In Today's Issue:

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• Why paying attention to seasonality is harmful to your wealth
• Why I"m considering a long term position in Bitcoin
• What Jensen Huang has to say about AI power generation
• A couple of new names for my watchlist
• And more......

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Edges

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One key to finding edges in the markets is avoiding anti-edges. ESG is an anti edge from the standpoint that whenever you are using non financial decisions to buy stocks you are using a sub optimal approach. Could you outperform from time to time? Sure, but it's more luck than any alpha. I just pulled up the returns of a random ESG ETF, iShares ESG Aware MSCI USA EFT (ESGU). Top holdings are AAPL, NVDA, MSFT, AMZN, META, GOOG. 6 of the Magnificent 7. Even with that it has still managed to slightly underperform the S&P since inception.......

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House Passes Bills Limiting ESG And SEC Rules Amid Growing Debate‌ ‌-Zenger

On Wednesday, the House passed HR 5339, which would revert a retirement plan rule back to standards passed by the Trump administration, “requir[ing] fiduciaries of employer-sponsored retirement plans to make investment decisions based only on pecuniary factors.

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Is ESG Inherently Flawed? HBO’s Industry Wants Viewers to Decide-Bloomberg

ESG, says one character on Industry less than a half hour into the show’s third season, is nothing more than a “utopian opiate for morons who believe in a better world.”

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Never been a big fan of the larger seasonal stuff like sell in May and go away. The fact that the 5 past September's have been down is also probably meaningless. I am not averse to the idea that you can find edges using some sort of seasonal analysis, just don't think getting out in September is an edge.....

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Stocks climb on week, with S&P 500 on pace for first September gain in 5 years-MarketWatch

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And no, I don't think you should put any stock in the Halloween Indicator.......

‘Sell in May’ was a costly mistake. Should you buy stocks now at record highs?-MarketWatch

Should followers of this seasonal pattern stick to their guns and avoid stocks until Oct. 31? Or do they throw in the towel now? And if so, should they jump back in immediately or make a bet on which day is just right to do so?

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Having portfolio hedges and designing your trades with asymmetrical risk means that you really don't have to pay attention to this crap.

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Target date funds are the opposite of an edge.....

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Vanguard to Settle Target-Date Fund Lawsuit-Barron's

Vanguard plans to settle an investor lawsuit over changes it made in 2020 to target-date funds that customers say left them with “massive tax bills.”

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Lot of data this week, most important is Non Farm Payrolls on Friday. Often ahead of these releases you will see volatility spike, which can create some opportunities in SPY options to be able to sell high vol and buy low vol. Not sure this number will have the same amount of fear around it but will be watching the implied volatility this week.

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No Edge here either.....

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A 60/40 Portfolio Worked Well for Over a Century. It’s Flashing a Warning Now.-Barron's

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The traditional 60/40 split between stocks and bonds, respectively, has faded in and out of fashion over time, most recently dogged by rapid inflation, yet it remains the classic model for a portfolio.

Themes

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Bitcoin

MSTU

BTCZ

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Starting to take a hard look at Bitcoin. Something I actively trade but considering this as a longer term theme. With the Fed easing and the PBOC throwing the kitchen sink at it's economy I think Bitcoin could be a major beneficiary. From Jefferies this morning on Central Banks:

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The central bank stance still makes a positive environment for risky assets, though we are increasingly getting concerned around geopolitical risks. We expect the Fed to deliver a 50bp cut in November, ECB a 25bp cut in October and BoE a 25bp cut in November. These cuts are being delivered in an environment where the economy is still doing fine, and we do not see a hard landing or recession in US, Europe or the UK.

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So far this morning there's a nice dip which makes it even more interesting. Some interesting charts this weekend from the Virtue of Selfish Investing Newsletter.

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Bitcoin’s on track for its best September ever, thanks to China’s stimulus measures -MarketWatch

Bitcoin was on track to record its best September performance in history, after China’s government this week announced a series of stimulus measures to support the economy, while traders expect the Federal Reserve to deliver further rate cuts this year.

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I would construct these as asymmetrical risk trades, especially with the volatility I would expect from Bitcoin. A number of ways you could do this:

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1. Buy a Bitcoin ETF (Levered or unlevered) and buy a put
2. Buy an outright call
3. Do a call credit spread on a 1x to finance a call on a 2x
4. Call ratio spread

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Self Defense

GUNZ

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One of the main reasons I love the self defense theme......

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AI

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But a lot of those areas are second order AI names. This just highlights why you need to broaden out your thinking relating to any theme. The first money will be made in the obvious names like NVDA. After that, what are the second order companies who benefit?

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The Stock Market Isn’t All About AI Anymore-WSJ

In the third quarter, broad swaths of the market, from utilities to industrials to financials, trounced the powerful technology sector. Value stocks beat growth stocks. Small-capitalization stocks emerged from their torpor to leave their large-cap peers in the dust.

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AI Power Generation

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This guy may know a thing or two about AI power generation.....

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AI Chips

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2 Stocks to Buy After Micron’s Blowout Earnings-Barron's

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For those who don’t want to chase the rally, there are entry points in the shares of two companies tied to the same trend boosting Micron.

Familiar with TER, not COHU. Really do like this COHU chart.......

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Only problem for me is it looks like the options trade by appointment only. I will only buy if I can get the options, will keep an eye on it.

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TER chart not as nice, looks like it wants to fill the gap here, going to add this one to my watchlist as well.

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China

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This could explain some of the violent moves,,,,,

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From Jefferies on China...

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We see the stimulus measures more as a market impact than an economic impact at this stage. Market was underweight China and the recent rally makes sense. Market was also underweight consumers and luxury good in Europe, which should see the largest turnaround. The stimulus measures should also be positive for industrials and mining stocks. Another way to play the China stimulus story is via commodities and SE Asia - both of which already have structural supportive factors and China stimulus should add to the positive view.

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Asymmetrical Risk

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Talking about risk management isn't nearly as sexy as talking about making big bets and lots of money. The problem is that if you don't control the risk first and foremost you will eventually be taken out on a stretcher.......

The Giant Hedge Fund That Hates Risk and Still Wins-WSJ

Protecting itself against even modest losses has made Millennium one of the most stable performers in the hedge-fund industry and made Israel “Izzy” Englander, the firm’s chief executive, a billionaire. Millennium has generated $56 billion in gains for investors after fees since the firm’s inception in 1989, according to LCH Investments. Among hedge funds, that trails only Citadel.

Millennium has had a single down year, 2008. Over the past five years, it hasn’t lost more than 1% in any given month.

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Hedges

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Is it time for a short in Japanese stocks (EWJ)? Probably not with global central banks juicing the market, but something I am going to be keeping my eyes on....

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Japanese Stocks Slide on Fears New Prime Minister Will Be Less Market-Friendly-WSJ

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