBE), and Nvidia (NVDA) to my Volatility Portfolio ahead of earnings season. My theory, explained in that post was that we were facing a tough earnings season for most stocks and that reliable earnings growth from Big Tech would make those stocks look like a safe haven in a period when the Standard & Poor’s 500 as a whole was projected to show a drop in earnings. (I also owned up to my mistake in selling Nvidia back on February 16. That was just wrong. More on why I was wrong and why I’ve changed my mind on that in a post tomorrow or so.)

Please Watch My New YouTube Video: Quick Pick Shackles Schwab Put Options

Please Watch My New YouTube Video: Quick Pick Shackles Schwab Put Options

Today’s Quick Pick is Charles Schwab (NYSE: SCHW) Put Options. Put options will become more valuable as the stock goes down in price. This has been a lousy year for Schwab with the stock currently down about 34% YTD. The reason for this is Schwab makes most of its money on the interest rate spread. Schwab stashes “excess” cash in customer accounts in sweep accounts that pay a very low rate of interest, and Schwab invests that cash in Treasuries, mortgage-backed assets, etc. at higher yields. This works when the overall rate of interest is low because customers have a relatively small incentive to actively move their cash to higher-yielding vehicles. When the Fed raises interest rates, however, some people who had formerly kept their money in these low-return accounts will move their cash to higher-yielding alternatives (often still within Schwab.) This reduces the interest spread that Schwab collects since the company now has to pay more in interest to retain those customers. In addition, Schwab invested that cash in long-term Treasuries and mortgage-backed assets, leaving the company sitting on a lot of unrealized losses in its bond portfolios as bond prices fell as interest rates moved higher. I question whether or not Schwab will be able to meet analysts’ expectations and/or warn on future results when it announces earnings on April 17. I would suggest Put options before the announcement. I added the May 19 Put to my Volatility Portfolio yesterday. For more options plays, subscribe to JubakAM.com.

Please Watch My New YouTub Video: Complacency Is Rising–Again

Please Watch My New YouTub Video: Complacency Is Rising–Again

Today’s topic is: Complacency is Rising – Again. I’ve been following the VIX closely throughout the recent market turmoil. The VIX is often called the “Fear Index” as it measures how much people are willing to hedge against the S&P. As you can imagine, the VIX shot up with the recent bank scare but has been coming back down again recently. The market has decided very quickly that the banking crisis is no longer a problem and they just aren’t all that worried. Similarly, the ICE Bank of America Merrill Lynch MOVE Index (^MOVE), considered the “VIX of the bond market,” showed a big jump during the Silicon Valley Bank and Credit Suisse problems, but has quickly started to come back down. These are two areas where I would buy a call option if they get low enough. I will not buy puts on these because I don’t think this volatility is over. Go to JubakAM.com to follow my volatility and options portfolios.

Housing contracts rose in February; market says “maybe” a housing bottom

Housing contracts rose in February; market says “maybe” a housing bottom

Contracts to buy U.S. previously owned homes increased for a third straight month in February. On Wednesday, the National Association of Realtors said its Pending Home Sales Index, which measures signed contracts, rose 0.8% last month to the highest level since August. Economists polled by Reuters had forecast contracts, which become sales after a month or two, would fall 2.3%.

More economists worry about Friday’s PCE inflation report

More economists worry about Friday’s PCE inflation report

Now it’s not just the Cleveland Fed’s NowCast that’s pointing at problems in Friday’s PCE (Personal Consumption Expenditures) index inflation report. Economists surveyed by Bloomberg project that the core PCE index–that is excluding food and fuel prices–climbed 0.4% in March from February. Year over year, the core PCE index is projected to be up 4.7% with the all-items rate up 5.1%.

Oil rallies, finally

Oil rallies, finally

Oil rallied today, Monday, March 27, for the first time in, well, quite a while. Oil is likely to finish with a loss in March, for a fifth monthly drop. So today’s move, which saw West Texas Intermediate jump by almost 55, marked quite a shift in direction.

Please Watch My New YouTube Video: Trend of the Week Is a Minsky Moment Ahead?

Please Watch My New YouTube Video: Trend of the Week Is a Minsky Moment Ahead?

This week’s Trend of the Week is Minsky Moment Ahead? Hyman Minsky was an economist who studied credit cycles. Minsky died in 1995, but in 1998, during the Russian Ruble and Asian Currency Crises, economist Paul McCulley recognized the situation was one described by Hyman Minsky, and dubbed it a “Minsky Moment.” A credit cycle starts when credit is abundant and banks are lending generously and gradually taking bigger and bigger risks. Eventually, an event like the Silicon Valley Bank failure hammers the banks, causing them to pull back and tighten their lending to a greater degree than at the start of the cycle. It’s a classic case of locking the barn door after the horses have escaped. Once the crisis is in place banks tighten their lending standards and this causes a constriction of credit when the economy really needs credit–a Minsky Moment. Right now, there are a lot of contractionary forces at work in the economy, including the Fed’s raising of interest rates while selling off some of its balance sheet. The two areas that will likely be hit hardest by these contractions and the Minsky cycle are emerging markets, which are having trouble repaying debt from lenders such as China that are not willing to renegotiate, and the start-up market, where private companies are finding it harder to raise enough capital to keep their companies going. If you’re holding emerging markets stocks or new tech stocks with an eye to the future, make sure you’re comfortable with where they are presently, and watch that they’ve been able to secure the funding they need. Be careful out there.

The Search for the Next Shoe to Drop in the Bank Crisis Goes On: What About Commercial Real Estate?

The Search for the Next Shoe to Drop in the Bank Crisis Goes On: What About Commercial Real Estate?

Officials from the White House, the Treasury Department, and the Federal Reserve, are huddling over risks to the banking systems from the $20 trillion market for commercial real estate. Analysts told the Washington Post that this market could be heading for a crash over the next two years thanks to higher interest rates and continued softness in demand after Covid shutdowns. One reason that this market is getting extra attention is that regional banks, already under pressure from problems at Signature and First Republic banks, play a big role in this market for loans to commercial real estate.

Venture capital financing dries up

Venture capital financing dries up

It’s not like it was easy to find venture capital financing before the collapse of Silicon Valley Bank. It’s just that now finding money to fund a startup or raising a round of follow-on financing has gone from difficult to almost impossible. In the last three months of 2022 venture capital funding fell by 61%, according to Pitchbook. Now many more venture capital investors are sitting on the sidelines.