RF's Financial News

RF's Financial News

Sunday, June 17, 2018

This Week in Barrons - 6-17-2018

This Week in Barrons – 6-17-2018:

“Harry doesn’t know how to fail.” … Ben Affleck – Armageddon (1998)

“Harry doesn’t know how to fail.”
   We are born with 2 fears: (a) a fear of falling, and (b) a fear of loud noises.  All of our other fears and phobias are learned.  The ‘fear of failure’ is an acquired behavior.  If you have been taught to ‘fear failure’ – then shame on you because you should embrace it (as Harry does) as one of the most powerful teaching methods we have in our arsenal.  People like Armageddon’s Harry Stamper – have learned how to quickly recognize failure and turn it into an opportunity.  When I was growing up, my younger brother (who eventually had his day-in-the-sun pitching for the Philadelphia Phillies) – replaced me on our high school baseball team when he was only a freshman.  Did I fail? Yes.  Was my younger brother a much better baseball player than I?  Yep.  Did I (right then) force myself to look in the mirror and admit that he was the better man for the job? Yes.
   As I listen to the latest vocabulary, it seems that we’ve replaced:
-      ‘Failure’ – with ‘Pivot’,
-      ‘Winner take all’ – with ‘Trophies for all’, and 
-      ‘Let them battle it out’ – with ‘Culturally inclusive’.
   As difficult as it was for me to embrace failure, I noticed that we’ve completely abandoned teaching that concept.  Our youth are growing up fearing failure, avoiding conflict, and not understanding how to deliver bad news.  [HINT: It’s NOT via text, snapchat, Instagram, emoji, or e-mail.]  
   As part of the university classes that I taught, I always had the team captains tell me their best and worst teammates.  Then I would ask both of those people to comment on their captain’s decision.  The captains would quickly report the best person, but would always delay reporting the worst.  Some captains would tell me that there was NO worst person, or that it was a tie.  At which point I would nicely inform the captain that he would be failing the course, and those other un-named members would be given A’s.  Then the captain would quickly report a name.  After repeating this several times I noticed:
-      All of the excuses for not saying best or worst went away.
-      The best people knew who they were, and appreciated the recognition.
-      The worst people also knew who they were, and had often self-selected by not even showing up for team’s meetings, etc. 
   By forcing someone to consistently choose, taught them to:
-      Quickly recognize and embrace failure,
-      Constantly perform evaluations,
-      Always be ready to deliver bad news, and
-      Since 90% of a company’s productivity comes from 10% of its people – stop putting so much worry into a decision that everyone knows and the other person really doesn’t care about anyway.

   This is why the cheerleading situation in New Jersey is so intriguing to me.   Recently in New Jersey, a girl couldn't make the cheerleading squad.  The coach had an objective scoring system that included: strength, jumping ability, choreography, etc.  The young lady just couldn’t cut it – so herparents complained.  The complaint caused the school board to remove control from the coach, and change the selection criteria: “To facilitate a more inclusive program.  The various cheerleading squads will be modified to allow ALL interested students the ability to participate.  This decision was made in the best interest of all students, and was made to be as inclusive as possible.”  I wonder, how fair that sounds to the ‘winners’ – the people that worked hard for their position?  Maybe I’m weird, but I actually believe I’m a better person because they gave my spot to my brother – the better athlete.
   The New Jersey community responses were swift:
-      Stephanie Krueger (a student) said: “All the time I’ve spent in the gym practicing for the past decade, constantly flipping, jumping – was all suddenly gone.  I can’t believe all of my hard work was just dropped.  It’s like telling your star varsity football player – that they can’t play anymore because we want to make it all inclusive.  I won’t work that hard again.
-      Sharon Lossa (a parent) said: “I think this is a bad precedent because this isn’t the way the world is.  Everybody doesn’t get a trophy.  You can’t play for the New York Giants just because you like to play football.  What about life?  What about getting a job?  Are you always going to have your mom and dad come and hold your hand?”  
-      Amy Rega (a cheerleading alum) said: “I was head cheerleader and my sister didn’t make it. My mom told her: ‘You’ve got to work harder.'”
-      Lisa Kretschman (a cheer coach) said: “This change will make it less likely for colleges to recruit cheerleaders from this high school.  It’s a shame.”

   What kind of embracing failure message are we teaching our youth when we can’t even do it ourselves.  PersonA, worked her hardest to be the best and made the squad.  Person B whined about fairness, and got her parents to bitch in order to make the squad. Is that fair?  Nope.  Is that a cultural revolution?  Nope. It’s pure fear of failure and running away from conflict.  Schools will eventually run out of funds  for their ‘more inclusive’ desires.  That’s when they will cancel programs because they won’t: “man-up”, “grow a pair”, or “put on their big-boy pants” – and will certainly never become Harry Stamper by pressing that button.

The Market:

Info Bits:

-      World Cup started this week – teams to watch:

o  Germany: The defending champs, and favorites to win this year.
o  Spain: The 2010 winners, but they just fired their coach.
o  Brazil: Enjoyed a record qualifying season under a new manager.
o  France: Has the best crop of young players in the tournament.
o  Iceland and Panama: The newbies.
o  And Egypt: Making an appearance after a 28-year hiatus.
-      “Here’s the Green Light.” Is what the judge said to the $85B AT&T – Time Warner merger this week.  AT&T is buying media company Time Warner including: HBO, Warner Brothers, and CNN.  Last year, the DOJ sued to block the deal, but the companies argued that it would allow them to better innovate and compete against Google and Netflix.  The deal will close by the end of the month, and will signal more vertical mergers.
-      “Did you hear that?”  It was Comcast rushing to fill suitcases with cash so that it could make it’s $65B offer for 21st Century Fox.  This is the same property that Disney is already bidding on.  The media landscape is rapidly changing, and the markets are pumped.  Unfortunately, the DOJ is not as excited – so don’t be surprised if this issue ends up back in court.
-      “That PPI is smokin.”  Wednesday’s Producer Price Index came out inflationary hot with a headline gain of 0.5% and a core gain of 0.3%.

Crypto Bytes:
-      Ethereum is NOT a security … mic drop.

   The week ended with the financial markets being rattled by the perception that the trade war between the U.S. and China has officially begun.  President Trump announced the imposition of tariffs on $50B worth of Chinese imports, and China’s Ministry of Commerce responded swiftly saying they will launch tariffs on American goods in “equal scale and strength.”  For the week the DOW ended down (0.9%), the S&P up 0.01%, and the NASDAQ higher by 1.3%.
   Some of this week’s notables were:
-       U.S. – North Korea Historic Summit:President Trump and N.K.’s Kim Jong Un met on June 12thin Singapore – pledging to work toward complete denuclearization of the Korean peninsula.
-       FED Raised Interest Rates:This week the FED increased short-term interest rates from 1.75% to 2%.  They cited our growth rate, low unemployment, and higher inflation as contributing factors to the decision.
-       Net Neutrality Rules Expire:On Monday, ISPs (Internet Service Providers) now have the ability to slow, block or offer paid prioritization to some websites as long as they disclose their practices. 
-       Shares of Netflix climbed 3.4%to a new all-time high after the media buying frenzy initiated with the AT&T – Time-Warner merger approval.  Many CEOs of legacy media companies believe that the future of pay TV is getting dimmer due to Netflix.  One of the main reasons why Netflix rules over traditional media is because of its global viewership that is increasing at an unprecedented pace.
-       FOX remains a formidable force regardless of the winner for the Fox pieces (Disney or Comcast).  The remaining FOX assets will include: Fox News, Fox Business, Fox Broadcast Company, Fox Sports 1 & 2, Big Ten Network, and around 28 local TV stations.
-       In terms of Canadian marijuana, most of the Canadian Senate’s sweeping amendments to Bill C-45 were accepted by the federal government.  However, the Senate wanted to give the provinces and territories the power to ban home-grown marijuana; to prohibit pot producers from distributing branded merchandise, and setting up a registry for shareholders involved in marijuana.  The government disagreed and rejected these points outright.  The bill is on its way back to the Senate who will have to decide whether to accept the will of the House of Commons or engage in a protracted parliamentary battle.

   Last Friday, we experienced serious selling due to a ‘combo platter’ that included: tariffs, upside resistance at 2800, and the most ‘insider selling’ since 2007.  Every time a market gets really stupid, as it did in 1996 - 2000, and 2004 - 2007, people start to dismiss thoughts of this joy ending and another bear market emerging. Our FED, the ECB, the Bank of Japan, the Swiss National Bank, the Norwegian Wealth Fund, and a ton of other sovereign funds that have printed money and bought stocks and bonds at a furious pace for the past 9 years – are stopping or slowing.  Stock values have risen for two reasons: (a) stock buybacks, and (b) Central Bank printing.  To those who suggest that it’s all about corporate earnings, I’ll refer you to the ‘fake numbers’ created by corporate non-GAAP (Generally Accepted Accounting Principles) reporting which has overtaken every S&P 500 company.  If rates continue higher, and Central Banks continue reducing QE – then stocks are going lower.  
   Our FED is increasing its number of rate hikes, and is talking about cutting their balance sheet by not rolling over their interest income into buying more corporate paper.  Mario Draghi of the EU is saying that rates will remain low through 2019, but that they will reduce their QE from 30B a month to 15B a month in September – and to zero by January.  Debt is tougher to pay back at higher rates.  Without QE, companies will be leaving more ‘junk’ on their balance sheets.  This market stumbled in January, and that was in response to very little in the way of rate hikes or QE reduction.  Those January highs are still in place. 
   Insiders are selling more stock than at any time since 2007.  The ‘smart money’ index is showing more selling than in almost a decade.  That's why we see these big volume down days, and light volume up days.  The S&P is struggling with 2800 – which is where it stalled back in February and March.  We could fail here, or we could push through and see that last blow-off top.  I think that we're nearing the end of this bull run, courtesy of the Central Banks.  All momentum fades over time, and we’ve had a lot of time.


Top Equity Recommendations:

   Now that the DOJ won’t seek a stay in AT&T’s $85B buyout of Time-Warner, a resynch is probable as two disparate corporate cultures merge.  AT&T could begin to squeeze HBO customers with higher prices, and sign up new accounts with potentially complimentary “Game of Thrones” passes.  But whether AT&T can stomach the $8B it costs to produce the GOT content when it might rather spend some of that on new cell towers – remains to be seen.  AT&T has earnings coming up on July 24, but if you’re willing to trade through earnings or think that AT&T might not drop any more, the short $31 put in the July weekly expiration with 42 DTE is a bullish strategy with an 82% probability of making a profit.

   Marijuana stocks (HODL):
-      Canntrust Holdings (CNTTF), and 
-      Canopy Growth Corp (CGC)

-      AMZN – BOT: +1685 / -1687.50 – June 22ndCall Debit Spread,
-      BA – SOLD: -360 / +365 Puts & -365 / +370 Calls – June 22ndIron Fly, 
-      NVDA – SOLD: -265 / +262.5 – June 22ndPut Credit Spread,  
-      PYPL – BOT: +82.5 / -87.50 – July 20thCall Debit Spread.

            (Chart compliments of JT…)

   Last week the cryptocurrency market took a beating worse than that of the Cleveland Cavaliers in Game 4 of the NBA Finals. Nearly $50B exited the markets with two amazing declines – one of$13B in 90 minutes and the other of  $20B in 75 minutes.  The fall brings Bitcoin back towards a key support range that held during both early February and early April.  But is the Bitcoin bubble slowly deflating and dragging the market down with it, or are there other forces at play?
   In the red corner are the fundamentals.  From a fundamental perspective, crypto got hit with a double whammy.  The first blow came from the CFTC, which delivered subpoenas to Bitstamp, Coinbase, itBit and Kraen due to alleged market manipulation in the Bitcoin futures markets.  Since CME futures prices are based upon those markets – pushing quickly turned into shoving.  Like young couples finding their way, the situation is getting serious.  To add insult to injury, Coinrail (a South Korean exchange) suffered a cyber intrusion last week – and it didn’t even matter that Coinrail’s daily volume is a meager $2.5m.
   In the blue corner are the technicals.  Technically speaking, this dump appears as if it could have been anticipated. There was a bearish TK cross on May 29th.  Also there was declining buy volume leading up to local resistance.  The RSI failed to punch through a local resistance level, and another sell signal was triggered by the Stoch RSI when it was deep in overbought territory.
   In summary, specific catalysts for a rally or selloff are a dime a dozen, but generally speaking, it seems apparent it was an ugly week for fundamentals and technicals alike.  I’m watching for BTC support in the mid 6,000 range to take hold.  A drop through those levels could risk sending Bitcoin (and the larger market) to lows last seen in November 2017.

   To follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

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