This Week in Barrons: 12.29.2024

• Leading is done best … when it’s side-by-side.  Corporations are a bitch to manage.   (a) Groups are really good at noticing when they’re out-of-synch, and it just takes one mis-step to completely change group perception. (b) If every individual waited for their group leader to go first, every subsequent entrance and movement would be muddled.  People need to move when it’s time to move, and not wait-to-follow. It’s the coordination of attitude and tempo that create the magic.

• It’s NOT your secret recipe that keeps customers coming back.  It’s the way you support them in Public that makes all the difference.

• 10 stocks account for an all-time high 40% of the S&Ps (SPX).  These familiar names (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA + NFLX) have continued to keep the major averages higher.  The sector leaders (and followers) for the year are:

  - Communications (XLC) is +35% YTD,

  - Consumer Discretionary (XLY) and Financials (XLF) +28%,

  - Technology (XLK) +23.7%.

  - And then there’s: Healthcare (XLV) at +2%,

  - REITs (XLRE) +1%,

  - Energy (XLE) 0%, and

  - Materials (XLB) down -1% YTD.

• Sriram Krishnan == U.S. Senior Policy Advisor for AI ... will focus on ensuring continued American leadership in Al, and help shape and coordinate Al policy across Government entities.

• Meta’s 2025 update to their Ray-Ban smart glasses … will include the display.

• Honda and Nissan, are formally exploring plans to merge … The move would create the world's third-largest car mfr. after Toyota and Volkswagen.

• Nordstrom to go private in an all-cash $6B deal … backed by its founding family and Mexican retailer El Puerto de Liverpool.

• Kilauea volcano erupted on Hawaii’s Big Island … and volcanic smog spread over parts of the island.

• Lego isn’t the only toy company that’s soaring … Games Workshop (Warhammer) has managed to land itself on the FTSE 100 after a stellar year.

•  Rumors have DJT rolling out … a U.S. Bitcoin stockpile and/or guaranteeing access to crypto banking on Day 1.

• If it wasn’t for crypto … everybody would be talking about precious metals. Gold made new all-time highs in 2024, and it’s predicted that silver won’t be too far behind.

• A 2025 Thought on Housing:  (a) RATES: Mortgage Rates do not automatically fall when our FED lowers interest rates.  Long-term Treasury yields fluctuate largely based on investors’ expectations about economic conditions and growth, and now on the shorter-term whims of our FED.  In fact, mortgage rates have climbed 100bps since our FED started lowering rates by 100bps in September. 

• Tip #1: I could see mortgage rates falling from ~7% to 6.34% later in 2025.  If rates fall more than that, it's likely because the labor market weakened more than expected.  And if mortgage rates are higher than that, it’s likely that the labor market proved more resilient than expected.  (b) PRICES: Home prices would come down if the U.S. drops into a mild recession and/or the housing market weakness would spread across the U.S. - allowing a lack of demand to bring prices more in line with traditional norms.

• A 2025 Thought on ‘X’:  What if: X gets bought by xAI – Musk’s increasingly valuable artificial intelligence startup.  It would provide an exit strategy to X’s investors, who likely don’t have too many other options.  And X’s data could be used to train the models developed by xAI. And, if Musk remains a central figure in the new Trump admin., X could basically become a state-run media network.  When Trump is trying to gain support or reject a specific policy, all of the debates could play out on X first.

• The Santa Claus Rally is toast … Mega-cap tech was punished at the end of last week.  Markets are technically higher on the week, but the volatility that accompanied that move was alarming. 

• Correlations are becoming extreme … and are scaring me as we move into another holiday-shortened week of trading.  In all of the previous moves lower, there was not a +90% correlation to be found – until last Friday.  Before Friday, it was always Mega-cap tech vs Energy (XLE) + the Financials (XLF).  When mega-cap tech’s decline hit +3% on Friday, everything became correlated to the downside, and the wheels to our markets started to come off.  There was: “No Place to Run, and No Place to Hide.”

• Sector rotation may be over? As big-tech was getting destroyed – everyone looked toward the financials and energy for a sector rotational move higher, but only found more selling.  In a highly correlated marketplace, the moves will be exaggerated and volatility will move higher in chunks.  This coincides with interest rates being at their highest levels in the last 18 years (since 2007).  I’m still waiting for the bond market to take-off to the upside.

• Where are the weak sectors?  In the past 2 weeks, the Russell completely undid all of its Presidential Rally, and the DOW is back where it started in October.  In the past 2 weeks: Homebuilders (XLB) are down -20%, Materials (XLB) -14%, Industrials (XLI) -12%, Utilities (XLU) -11%, and Healthcare (XLV) -15%.  But all the sector-rotation in the world won’t save our markets, if big-tech continues to sell-off.  The one investment island that has (thus far) been unscathed – is Apple (AAPL).   

  Tip #2: If you’re looking for a short, look no further than: AAPL, AMZN, GOOGL, AVGO, and META. 

• Check the Volatility … We have incredibly high SKEW (~173 = OTM Puts / OTM Calls).  The VVIX cracked the $114 level, and the VIX ended around $16.  Next week is a full 4-day trading week. 

• SPX Expected Move (SPX = $5,059):

  - Last Week: EM = $101 on a week that had 3.5 trading sessions.  And, we tagged the upper edge of the Expected Move on Thursday.

  - Next Week’s EM = $85. 

   

  I’m looking for a bounce above 6,000 on the S&Ps next week, but the first 20 days of January could see more volatility and repositioning of portfolios. 

  Tip #3: If you wish to take some profits on your crypto holdings and reposition those winnings into a quieter ‘bond fund’ – next week should offer you that opportunity. 

• Late last week, the Santa Claus rally got body-slammed.  Someone woke the Bear and violently sold the NAS into the ‘Bidless Zone’.  Bonds weren’t catching a bid, and when money chooses US Dollars over Treasuries – you know something’s gone awry.  The issue I’m seeing now is complete correlation.  When everything’s moving in the same direction at the same time == “Danger, Will Robinson – Danger!”

  Tip #4: If you’re in search of dividend yields try:

  - Oxford Lane Capital Corp (OXLC) = YIELD == 22%, and

  - Octagon Floating Rate and Income Trust (XFLT) = YIELD == 14.1%

• HODL’s: (Hold-On for Dear Life)

  - ICSH == iShares Ultra Short-Term Bond Active ETF (6% yield)

  -  Physical Commodities = Gold @ $2,636/oz. & Silver @ $30/oz.

  - Bitcoin (BTC = $95,000 / in at $4,310)

  - Ethereum (ETH = 3,390 / in at $310)

  - IBIT – Blackrock’s Spot Bitcoin ETF ($53.6 / in at $24)

  - ETHA – Blackrock’s Spot Ethereum ETF ($25.2 / in at $20)

  - GLD – Gold ETF ($241 / in at $212)

  Options for Income: **RIOT / MARA – Bitcoin Mining

  - Bi-Weekly:  BUY the Stock

  - BUY Puts 1 Std. Dev. OTM for protection

  - SELL Covered Calls ½ Std. Dev. OTM for income

  Crypto Alts: (Results for last 30-days)

  - Aave (AAVE = $337 / in at $155)

  - ChainLink (LINK = $21.6 / in at $11.15)

  - Uniswap (UNI = $13.3 / in at $9.10)

  - Doge (DOGE = $0.32 / in at $0.22)

  Please be safe out there!

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