Hey guys, welcome to another edition of the Magnelibra Markets. Today’s episode #57 is entitled “MEGA8s Seeing Liquidations and Diversifications Out”
Quick Disclaimer: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
Alright, hope everyone had a fantastic weekend, I just wanted to touch upon a few interesting items today and of course will have all the settlements and MEGA8s updates for you as well.
The first thing we want to talk about today is the major outperformance of US equities vs the rest of the world. Goldman put out this data and chart and we are sharing it here, via X:
The first thing you will notice is that the majority of upside over the last year has certainly been reflected in the US equity prices and total market cap which is now above $60 Trillion!
In fact its amazing that the US Dollar isn’t stronger than what it is considering this kind of data, but maybe its about to play catch up! We also heard NewEdge CIO Dawson on Bloomberg talk about this major outperformance and she is undoubtedly always optimistic as she should be. Historical trends are on her side and this chart is clearly evidence of that.
One thing that I am concerned about is how the markets are going to continue to absorb the MEGA cap selling that we are seeing. Here is the recent data that I have compiled and it is quite obvious where the monetization and diversification out of is coming from:
Microsoft is -32.8% (not 36.1%), Google -27.3% and Apple -20.5% in regards to the change in their market cap today versus its highs. These are significant selloffs and a product of both diversification out of these highly concentrated assets but also a product of insider and shareholder monetization. [These values derived from taking the total net change in US dollar value of the market cap from May 10th 2023 and dividing by the highest value net change of market cap in that same time period.]
I often speak of monetization as an important facet of today’s market place. Most people look at it as selling but I look at it as investors simply doing the prudent thing of realizing their capital gains. Remember investing is a zero sum game, someone sells and someone buys, the biggest difference obviously being investors capability in regards to access to leverage. It is a zero sum game with a leverage multiplier. It is within this leverage component that is difficult to quantify. The best and only thing I can do as an analyst is look at overall relative pricing and subsequent asset movements.
This is truly why data, extrapolation of data and then interpretation must be backed up by solid analytical processes. This is what I am trying to teach all of you, to look at things not so black and white, but rather manufacture a mindset that breaks down prices in a way that makes sense!
Ok so we know the US markets are clearly in favor, we know the US Dollar has put in a strong move and we know there is diversification going on. All in all the indexes are holding up well, however we know the Nasdaq futures lost everyday last week, something that is truly a rare occurrence. We highlighted last week the importance of some of the support levels in the Nasdaq and SP500 futures and both of which settled well below those support levels on the weekly charts:
Expect these markets to be better sellers on any upticks near those resistance levels now. The bulls have their work cut out for them now this week so expect up days to be perhaps followed by profit taking as the week goes on here.
When we take a look at last weeks settlement sheet, it was clearly a profit taking week in equities and nearly every market we cover was lower on the week, with the exception of the US Dollar, Bitcoin and Nat Gas on the heels of anticipation of Russian gas cut offs in the EU:
As far as the overall settlements from last week:
US government bonds continue to push a bit higher in the long end, but the selling in the US bond market seems to have slowed a bit and yields have backed off here so far today as evident by the US Govt 10yr but I won’t get over confident in a yield roll over unless we see 4.36% broken thru to the downside:
With yields rising and the FOMC cutting rates, we continue to see the transition of the negative carry situation that we have been in for nearly 2 years now!
Keep this chart handy, because it is very important. You can see the historical precedent for when we move out of negative carry and back into a more positive environment in regards to this spread. Note the years 2001 and 2008, this is highly significant and something I will continue to follow for you guys in 2025.
Ok let’s take a look at the MEGA8s, we have updated and cleansed some of our data and here is the update look at the MEGA8s we have been tracking. Berkshire and Tesla the only positives on Friday with META dropping 4% and Amazon -4.2%. The overall market cap is now down almost $500bn or 2.6%, certainly nothing to be alarmed about. This week the hedge potential for this grouping is the 11/22 expiry 506Calls at 3 or better. As of this podcast the high today was 3.15:
As far as the total market cap chart we can see the dip into support here this week:
Nvidia reports on Wednesday after the close, this is honestly the big news of the week, with consistent beats, this one could really set the tone for the markets! We will look at it a bit closer tomorrow but the 11/22 options using the 140 strike showing a breakeven move of about a $12.70 move or 9%. Massive call interest at $150 and above and some decent and recent open interest increase in the 125 puts at $1.50. $133 is our line in the sand for the bulls to defend, below there should see continued profit taking:
Another item I wanted to touch upon was MicroStrategy, we continue to see Michael Saylor all over the place and we can’t help but think things are getting a bit too optimistic. We know MicroStrategy is swapping US Dollar debt into Bitcoin, i.e. selling debt to accumulate Bitcoin. Yes this strategy is at the core of Saylors thesis that fiat is no match for the long term valuation vs Bitcoin. Yes he is correct and yes fiat is always debased, however that doesn’t mean the ride will not be without bumps! Take a look at the Dollar Cost average chart of MicroStrategy’s Bitcoin purchases:
It is pushing up toward the mid $40k area. So yes he looks like a genius for now. However I believe if Bitcoin should ever turn around, that large predatory hedge funds that are well capitalized could push the price of his stock down to a level that would threaten or force liquidations in his overall Bitcoin position. Not only that, it may be a double edged sort of attack on both Bitcoin and his equity. I am not saying this would occur, I am rather pointing out what should be obvious to many when companies take on levered positions in any asset! This just seems logical to me, so if indeed Bitcoin does start to retreat, well this stock and the price of Bitcoin gets very interesting at about $50k now!
Ok that is it for now, we hope you learned something here and we hope you continue to like, share and if you can subscribe to my work. $20 a month is not a heavy price to pay for the knowledge and data that we impart. In fact we rely on the subscribers to support our work as a testament to good faith, that they are getting something of value in return. We believe you are and if we take a look at the days in a month and divide by $20 well, that comes out to $0.67 cents a day! Its not glamourous but when you think of how many people used to pay 50 cents for a newspaper with yesterday’s news, well there you have it! Maybe I should include a crossword puzzle everyday in here, that might entice a few! Hah just kidding, we know we are giving you a lesson in analyzing current markets and expanding your thinking so we know it has value! Till next time, cheers.
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