This Week in Barrons: January 24th, 2021
What Ends up Working…
The purpose of marketing is to initiate change. When we’re trying to create buzz, sell a product, change a lifestyle, build a community – marketing is required to help change the way people act. Every marketing project begins with a clarification: the problem is ripe, the harm is real, the product works, people need it yesterday, and financially it’s worth doing. But as valid as the ‘cool’ pitch & presentation that marketing comes up with will be – more often than not, buyers do NOT step up to be a part of the solution. In the beginning, you can put all the energy you want into it, because it will take TIME (10,000 hours) and your pitch needs to MORPH – before it will begin to resonate. There are only 3 things that cause people to change:
- Status: By buying your product, they will be viewed in a better light by their peers / competitors.
- Affiliation: This further refines ‘status’: “People like us – do things like this.” Mick Jagger said: “He’s not a man until he smokes the same cigarettes as me.”
- Convenience: For the semi-lazy buyer of your product: “Things just got easier.”
You can see the impact of these 3 drivers on: the spread of electric cars, the proliferation of Yeezy’s, the decline in smoking, and virtually every consumer decision out there. However, almost every marketeer STARTS with a different focus & pitch, and then (after 10,000 hours) what ends up working: Status, Affiliation, and Convenience.
I love EB’s take on retail: “Despite lockdowns, store closures, mass layoffs, and global logistics networks that rival militaries in terms of sophistication – eCommerce still sold less than 17% of all sales in the U.S. last year.”
The most significant investing trends over the last 10 years were:
- (a) Large Caps > Small Caps,
- (b) U.S. > International,
- (c) Growth > Value,
- (d) Tech > Everything else, and
- (e) Stocks > Commodities.
This is because during a global depression: (a) big companies have larger cash reserves, (b) our Dollar is the global reserve currency, and we’ll just ‘out-print’ the rest of the world, (c) growth will be in short supply and ‘bid-up’ accordingly, (d) tech is more easily ‘scaled’ when people are WFH, and (e) bond yields will fall due to deflationary pressures and commodities from lack of demand. These were playing according to plan – until they weren’t.
Investors are beginning to believe that a global depression has been avoided and therefore: (a) smaller companies will benefit more from stimulus measures, (b) global stocks will rise due to a falling dollar and higher global growth, (c) value stocks will improve as people go ‘back to work’, (d) technology will underperform as vaccines allow people to leave their homes, and (e) inflation, bond yields and commodities all will rise.
I’m amazed at the speed of the shifts, but then again Yellen is back on the command deck singing: “Everything Old is New Again.” With account initiation being easy and fractional ownership allowing everyone to build their own ETF, the retail trader is back in control and loving every minute of it. Heck, maybe this market bubble is not getting ready to pop. Maybe we just went through a massive injection of ‘market demand’ by home traders, and our bankers, founders, VCs and SPAC’ers need to create more supply – which they’re doing. In fact, if you’re a supply-side company – I think that it will be hard for you to remain on the sidelines and not be SPAC’d in 2021.
- The Jan. 6th attack on the U.S. Capitol… has set the stage for a political reckoning between Washington and Silicon Valley. This will be the most aggressive regulatory assault against the tech industry we have ever seen.
- Tesla has started delivering… its locally made Model Y crossovers in China. Another milestone for the electric carmaker in the world’s largest vehicle market.
- Biden picked Gary Gensler to lead the SEC. With Gensler and a Dem-controlled Congress, big banks could be in for a tougher time of it.
- GM’s self-driving car company Cruise… raised $2B at a $30B valuation, and brought in Microsoft as an investor and cloud partner.
- Janet Yellen… during her Treas. Sec. hearing, stressed 3 points:
o Stimulus = ASAP: “Without a new stimulus package, the economy could face a longer, more painful recession now – and a long-term scarring.”
o Higher taxes = Later: Focus on getting our economy through the pandemic / recession first – then raise taxes.
o Strong dollar = Always: Focus on maintaining a strong and stable currency impacted by the market – not the Treasury.
o Crypto = NEVER: Yellen thinks cryptocurrencies are connected to terrorist financing and money laundering. She’s not a HODLer.
- Donald Trump's list of pardons… included Anthony Levandowski – the self-driving engineer imprisoned for his theft of autonomous tech trade secrets.
- Netflix's quarterly sales growth slowed… and its quarterly profit fell. But everyone’s giddy over The Flix becoming cash flow positive in 2022.
- P&G’s 's sales jumped 8% last quarter… partly due to demand for higher-end hygiene products.
- Alibaba shares jumped 6%... after its founder Jack Ma made his first public appearance in three months. He's not missing – just in laying low / in-hiding.
- Ad-supported EV charging network Volta… raised $125m in a funding round managed by Goldman Sachs.
- Amazon is ready to turn its facilities into COVID-19 vaccination sites… and will offer other resources to the government as well.
- RTD coffee is the fastest growing segment of the N/A beverage industry: It’s basically the hard seltzer of the caffeine world. Take your Starbs RTD (ready-to-drink) can from the fridge and hop on that 8am Zoom call.
- With people driving a lot less… auto insurance companies like Travelers are reporting very nice bumps in profitability. Less mileage = More profit.
- Millennial-friendly digital health startup Hims & Hers… went public in a $1.6B SPAC merger.
- What do Plug Power and FuelCell Energy have in common? They're both fuel cell companies whose stocks are up over 500% in the past 6 months. They also haven’t turned a profit in over 20 years.
- Gamestop (GME) is up 2,221% from its low close last year.
- Facebook-owned messaging app WhatsApp… will be fined for EU data protection violations.
- Crypto was crazy this week… as Bitcoin traded in a 10K range, and Ethereum ticked to a new all-time high.
- GS is coming back to crypto… as Goldman issued a request for information to explore digital asset custody.
- MetLife is the latest legacy financial institution… taking another ‘hard look at crypto.’
- “It’s a crowded trade”… Bank of America found that being ‘long Bitcoin’ is the most crowded trade among fund managers – unseating being ‘long tech’. Shorting the dollar is now the third most popular trade.
- Cryptocurrencies are “mainly for illicit financing”… said Sec. Treasury nominee Janet Yellen. Her remarks are par for the course among regulators, though revamping crypto regulation is on her upcoming docket.
- BlackRock, the world’s largest asset manager… gave the green light for two of its funds to trade Bitcoin (BTC) futures.
- Grayscale Investments… is looking at proposing 5 new cryptocurrency trusts.
- Nebraska is pitching itself… as the next Wyoming for crypto.
- Signature Bank was forced to disclose $10B in crypto deposits… which represents 16% of the firm’s total deposits. Wow!
Monday: Earnings season has kicked off with a bang, as both Bank of America and Goldman beat their estimates – but BAC turned it up a notch by announcing a massive stock buy-back. The market swooned but came right back as soon as J. Yellen started talking about how we need "more" of everything. FED money tops: pandemic lockdowns and 11m unemployed. I’m looking for smaller chart plays. POWW is the outfit that makes ammunition, and ammo is still flying off the shelves. I'll try it over $7.58. ABML is a little outfit that recycles batteries, and that sounds like a business that will be in demand. I’ll nibble on it over $1.50.
Thursday: Those of you in ABML got the gift that keeps on giving. Heck about now, I’m wondering why I didn’t buy more. One that jumps out at me is MGA. This little outfit is tied into the backbone of Electric vehicles, and has partnerships with dozens of the biggest and best. Hitting a morning high of $77.55 and then fading off a bit, I'd certainly be interested in taking a shot at that when it decides to find its footing.
Friday: Everyone who’s in ABML is my friend – now that it’s doubled inside of a week. For decades we’ve been a debt- based economy, and if they’re going to drum up trillions more of it – the market will rejoice. Stock prices are beyond ‘extended’ – yet they go up almost every day. Could we see DOW 40K. Sure, if our FED keeps printing. The money must go somewhere, and I’d rather make $25/share in a day with NFLX than get a half a percent in the bond market. It’s reminiscent of the late 90’s – but there’s nothing to do but go with the flow. In normal times, this much stimulus would have gold and silver soaring to new heights, but Bitcoin is taking up that trade. I think that the metals might be in play here. PAAS had a big strong day, and it looks like it might be interested in attacking its 50-day moving average. Lean long, buy the dips, and all this will work out – until it doesn’t.
- Cannabis sales in Colorado totaled $175m in November… which pushed the YTD total over $2B for the first time. November was split: $35m in medical sales and 140m in recreational sales. Since recreational sales began in January 2014, Colorado has sold $10B worth of recreational cannabis.
- New York renews MJ legal push… with other eastern states following suit.
- Alabama, Kansas, Kentucky and South Carolina… could legalize MJ this year. If so, they will generate hundreds of millions of dollars in business opportunities throughout the supply chain.
- COVID-19 has been devastating to most industries… except the cannabis business. Mature markets continue to see records for medical and adult-use sales, and newbies keep setting constantly higher benchmarks.
Next Week: Markets Morph into Monopoly Money.
Market Overview: This week the NASDAQ caught fire, and it was all about the ‘monsters of tech’ [AAPL + AMZN + FB + GOOGL + MSFT + NFLX]. They accelerated and took the rest of the market with them. But, fair warning – a lot of their earnings are directly on the horizon. Surprisingly, the S&P 500 move stopped once it reached the upper limit (3,861) of its expected move.
The Market Internals broke down, and often ‘this move ends’ with a total downside, correlated crash. To look at the markets (sitting at all-time-highs), you would never know that the number of stocks declining were higher than the number of stocks advancing. This can’t go on forever, but it is why I’m scared about this ending badly. This week was all about the ‘monsters of tech’, and of course: GameStop.
Retail Options Bubble Goes On: The options marketplace is large, and in control of the overall stock market. This week GameStop (GME) was nothing short of awe inspiring. Its Friday chart (see above) looked like the world was having fun playing on an Xbox with Monopoly money. GME traded over 2.1m options, worth over $14B – on Friday alone. Factually, 1.2m of those option contracts were ‘market orders’. Now, in this market – ‘you need to be a few fries short of a Happy Meal’ – to do a market order – especially in something as volatile as GameStop. But GameStop isn’t moving this market – call options purchased within the ‘monsters of tech’ are the driver.
The S&P 500 Rally was put on Hold: The S&Ps desperately need the financials to catch a bid in order to move higher. The financials (XLF) actually stalled the entire market as they tagged (and stayed) at the lower edge of their expected move. Energy also took a hit lower last week. If we see any continued action lower in the financials next week, the S&Ps will move lower. Also, if the bonds (/ZB) move higher next week, the financials will have a tough time getting out of their own way.
‘Monster of Tech’ Earnings Week… is upon us. My only question is whether these stocks are priced to perfection? Will this be a: ‘buy the rumor – sell the news’ event? If Netflix (NFLX) was any indication – tech stocks do have the ability to move even higher.
1. With this tremendous rally in the Nasdaq (QQQ), take this opportunity to SELL way out-of-the-money call-spreads in the April QQQ’s.
2. Also, with the continued rally and good feelings, take the opportunity to BUY way out-of-the-money call-spreads in the May VIX (volatility index). That will allow you to take advantage of a ‘spike’ in the VIX when it comes.
SPX Expected Move:
- Last week’s expected move was $82.50. We moved right to the upper edge of it and stalled. Since mid-December, we have tagged an edge of the expected move every week.
- Next week’s expected move is $73.50, and we’ll see every penny it.
It’s time to clean up your risk. We have seen: (a) the financials and energy start to decline, (b) the Dollar form a bottom (maybe), and (c) bonds (maybe) start to rally. If those 3 elements continue, the market will not perform well. Non-performance scares retail traders, so they will be the first to pull-out. Don’t be the first one to hit the exists, but PLEASE don’t be the one turning off the lights either.
Tips: Go Big or Go Home…
1. The U.S. money supply grew 20% from $15.3T in 12/2019 to $18.3T in 7/2020.
2. Inflation is when ‘extra’ money chases the same amount of goods and services.
3. Inflation rates are approximately 11% (Chapwood Inflation Index).
4. Housing costs are rising at 9% per year.
5. There are only 2 places for your money: Stocks & Crypto.
HODL’s: (Hold On for Dear Life)
- American Battery Metals Corp (ABML = $3.35 / in at $1.50),
- Bitcoin (BTC = $32,100 / in at $4,310),
- Bitcoin Cash (BCH = $430 / in at $170),
- CLOV ($13.55 / in @ $12.51),
o Sold Feb. $12.50 / $15 covered calls for income
- CTIC ($3.37),
o Sold Feb. $3 / $4 covered calls for income
- DM ($25.05 / in @ 14.24),
o Sold Feb. $22.50 / $25 covered calls for income
- Ethereum (ETH = $1,230 / in at $310),
- ETHE ($14.25 / in @ $13.44),
- GBTC ($34.45 / in @ $9.41),
- HYLN ($17.39 / in @ $0.32).
o Sold Feb. $15 and $17 covered calls for income
- NGD ($1.90)
o Sold Feb. $2 covered calls for income
- Pan American Silver (PAAS = $30.22 / in @ $13.07),
o Sold Jan. $34 covered calls for income
- Silver Elephant Mining (SILEF = $0.33 / in @ $0.37).
Thoughts: The US Dollar has been rallying vs the Euro, but our new Treasury Secretary – Janet Yellen – has called for a large stimulus package to get people back to work. That’ll take the edge off the Dollar’s strength. Even though Yellen stated that her goal would not be a weak Dollar, the reality of more currency pushed into the economy will do just that. If you think the Dollar’s rally might be over, the Euro ETF (FXE) should bounce back. FXE OTM calls are trading over equidistant OTM puts, suggesting that the market sees risk to the upside. And FXE’s 14% implied volatility rank points to long verticals as the preferred strategy. If you do think the FXE may rally over the next few weeks, the long call vertical that’s long the $112 Call and short the $114 Call in the March expiration is a bullish strategy that has a 64% probability of making 50% of its max. potential profit before expiring.
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Please be safe out there!
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