This Week in Barrons – 10-15-2017:
"A champion is afraid of losing. Everyone else is afraid of winning." – Billie Jean King
“In numbers too big to ignore…”
If we’re judging by the numbers, last week was a pretty bad week for Harvey Weinstein. He proved that sexual harassment does exist in Hollywood. Last week model Cara Delevingne joined the ranks of notables such as: Ashley Judd, Angelina Jolie, Jane Fonda, and Gwyneth Paltrow accusing Harvey of sexual harassment. Last week he was also (a) fired from his own company, (b) accused of rape by 3 women, (c) caught on an NYPD audio tape trying to lure a woman into his hotel room, and (d) his wife left him. When Ben Affleck heard the news, he said it made him ‘sick’ – right before getting called out by actress Hilarie Burton for groping her. Hopefully this signifies a turning point as to how this type of behavior will be dealt with going forward.
If we’re going by the numbers, I don’t know why the University of North Carolina is proclaiming its entrepreneurial ‘StartUp-UNC’ program a success. They say that their expertise and guidance has helped UNC students, faculty and staff launch 60 new businesses and non-profits since 1999. Doing the math:
- 60 businesses launched over 28 years = 2 per year (below average).
- UNC has 30,000 students = 1 business launched per 15,000 students. (This is well below the 1 per 1,000 student average. Carnegie Mellon launches 2 per 1,000, and Stanford launches 15 per 1,000.)
With their staff of 8 and over $1m annual budget, they’re spending $500k to launch each business. Heck, cut your staff, hold a contest, and give away $500k to the top 2 winners. And make it a condition of the win that they locate in N.C. Situations like UNC only serve to cement my belief that: (a) there is too much money out there supporting entrepreneurship, (b) it’s driving bad decision-making, (c) it’s pushing the quality of entrepreneurial education downward, and (d) it’s producing diminishing returns for job creation.
Uber (numerically) is quickly approaching its day of reckoning. Thanks to MJP for recognizing that the ride-hailing company faces at least 5 criminal probes from the U.S. Justice Department. They lost London – their largest customer. Authorities are asking questions about whether the company violated price-transparency laws. And officials are separately looking into the company’s role in the theft of Google’s (Waymo) trade secrets.
Numerically, the Girl Scouts lost a little this week when the Boy Scouts of America agreed to remove the ‘No Girls Allowed’ sign from their clubhouse. The Boy Scouts say the move reflects what modern families want. The Girl Scouts say that this is merely a ploy to boost the Boy Scouts' declining membership numbers. Either way, I think Round 1 goes to the Boy Scouts.
By the numbers, Tesla will need to produce between 100,000 and 200,000 Model 3s in the second half of 2017 to support CEO Elon Musk’s investor promise. They spent over $1B in cash in Q2, accumulated over $20B to date in liabilities – to produce only 260 Model 3s to date. To slow their bleeding, Tesla fired hundreds of employees last week – triggering people to start selling their Model 3 reservations. It’s only a matter of time until Wall Street does the math.
Last week Bitcoin surged to over $5,850 per coin, and Mr. Jamie Dimon (CEO of J.P. Morgan (JPM)) commented in anger – the 2nd stage of grief. I’m convinced that the 5 stages of grief (denial, anger, bargaining, depression, and acceptance) are part of a framework that Mr. Dimon is using to allow himself to live with the upcoming loss of the U.S. Dollar as the global reserve currency. He broke his silence to insult Bitcoin investors and call them “stupid for paying the price”. He proclaimed that although people will profit because they will sell their Bitcoin to later investors at a higher price (‘greater fools’) – the end result will definitely be a crash.
Unfortunately, JPM’s own CFO Marianne Lake went as far as to praise blockchain technology on their earnings call, and say: “We are open-minded for digital currencies that are properly controlled and regulated.” JPM even invited Bart Stephens (co-founder of Blockchain Capital) to speak at their offices in San Francisco with fund managers and clients. “There’s a lot of hypocrisy and ignorance going on within Jamie Dimon," said Mr. Stephens. "I would encourage Mr. Dimon and others to do some homework. Bitcoin is not a fraud, and is not a Ponzi scheme. It's a robust technology that is going to impact multiple industries. Don't discount it." Citigroup’s CFO John Gerspach came out positive on the digital currency sector, along with Goldman Sachs’ Lloyd Blankfein. Bitcoin’s 30% rise on the week speaks for itself.
But why does Bitcoin even matter? While on the surface China loves building "Everyday Low Prices" merchandise for Walmart, and Russia continues to play nice despite being blamed for everything from interfering in our election to taking over Europe; both nations know that the real war is economic.
Currently, the U.S. Dollar is our global reserve currency. If you want to do international business, more times than not you must convert your currency into dollars and then ledger those dollars on the U.S.’s Society for Worldwide Interbank Financial Telecommunications system (SWIFT). SWIFT enables financial institutions to send and receive financial transactions in a secure and standardized environment. Russia knows all about SWIFT because when we leveled sanctions against them, we blocked their use of some of the SWIFT abilities – creating real economic hardships within their country. China realizes that SWIFT threatens them the same way, and that was their impetus in helping us contain Kim Jung un. The Chinese and the Russians have been concerned about our SWIFT monopoly for years, and have recently decided to accelerate the implementation of their backdoor system.
China has been developing a way for nations to sell oil to them using yuan, and then immediately converting those yuan into gold. In a nutshell, it's a gold backed yuan oil futures contract. That has caught the eye of the U.S. because our global currency status is built upon OPEC (especially Saudi Arabia) only selling oil in U.S. dollars – creating a constant global demand for U.S. dollars. We know that China buys oil from Russia without using U.S. dollars. And Russia (who has been stung multiple times by U.S. economic sanctions) has built a transactional work around. According to Jim Rickards, the head of Russia’s central bank, Elvira Nebiullina has reported to Vladimir Putin that: “In the past there was a threat of us being shut out of SWIFT. We have updated our transaction system, and if anything happens with SWIFT – all SWIFT-format operations will continue to work. We have created an analogous (back-up) system." According to Jim, Russia's development bank (VEB) and several Russian state ministries have teamed up to develop blockchain technology. “They’ve created a fully encrypted, distributed, inexpensive payments system that does not rely on SWIFT or the U.S. to move money. This has nothing to do with bitcoin per se, but rather uses a blockchain technology (often referred to as distributed ledger technology - DLT) platform that can facilitate a wide variety of transfers - possibly including a new Russian-state cryptocurrency backed by gold." The common thread for both China and Russia is: (a) getting away from U.S. dollar, and (b) using gold for currency support.
Shortly, China will compel Saudi Arabia to trade oil in yuan, and that will affect the U.S. dollar. "As soon as the Saudis accept the yuan, then the rest of the oil market will move along with them," said Carl Weinberg, chief economist and managing director at High Frequency Economics. China (since passing the U.S.) has become the world’s most dominant global player in oil. Saudi Arabia must pay attention to its largest customer. According to Carl: "That will remove between $600B and $800B worth of transactions from the dollar. That will lead to stronger Chinese demand, whether it's securities or its own goods and services. It is a growth driver for China and that's why they want this to happen."
On the surface, nations need to get along so that international trade can take place smoothly. But like any organization, they keep their friends close and their enemies closer. Military tensions surrounding North Korea, and supply and demand considerations over oil have accelerated the moves by Russia and China to implement their own backdoor, blockchain, digital currency solutions. The good news is that often in these early days of a solution set – you can gauge a solution’s necessity, capability, and availability by its price action. If last week’s 30% rise in Bitcoin’s price is any indication, things are indeed moving quickly. Maybe President Trump is right, this is just the “calm before the storm.”
In Texas Hold-Um, there are approximately 170 different 2-card hands that you can be dealt. But only 10 of those hands will get you into a winning position. Therefore, the overall market and your specific entry points are often just as important as your particular holdings themselves.
- The top 10 digital currencies (Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash, NEM, Bitconnet, NEO and Monero) make up 90% of the entire crypto economy. The others will be judged by their ability to partner with the top 10 players, and/or to innovate themselves into a ‘must have’ situation.
- Japan enshrined bitcoin as legal tender, in an apparent bid to become the global center for the next wave of financial technology (fintech).
- The CPI (a measure of inflation) came in at a calm 2.23% per year.
- The S&Ps are on pace to register their longest ‘quiet’ period in over 20 years. It hasn’t experienced a 3% decline since Nov. 7, 2016.
- Watch Health Insurance Innovations (HIIQ), because it’s one stock that may benefit from Trump’s recent executive healthcare order urging regulators to stop capping the duration of short-term plans at 3 months.
Investor optimism remains high as every major equity index is at or near historic highs. Year-to-date the S&P is up by 14%, the Nasdaq 23%, and the Dow Jones is up nearly 16%. Wall Street is pointing to the first synchronized global economic uptrend which should be good for markets these coming weeks. I suspect that along with the uber-trillions that are sloshing around the globe from our friendly Central Bankersters and sovereign wealth funds, there will be a ‘year-end money grab’ to look forward to. For example: you're a major hedge fund, and you haven’t trusted this market because you know that it’s simply rising on liquidity and not on basic fundamentals. So, you have not been fully invested. You’ve been waiting for the big correction and it just hasn’t come. Now that it’s October, you only have 3 months to make up that lost ground. Is it possible that you will throw caution to the wind, and just dive into the deep end? Absolutely it’s possible, and we're probably seeing some of that as we speak. With that in mind, you can make the case that this market continues to ‘melt-up’ into December – ignoring any and all things nasty. North Korea and Iran? Forget about it. Lousy housing sales and other economic date? Ignore it.
But ever-rising markets make seasoned investors nervous. Bank of America’s David Woo said: “We find it difficult to reconcile the record low volatility in financial markets at the moment with growing political risk in Washington and geopolitical risk in Asia. There are many reasons why we are living in a different world than the one we used to know and we would caution against relying too much on history for forecasting the likely outcome of these risks.”
If the Iran bickering calms down, I have to think that they’ll continue to press these markets higher. No, it’s not organic growth, low unemployment, or solid fundamentals. When there are trillions of dollars sloshing around the globe looking for a home, some amount of those will come home to roost in the market. Until the Central Banksters stop printing, it’s hard to experience a correction much less call a top.
Just remember that none of this market action is ‘normal’. This market charges ahead, but for the wrong reasons. No one seems to think that it can ever go down again. But they thought that back in 1999, and again in 2007. Don’t think it in 2017. None of us know which final snowflake will start that avalanche. Have a great day – and a better week ahead.
BTC: Another fork is coming. Last time, people sold prior to the fork and jumped back in within a short time span of the successful split. This time, people are buying prior to the fork, in order to benefit from the new coins. This is looking like a crowded trade. Nevertheless, the next target is $6,197 – with support at $5,000 and a sell at below $4,800.
ETH: Ethereum is on the verge of breaking out of the range. After 4 false breakouts, I’ll wait for Ethereum to end the day above $354, making a move to $400 very possible at that point.
LTC: Litecoin is one of the few altcoins that has shown strong buying support. It recently broke above its overhead resistance at $57.72. My target is $71, and my stop loss remains at $50.
To say that many banks want ‘nothing to do with Bitcoin’ is an understatement. SZ brought me the following discussion that was picked from an active PNC (Pittsburgh National Bankcorp) blog. The PNC customer recounts: “I've had a banking relationship with PNC Bank for 15 years, and I just got a call to verify unusual activity. He asked me to confirm a couple transactions then asked ‘For what purpose are you buying Bitcoin’? I refused to divulge the purpose, and the bank’s representative threatened to close my account. I told him I wouldn't answer, and he then asked ‘What are you going to do with the Bitcoin’? I again told him I wouldn't answer. He then informed me that his security team told him they would ‘exit the relationship with me’ if they didn't get a satisfactory answer.” Non-visionary banks will view digital currency as a threat to their existence, while others will view it as an opportunity to gain more of your trust and business. It’s up to us to sort out what type of relationships we want going forward.
Be prepared for interest rates to remain low for the next 3 years, and look no further than the chart below to understand why. Low interest rates allow the U.S. dollar to remain low – driving sales and corresponding stock prices higher because our products are less expensive overseas.
Bullish: (Sell PCS = Sell a Put Credit Spread)
- Autodesk (ADSK = 119.63) – Sell PCS – Oct 20: +114 / -116, $0.30
- Boeing (BA = 260.74) – Sell PCS – Oct 20: +252.5 / -255, $0.60
- DBV Technologies (DBVT = 47.48) – Sell PCS – Oct 20: +10 / -15,
- Gilead (GILD = 81.17) – Sell PCS – Oct 20: +78.5 / -80, $0.30
- Ionis Pharma (IONS = 59.1) – Sell PCS – Oct 20: +54.5 / -55, $0.45
- Jr. Gold Miners (JDST = 51.22) – Sell PCS – Oct 20: +46 / -47, $0.20
- Lumentum (LITE = 57.7) – Buy Fly – Oct 20: +55 / -57.5 / +60,
- Gold Miners (NUGT = 35.26) – Sell PCS – Oct 20: +32.5 / -33.5, $0.25
- Restoration Hdwr (RH = 80.08) – Sell PCS – Oct 13: +72 / -73, $0.20
- Nasdaq ETF (TQQQ = 121.03) – Sell PCS – Oct 20: +113 / -115, $0.25
- Sina (SINA = 116.59) – Sell PCS – Nov 17: +97.5 / -100, $0.50
- Semiconductor (SOXL = 129.60) – Sell PCS – Oct 20: +118 / -120, $0.30
- VIX Futures (SVXY = 103.66) – Sell PCS – Oct 20: +98 / -99, $0.20
- Ultra-Semi (USD = 109.90) – Sell PCS – Oct 20: +101 / -102, $0.13
- Wynn (WYNN = 142.33) – Sell PCS – Oct 20: +138 / -143, $2.14
- XL (XL = 41.51) – Sell PCS – Oct 20: +38 / -39, $0.11
- YY Inc. (YY = 93.22) – Sell PCS – Oct 13: +84 / -85, $0.38
My Crypto-Currency Holdings Include:
- Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Dash (DASH), Digix (DGD), MaidSafeCoin (MAID), Metal (MTL), OmiseGo (OMG), PIVX (PIVX), Patientory (PTOY), Steem (STEEM), and NEM (XEM).
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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