RF's Financial News: July 2017

Sunday, July 30, 2017

This Week in Barrons - 7-30-2017

This Week in Barrons – 7-30-2017:

“Creativity is thinking up new things – Innovation is doing them.” Theodore Levitt

Thoughts:

Maybe I should write about:

- August 1^st being the most important date in crypto-currency history, that I can remember. People often analogize Bitcoin to the ‘Dutch tulip mania’, but I can remember them saying those same things about the Internet. With over 800 crypto-currencies and block chain innovations, I believe where there’s smoke – there’s fire.

- Or the California farmers that are abiding by President Trump’s new immigration and minimum wage policies by firing their human workers, and replacing them with robots that can pick fruit 4 times as fast.

- Or the White House signaling its frustration over their inability to pass any major legislation by firing Sean Spicer and hiring Anthony Scaramucci.

- Or Japan announcing that it’s thinking of releasing thousands of tons of radioactive water from the Fukoshima power plant into the Pacific Ocean and letting the ocean neutralize it.

- Or Washington State that just passed a law allowing ‘big brother’ to watch and ‘ticket’ all automobile drivers caught grooming or eating while driving.

- Or maybe it’s the announcement and delivery of the most affordable Tesla to date – the Model 3.

In the U.S., we believe in our people, or what I often refer to as the WHO part of the equation. Sure, we like our technology, and our devices are cute. But what really ignites us and gets us going in the morning are our people – the individuals behind the development. Tesla is the vision of Elon Musk who risked his entire PayPal fortune on its success. Make no mistake, Elon has his detractors, especially on the political right and in the Wall Street Journal – who can’t stop talking about subsidies and economics. But to quote BL: “Those are the people cleaning up after the elephants in the now defunct and forgotten circus.” Elon positioned Tesla on the bleeding edge, convinced others of the possibilities, and DELIVERED. He was able to: (a) start a car company from scratch (which is no small feat), (b) change the way automobiles are sold and serviced (at malls not auto dealerships), and (c) change the way the world views the internal combustion engine (causing nations to outlaw its existence past the next 3 to 20 years).

The original Tesla Model S was a proof of concept showing that it was possible to make a long-range, reliable electric vehicle. The Model X showed that an electric SUV was also possible. But neither was affordable to the masses. Although the Chevy Bolt has shown that 238 miles of electric range is possible for less than $40,000, their volume aspirations are modest and their attention to detail lacking. Tesla’s Model 3 starts at $35,000 (but looks like a ‘million bucks’), goes 0 to 60 mph in 5 seconds, and will ramp production to a half-million per year within a few years. I would encourage you to read Motor Trend’s Model 3 review: http://www.motortrend.com/cars/tesla/model-3/2018/exclusive-tesla-model-3-first-drive-review/. There's commerce, and then there’s revolution. Steve Jobs revolutionized the phone (iPhone), and Tim Cook commercialized it. I believe in both of the revolutions surrounding the Model 3 and Bitcoin.

The Markets:

“Watch out for ‘fake’ earnings data.”

We’re in the middle of earnings season, and no one cares that the earnings reported are all ‘adjusted’. The analysts and CFOs give out earnings estimates, and then CFOs play their fuzzy math accounting in order to find a way to beat those same estimates. For the longest time the joke was about the ‘penny’. Over and over again, giant corporations doing billions of transactions and employing thousands around the globe – would announce their earnings and ‘coincidentally’ beat them by a penny. Which lead everyone to believe that the CFOs and analysts were ‘so good’ that they could figure out millions of payments, insurances, employee options, currency fluctuations, etc. – in order to put out a number and months later exceed that same number by a single penny. Wow (wink-wink). It became so common that traders would joke about it. Now, they have transformed their estimates into more believable numbers, but in doing so attached the ‘non-GAAP (Generally Accepted Accounting Principles)’ moniker to it. I know that sounds a bit snarky, but for example: this week on CNBC, Phil Lebou (their car guy) was raving about GM's incredible earnings. Factually, GM’s ‘non-GAAP’ earnings per share were $1.85 – up 6% year-over-year, while their ‘GAAP’ earnings per share were $1.09 – DOWN 40% year-over-year. See the dramatic difference that ‘fake’ data can make?

The bottom line is, if a company beats its earnings per share estimates and does it on revenues that are LESS than last year's quarter – they did it by cost cutting and creative accounting. Maybe they laid off employees or unscrewed every other light bulb – but it’s sales that tell the truth. Either sales are up, or the company didn't grow and had to get ‘non-GAAP’ creative. With GM, their revenues ($37B) were DOWN 1.1% year-over-year. So, let revenues be your guide, and just because a company beats on the bottom line doesn't mean they did it by growing organically.

This past week the FED said: “We will start taking down the balance sheet relatively soon, and a gradual increase in rates is called for.” This means that we can look forward to September to see what they’re going to sell and how often, and they will bump rates again in December. For now, no one’s paying attention because our FED has become the boy that cried wolf, and we’ve heard it all before.

If we look at Friday’s European action, despite Draghi saying that QE is still in force, the German DAX lost over 200 points. Someone, it seems, doesn't believe that QE is going to be extended forever. I think the Central bankersters will ‘jawbone’ that they're going to back the economies, to keep markets from panicking – all the while actually beginning to unwind things. I could be all wet and they continue to drive this market to DOW 30K – but ask yourself: “Who does that help?” It continues to help the 1%, and helps the 5% with stock holdings, but that still leaves 94% of the world getting nothing out of the deal. In fact, it does nothing for the entire economy. In the strangest twist of fate, it isn't a ‘crash’ that would hurt the economy the worst, it would be a market that continues to soar forever. Why? Because with interest rates at 0 - 1%, savers, insurance and pension funds can't make any money – so they need to buy stocks. But because stocks are so expensive, the average person can only buy a few shares. And the higher the markets go, the less corporate CEOs are going to use that buying power to do much more than enrich themselves. So, I think that we're going to hear about asset reduction at the FED, and QE reduction in the ECB sooner rather than later. It will be small talk at first, and surely padded with niceties, but silent actions will begin to follow.

Like usual, we have the same old question: What next? I don't think it's a secret that I believe the market is way overbought, stretched and is as unrealistic as it gets. But I also know that if Central banks keep printing, the lions share winds up NOT in the little hands, but in the stock market. That's just a fact. So, while we SHOULD head lower, the market can't unless the Central Banks allow it. Logic says that we roll over; however, momentum and QE say that we go higher – which means we will most likely continue higher. Logic loses to money printed out of thin air every time.

Tips:

Last week the broader market held up well with the main indices even setting new record highs. The S&P 500 ended the week flat but it managed to post a new record high of 2,477.83. The NASDAQ Composite Index reached new heights of 6,422.75, and the DOW moved higher each trading day reaching an end of week level of 21,806.88. The barometer of stock market volatility (the VIX) fell to an all-time low last week. The drop may be attributed to the expanding domestic and global economic growth, increasing corporate earnings, and favorable interest rates. The FED elected to keep short-term interest rates unchanged after the latest Federal Open Market Committee meeting last week. The FED also provided more information on the winding down of its balance sheet, and is expected to hike interest rates one time this year plus two more times next year.

Positive fundamentals are preventing a bear market, but short-term swings can’t be discounted. A handful of stocks are driving the marketplace higher: Microsoft, Facebook, Apple, Google & Amazon. After their earnings announcements, Google, Microsoft and Amazon all sold off. Facebook held its own, and it’s up to Apple (with earnings on Tuesday) to take the NASDAQ higher. A Thursday note by a J.P. Morgan analyst that mentioned market correlations breaking down created some short-term volatility, and reminded me how powerful this next Apple report is going to be – Tuesday after the close. Also I’m watching the transports (IYT) this week, as they dropped over 200 points in a day – going from 9,500 to under 9,200 (7%) in the last 2 weeks. Does this cast a short-term downward shadow on the markets? It may. Also, someone placed a $265m dollar bet this week that the volatility index (VIX) is going to be significantly higher by the 3^rd week in October. If the VIX were to move higher, the market (most certainly) would move lower. Does this ‘someone’ know something's coming – other than the debt ceiling? Along with the VVIX volatility options (UVIX) rising significantly over the past 2 weeks, if Apple comes out and disappoints – I fear that the market will absolutely ‘clobber’ the NASDAQ and in specific the technology sector.

As of late I’m beginning to see sizable action in some of the trailblazing marijuana stocks. Over the past 12 months, the average marijuana stock with a market cap over $200m was up by a phenomenal 332%. My short list of trailblazing marijuana stocks include:

- Axim Biotechnologies (AXIM) – up 2,363% to $8.16 / share,

- Aurora cannabis (ACBFF) – up 465% to $2.16 / share,

- Aphria (APHQF) – up 209% to $5.23 / share, and

- Canopy Growth Corp (TWMJF) – up 191% to $7.32 / share.

Aurora Cannabis is a Canadian medical marijuana group and the ONLY medical cannabis company to have recorded a profit in its most recent quarter. Aurora hasn't been as fast to generate profits like rivals Aphria with straight quarterly profits, and Canopy Growth (positive in three of its past four quarters) but in its latest quarter, the company has been spending handsomely on its massive Aurora Sky project. Upon completion of the project, Aurora will have the most advanced and automated commercial grow farm on the planet. ACBFF continues its stride above the $2.00 level ending Friday around $2.16 per share.

Aphria is also another Canadian-based medical-cannabis producer and retailer that saw its market value decrease by 24% in just two weeks. The company lost $2 million for the quarter after an unprecedented streak of 5 consecutive quarterly profits. Aphria justified the losses by announcing they have been spending heavily on its capacity expansion with the expectation that recreational marijuana may soon be legal in Canada. The stock is now hovering over the $5.00 level – and hit $5.23 on Friday.

Recommendations:

- UVXY (VIX futures) – Sold August 4, +26 / -27.5 Put Credit Spread,

- Aurora (ACBFF) – Long stock @ $2.16 / share,

- Aphria (APHQF) – Long stock @ 5.04 / share,

- Activision (ATVI) – Earnings Run (Bullish) / Sold Aug 4, +61 / -62 PCS,

- Alibaba (BABA) – Earnings Run (Bullish) / Sold Aug 11, +52.5 / -55 PCS,

- Nvidia (NVDA) – Earnings Run (Bullish) / Sold Aug 18, +160 / -165 PCS,

- Regeneron (REGN) – Earnings Run (Bullish) / Buy Aug 4, 505 / Calendar,

- Shopify (SHOP) – Earnings Run (Bullish) / Buy Aug 18, +90 / -100 CDS,

- Bio-Tech Index (XBI) – Earnings Run (Bullish) / Sold +77 / -79 PCS.

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

Please be safe out there!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting:<http://rfcfinancialnews.blogspot.com/>

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, July 23, 2017

This Week in Barrons - 7-23-2017

This Week in Barrons – 7-23-2017:

Thoughts:

“Without the will to do what is right – the world is defenseless.” … Aleksandr Solzhenitsyn

Thanks to SF for the following Q&A on the defenseless and fragile nature of our global economic system: https://www.youtube.com/watch?v=y6boC5Eqh24. A loosely translated version follows:

- Greece owes $367B – to most of the other European economies.

- Ireland owes $865B – to most of the other European economies.

- Spain and Italy owe $1T each – to France, Britain and Germany.

- France, Britain and Germany are struggling because of lending vast amounts of monies to other nations that can’t possibly pay them back.

- But how can broke economies lend money to other bankrupt economies – without either having any money to really lend, much less pay it back?

- How will any/all of these debts be resolved?

o They’re hoping for a bail-out.

- But where does the money for the bail-out come from?

o It comes from the U.S. – because the U.S. economy is much stronger than the European economy.

- How is that?

o Because the U.S. is owned by China.

But what about defending yourself – especially in states without individual ‘carry permits’? Think about the following:

The second most important ‘carry weapon’ is a tactical flashlight. Why the flashlight? Well, I'm not talking about your typical household flashlight that you leave in a drawer and hunt for during power outages that produce about 15 lumens of brightness – which is fine for finding matches to light candles. A tactical flashlight is made of high strength aircraft aluminum, and puts out between 500 and 1,000 lumens (80 lumens will temporarily ‘light blind’ someone.) In a self-defense situation, you want to use a tactical flashlight to temporarily blind the attacker – so that you have a few seconds to flee or attack back. After all, it's very difficult for someone to attack you if they are turning their heads, and putting their hands in front of their eyes.

Tactical flashlights are designed for the military, police, and others working in dangerous places. They're also very handy for just getting around in the dark – because they can illuminate a long way. The amazing thing about these new tools is that they're so small you can almost make them disappear in your hand. For my money, the best ‘tactical light’ out there is the Surefire E2D (shown). It is only 5.4 inches long, 1.25 inches in diameter, and puts out 600 lumens. I hope you never need to temporarily blind someone, but financial and personal defense are beginning to creep to the forefront of many people’s conversations.

The Markets:

This is quite the treacherous, roller-coaster market. It reminds me of 1999 when the market only seemed to go up, and it didn't matter how stretched the valuations were. We're in earnings season and most of the releases are coming out with nice year over year gains. Granted this is all "Non-GAAP" reporting with an awful lot of fuzzy math, but this is what we are forced to work with. A lot of the ‘talking heads’ are asking: "Why is this rally so hated?" I’m guessing they have forgotten that in the last 20 years a lot of people have gone through 2 market crashes – the tech crash of 2000-03 and the housing crash of 2008-09. And while fear keeps you sane and out of the market, it doesn’t allow you to benefit from the Central Bank’s money printing strategy.

Last week I noted that the equity markets were looking strong. The U.S. Dollar Index continued to look weak while U.S. Treasuries (TLT) continue their channel consolidation. Emerging Markets (EEM) look to break out to the upside. Volatility (VXX) should remain at extremely low levels keeping the bias to the upside for the equities and equity indices on both the daily and weekly timeframes. The S&P (SPY) continues to be in an uptrend with resistance at 247.10. I’m looking for a move over 248 in the short term, and over 255 in the longer term. With July options expiration and 1 full week of earnings behind us, index charts look to consolidate or slightly pullback; however, all look strong and ready to continue higher on a longer timeframe.

But if the Central Banks want this market at DOW 30K they can indeed get it there. I believe that once the Central Banks begin to pull QE away from this market, it will begin to pout and fall. So, I think that the Central Banks want this market as high as it can be, before they start working down balance sheets and cutting QE. That way, if the market is at 25,000 – a 20% pout still has the DOW at 20K.

Let’s take an Elliot Wave approach to the above fundamentals. According to Elliot Wave Theory (an extremely popular and accurate market behavior / forecasting methodology), a market correction is getting closer. The first correction will likely be Wave 4 (shown above), and Wave 4s are notoriously choppy and frustrating. This choppy correction should be followed by another rally (Wave 5) and a more pronounced drop later in 2017 or early in 2018. Under Elliot Wave the S&Ps are unlikely to make a lot of progress in the coming year, but there will be an opportunity for investors to lock in profits and avoid a significant drawdown. The Elliot Wave specifics go something like this:

- As long as the S&P 500 (SPX) maintains support over 2,440, place our upward target region between 2,487 and 2,500.

- The market could take as many as three weeks to move into this target. And, there could be a potential ‘timing target’ around Aug. 9 that would also mark a top in the market.

- The pullback region is between 2,285 and 2,330 on the SPX.

- That pullback should be a buying opportunity, with the market then moving higher into the 2,537 to 2,600 region – prior to a 15% to 20% correction in late 2017 / early 2018.

So, on both a fundamental and Elliot Wave methodology, it appears that the next 3 weeks could be a roller-coaster ride to remember.

Tips:

Recommendations:

1. EEM (Emerging Markets ETF): Oppenheimer’s head of technical analysis calls the EEM: “The chart of the week, month and potentially year. It not only carries significance for the future direction of Emerging Market’s trend, but also for the broadening global market participation.” The EEM is just now breaking out of a 10-year downtrend. Even Josh Brown (of the Reformed Broker) thinks that this has the potential to become very big news for investors looking for the next mega-trend.

2. GOOGL (Alphabet): If Microsoft’s and Netflix’s performances are any indicator of the tech sector in general – that could make you bullish on Alphabet (GOOGL). If that be the case, selling the September Put Credit Spread by buying the $945 puts and selling the $947.5 puts – is a bullish strategy with a credit that is 1/3 the width of the strikes and an 81% probability of success.

3. BABA (Alibaba): I’m also liking Alibaba (BABA) to the long side next week. Selling the June 28^th Put Credit Spread by buying the $145 puts and selling the $147 puts producing an excellent short-term bullish strategy.

4. Biotech Sector:

a. Vertex (VRTX) is seen by many as being a catalyst for a strong biotech sector advance. VRTX rallied from $130 to $160 during the past week – closing on Friday with 7 times daily average volume indicating that reaching the $200 price level is not out of the question. Vertex is having a positive impact on the Biotech ETF because the VRTX accounts for about 3.75% percent of the sector’s total weight.

b. SPDR S&P Biotech ETF (XBI) is also moving quickly and bringing stocks such as Kite Pharmaceutical (KITE) with it. There are a number of Biotech heavyweights lined up next week to report their respective quarterly earnings. Vertex (VRTX) will lead the way together with Amgen Inc. (AMGN), Biogen, Inc. (BIIB), Celgene Corp. (CELG) and Gilead Sciences Inc.(GILD).

5. Marijuana Industry: It has been a growth monster over the past 12 months – with legalized sales expected to grow over 50% year-over-year.

a. GW Pharmaceuticals (GWPH) – has been in an uptrend since the beginning of the second half of the year.

b. Aurora Cannabis (ACBFF) – is showing positive signs as its stock price breached over $2.00 again. The Canadian medical-cannabis producer is in the process of developing the Aurora Sky project, which will be an 800,000-square-foot facility that the company claims will be the most advanced from an automation standpoint in the world. Target date of completion is 2018. And the company’s most recent announcement that its wholly owned subsidiary Pedanios GmbH had successfully passed the first stage of the tender application process to become a licensed medical-cannabis producer in Germany. Germany's medical-cannabis market is at its infant stage and Aurora could seize the opportunity and be among the first to get a substantial market share in the country.