RF's Financial News

RF's Financial News

Sunday, June 25, 2017

This Week in Barrons - 6-25-2017

This Week in Barrons – 6-25-2017:

“Draghi, Carney, and Yellen will be the sacrificial lambs thrown to the wolves”… Societe Generale’s Albert Edwards.

   This week Albert Edwards of Société Générale said what has been on a lot of people’s minds: “How long will it be before angry citizens tire of blaming a political system for their ills, and turn on the main culprits — the unelected and virtually unaccountable central bankers?  There’s no recognition at all by central bankers that it may be their own easy money and zero-interest-rate policies that caused the stagnation in growth and pushed wealth inequality to intolerable heights.  When people finally wake up to what’s happening, the central bankers will be the next sacrificial lambs to be thrown to the wolves as politicians seek redemption.”
   But this week, the real ‘lamb thrown to the wolves’ was Travis Kalanick as he stepped down from his CEO post at Uber.

   Travis Kalanick was embroiled in so much controversy, I'm surprised it took the board this long to remove him.  The following condensed chronology of 2017 events reads like a: ‘Business for Dummies’ handbook:
-       1.19.2017 – FTC charges Uber with a $20m fine for recruiting drivers by using exaggerated earnings claims.
-       2.19.2017 – Susan Fowler (former Uber engineer) details sexism within Uber via blog post.
-       2.20.2017 – Eric Holder (former U.S. Attorney General) agrees to head an Uber internal investigation.
-       2.23.2017 – Google’s Waymo unit filed a lawsuit against Uber claiming that Anthony Levandowski (former Waymo employee and then head of Uber’s Autonomous Vehicle division) stole Waymo’s technology.
-       2.27.2017 – Amit Singhal (Uber SVP of Engineering) leaves after being threatened with a sexual harassment lawsuit.
-       3.3.2017 – The New York Times reveals that Uber has a feature named ‘Greyball’ that shows people (suspected of being government officials) a fake version of the Uber app that would automatically deny them a ride.
-       3.3.2017 – Charlie Miller (Uber VP of Product Growth and Autonomous Vehicle Senior Engineer) leaves.
-       3.8.2017 – Gary Marcus (Uber Artificial Intelligence Labs Director) leaves.
-       3.16.2017 – Raffi Krikorian (Uber Autonomous Vehicle Director) leaves.
-       3.19.2017 – Jeff Jones (Uber President) leaves.
-       3.20.2017 – Brian McClendon (Uber VP of Maps and Business Platforms) leaves.
-       5.5.2017 – Judge blocks Anthony Levandowski from working on any technology related to LIDAR – which is key to the development of Uber’s autonomous vehicles.
-       5.30.2017 – Uber fires Anthony Levandowski stating that he failed to fully cooperate with the court or help Uber prove its case.
-       6.1.2017 – Uber Board of Directors meets to discuss the findings of the Holder investigation.  During the meeting, David Bonderman (Board of Directors member) makes blatant sexist remarks.
-       6.6.2017 – Uber fires over 20 staff members as a result of the Holder investigation.
-       6.8.2017 – Kalanick discusses a company trip to Miami and lays-out ground rules for consensual employee sex: “Have a great f__king time.”
-       6.13.2017 – The Holder report is released.  Kalanick (who recently lost his mother) decides to step away from the company temporarily.
-       6.13.2017 – Uber board member David Bonderman resigns due to his previous sexist remarks.
-       6.14.2017 – New York judge rules that Uber drivers should receive employee benefits.  This is the first step toward negating Uber's claims that its drivers are merely contractors.
-       6.14.2017 – The FTC begins to look into Uber’s privacy practices, and the company’s ‘God View’ tool.
-       6.15.2017 – An Uber rape victim filed a lawsuit against Uber after she found out that Uber executives had stolen her medical records.  [The 26-year-old woman was raped by an Uber driver in 2014, and the driver was convicted of the crime.]
-       6.21.2017 – Founder and Uber CEO Travis Kalanick resigns. “I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors request to step aside so that Uber can go back to building rather than be distracted with another fight.” 

Finally, workers aged 50+ are being ‘thrown to the wolves’ at an alarming rate.  Here are some predictions for the current 50+ workforce:
-       American corporations will expand job flexibility options to keep valuable boomer and Gen X employees – potentially in part-time roles.
-       In 5 years, the BLS estimates that double the number of current Americans aged 65 to 74 will be working on ‘encore’ careers.
-       New forms of unions, organizations and alumni groups will emerge focusing on advocating and providing services for older workers – including job-matching, marketing and legal services.
-       Millions 50+ will transition from full-time to part-time jobs, and even more will begin to look at a career as a series of shorter-term projects.
-       The key word for 50+ workers will be: ‘Alongside’. 
-       The traditional expectation of earning more each successive year of work will be questioned as people will be paid based upon what they can do.
-       The traditional linear life of education, work and then retirement will morph to include multiple sabbaticals, years of learning, retraining and/or travel.
-       Genius clubs will emerge to organize and channel older workers’ talents, products, and services.

The Market:

“We are drowning in the stuff…”

   This week we saw our markets ‘drowning in oil’.  An International Energy Agency report showed May’s global oil supplies rising by 585,000 barrels/day (1.25m barrels/day higher than a year ago) — making it the highest annual increase since February 2016.  This rise was attributed specifically to increased U.S. production.  Advances in fracking technology have contributed to higher production rates in the U.S. – even as world-wide demand suffers from increased use of alternative energy sources like solar.  Judging from the graph above, it seems that Texas and North Dakota frackers have figured out how to lower their costs, and are beginning to take their innovations to other production locations.  This increased production has caused people to suggest that rather than limiting production and attempting to prop-up prices, OPEC should try selling as much of their oil as they can at lower prices in order to slow the technological innovation that may eventually put them out of business.  After all, Saudi Arabia, Russia and Iran, should be worried that they are sitting on a commodity that may be far less valuable in the future – especially with solar power growing increasingly less expensive.
   The price of oil fell sharply this week.  It should be interesting to watch everyone try to prop-up that price – because oil is a lot like gold in that it’s price is artificially supported.  If it was being priced simply by supply and demand, oil would be under $20/barrel.  But like gold, it is priced in the futures market.  Of the 3 billion barrels of oil on paper trades, only about 15 million will ever get delivered.  Due to the petro-dollar and banks being on the hook for so many oil field fracking loans, if oil were to fall to its rightful price – we’d have another financial melt-down on our hands.  So, propping oil up in the paper market is the easiest way of keeping our energy companies and our financial institutions profitable.  And besides, the Saudi-Aramco IPO is coming up, and they are targeting a $60/barrel price.  If oil’s price were to settle around $28/barrel (as others are suggesting), this would cut the value of this IPO virtually in half.

   Thanks to SF for pointing out that this week Verizon completed its $4.5B Yahoo acquisition.  Yahoo will change its name to Altaba, a holding company with a 15% stake in Alibaba and a 36% stake in Yahoo Japan.  Verizon plans to integrate Yahoo with AOL to create a media subsidiary called Oath.  Just think, 18 years ago Yahoo was valued at $140B.  So over the past 18 years, Yahoo management has single-handedly LOST over 97% of the company’s value.  Now that is: (a) tough to do, (b) something you don’t see everyday, and (c) leaves me wondering why anyone on that management team was ever paid one dime for their services.  After all, taking a company downward from $140B to $4.5B over 18 years is NOT rocket science.

   On Friday afternoon, we had the annual rebalancing of the Russell indices and this brought unusually high volume into the markets.  This market is desperate for the correction that never comes.  Everyone (algorithms included) has been trained to buy the dip, no matter what – simply because the central banksters will make sure it doesn't crash.  Forget risk and forget history – just buy stocks.  Then again, this has been going on much longer than most people could have imagined – so what is to stop it?  I've said many times, this market will keep rising until either a black swan event (like shooting down a Russian jet over Syria – which starts a hot war), or ‘they’ pull the plug and end all global QE.  A crash won’t happen unless ‘they’ want it to, but a 5% or 10% correction is always a possibility.  Unfortunately, a 10% drop in a 21K market can cause a lot of pain, and that's why you simply can’t throw caution to the wind. 
   This coming Friday will be the end of month and the end of quarter trading – which will lead to some volatility and natural rebalancing of the FAANG stocks.  We will then proceed directly into earnings season.  If the bulk of the earnings disappoint, that could trigger our first real market correction in many years.


This week:
-       The NASDAQ ended by having 2 solid closes above the 21-EMA – abruptly silencing any bearish arguments.
-       The FED came out and suggested that its own rate increase path could be ‘unnecessarily aggressive’ – potentially signaling a slowing of their interest rate hikes.  The financial sector (XLF) is in a dangerous situation right now – especially with bonds rallying.
-       The S&P showed weakness in the energy and financial sectors, but the healthcare sector picked up the slack.  The S&P remained within its expected move.  For this coming week, I think that the SPX (2438) should again remain within its expected move of 2416 to 2460.
-       Crude oil is trying its best to ‘catch a bid’, but when talking to oil people:
o   $60/barrel oil = All is good.
o   $53/barrel oil = We have hope.
o   Current $43/barrel oil = We are getting nervous.
o   Predictions showing $28/barrel oil = The world is in trouble. 
o   This week low oil prices could put more downward pressure on the HYG – the junk bond index.
-       Over the next 2 weeks, I’m looking for continued strength in the NASDAQ along with constant sector rotation and chop.

My recommendations:
-       BOT (Boeing) BA July 7 – Call Debit Spread: 197.5 / 202.5,
-       SOLD (Boeing) BA July 7 – Put Credit Spread: 195 / 200,
-       SOLD (Alibaba) BABA June 20 – Put Credit Spread: 140 / 141,
-       BOT (Facebook) FB July 7 – Call Debit Spread: 152.5 / 160, 
-       SOLD (Facebook) FB July 7 – Put Credit Spread: 150 / 155,
-       BOT (Google) GOOGL July 21 – Call B-Fly: 975 / 1000 / 1025,
-       BOT (Regeneron) REGN July 7 – Call Debit Spread: 500 / 520,
-       SOLD (Regeneron) REGN July 7 – Put Credit Spread: 490 / 510,
-       BOT (Workday) WDAY July 21 – Call Debit Spread:  100 / 108,
-       SOLD (Workday) WDAY July 21 – Put Credit Spread: 100 / 103, and
-       THINKING about Selling a Put Credit Spread on ADKS (Autodesk).
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

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