This Week in Barrons – 8-27-2017:
“Just a spoonful of sugar helps the medicine go down”… Mary Poppins
Our no-brainer remark of the week comes from Tom Lee of Fundstrat when he told CNBC that he expected bitcoin to be the best performing asset class through the end of this year. This is after bitcoin tripled in value during the first 7 months of this year, and after knowing institutional demand from the launch of bitcoin derivative products will certainly help drive the digital currency's price higher. I have a couple questions: (a) How will crypto-currencies play on the global stage? And (b) In which digital currencies should the average person invest?
China has been extremely shrewd in dealing with crypto-currencies. A year ago, China controlled over 80% of global bitcoin trading. Recently, China’s trading impact has fallen to just 16%, but they continue to control over 70% of bitcoin creation / mining. Bitcoin mining is essentially a computer task – consuming enormous amounts of electricity. China (thanks to an abundance of hydro-electric power) is one of the world’s lowest-cost producers of electricity, and can therefore produce bitcoin at virtually no cost. If China were to initiate a new crypto-currency backed by gold (which the country has been amassing), you could witness a new monetary system the world would be willing to accept. Couple that with China’s alliance with an oil producing power-house such as Russia, and it could single-handedly bring an end to oil’s ‘petro-dollar’ standard.
A Ronnie Moas, founder of Standpoint Research, said it best: “Imagine you live in Venezuela and you're keeping your money under the mattress. Would you rather leave it there in Venezuelan Bolivar, or would you rather put it in bitcoin? It shouldn’t take you very long to make that decision."
In terms of investing, two places come immediately to mind: ETH (Ethereum) and XRP (Ripple) – but a more complete list follows under ‘Tips’. Ethereum has already made investors triple-digit gains this year, but it’s more than just a crypto-currency – it’s a platform that allows developers to create applications. The unique structure of the Ethereum blockchain helps businesses improve security, prevent fraud, and increase efficiency and trust. Ethereum is backed by a 150-member corporate alliance including: Microsoft, Intel, MasterCard and others. Many members are getting ready to launch their own services that have Ethereum at their core. For example, IBM recently launched its first Ethereum-based, business-blockchain service to clients such as: Wal-Mart, Northern Trust, and the Bank of Tokyo-Mitsubishi.
If you agree with Ethereum as an investment, then I would advise buying what major hedge funds are buying when they buy Ethereum. These ‘liked’ technologies will be reflected in correlation data. The chart below shows cross-correlation statistics between various crypto-currencies, and the circled portions show a significant correlation between Ethereum (ETH) and Ripple (XRP). Ripple is a ‘fintech’ platform aimed at increasing the efficiency of international money transfers between banks. So, it would make sense that the major players are investing in both ETH and XRP.
Where and when could all of this actually be applied? As SF remarked, Jack Ma (founder of AliBaba) would like to help Hong Kong become the first cashless society. Mr. Ma remarked: “Being cashless would make Hong Kong more fashionable, modern, and efficient. In the near future, we will begin to get more involved in Hong Kong’s technological and financial development.”
“I’m thinking leaders are made, not born.” BoBo Bear
- 78% of full-time U.S. workers live paycheck to paycheck.
- 71% of all U.S. workers are bankrupt (have more debts than assets).
- 59% of workers making over $100,000 / year are ‘in the red.’
- 56% of all U.S. workers save less than $100 per month, and
- 68% of all U.S. workers feel disengaged from their work and blame it on bad management.
According to Gallup’s Larry Emond, “Companies choose the WRONG person for the job – 82% of the time”. Peter Cappelli (a Professor of Management at the Wharton School) says: “We’ve gotten more stupid about figuring out who is going to be a good manager in the right job. Companies have gotten penny-wise and pound-foolish when it comes to investing in training and development of future leaders”. Companies should be looking for character traits such as: extroversion, humility, communication skills, and self-confidence in their leaders. Good leaders also often exhibit conscientiousness – because conscientious people are hard-working, reliable, self-disciplined, meet deadlines, and pay bills on time.
Unfortunately, very few of these leadership traits were on display this week at the FED’s Jackson Hole get-together. Investors and the markets in general, were not buoyed higher by the speeches delivered by FED Chair Janet Yellen and ECB President Mario Draghi. Neither offered hints about their future monetary policy moves. Yellen simply talked about banking regulations and economic improvements in the U.S., while Draghi raised concerns about protectionism. Karl Schamotta, director of global product and market strategy at Cambridge Global Payments, said it best: “Yellen and Draghi only validated Jackson Hole’s well-earned reputation as a currency trader’s graveyard.”
But even though not a whole lot was announced, what I found most interesting was the market's reaction. Friday morning the market leapt out of the gate, and things moved strongly higher in the first half hour of trading. But then the air leaked out of the balloon, and markets had a heck of a time staying green. When the bell rang, we ended up 30 DOW points and 4 S&Ps – but that was a far cry from +120 and +10 we'd seen earlier in the day. In fact, that makes 3 sessions in a row where the S&P has remained below its 50-day moving average. I've been saying for a week now that these markets feel content to ‘stair-step’ lower, and since their August 7th high, the market has put in lower highs and lower lows.
But calling for a lower market has been a fool’s game for quite some time. At any time, Central banks could step in, buy a ton of stock, and jam our markets higher. In fact, just this week Norway's $970B wealth fund has been ordered to raise its stock holdings from 60% to 70% in an effort to boost returns and safeguard the country's oil riches for future generations. Trond Grande, the fund's deputy chief executive was asked about market prices being high and he responded: “We don’t have any views on whether the markets are priced high or low.” Huh, did I hear that correctly? You don't care whether stocks are expensive or cheap, about P/E's, price to book, or price to sales. I guess when you can print money out of thin air and buy tangible assets with the counterfeit money, why would they care if stocks are expensive or not? I wonder if they care about: Russia vs Syria, North Korea threatening nukes, or trouble in the U.S. White House? Even Mark Grant was on CNBC last week, and when asked about the markets said: “Interest rates would probably fall to 2% and assets will probably keep rising because of Central banks. Central banks have bought $19T in assets, and over $1.5T this year alone. They've created a whole new country worth of buying. As long as they stay intact, rates will fade and equities will probably go up". Bravo Mark, and thanks for saying it.
For next week, the stage is set for Amazon (AMZN) and Whole Foods (WFM) to make big changes after receiving regulatory approval from the U.S. Federal Trade Commission. The kick-off will be a major price-cutting campaign on Monday, August 28, when the online giant’s acquisition of the organic and natural grocer is slated to be complete. The GDP report will be released on Wednesday followed by consumer spending data on Thursday. It will be a busy day on Friday as three major economic reports are on tap: August unemployment report, ISM Manufacturing, and automotive sales.
Elsewhere I’m looking for Gold to consolidate at $1,300, while crude oil drifts slightly higher. The U.S. Dollar Index will continue its weak behavior, while U.S. Treasuries are biased to continue moving higher. The Shanghai Composite looks to continue higher after a big break-out, and Emerging Markets are moving to the upside. Volatility looks to remain low putting the bias back to ‘flat-to-higher’ for the equity indices: SPY, IWM and QQQ.
Until I see the S&P (SPX) get up and over 2,468 – I’m playing cautiously. If the bulls have a shot at keeping things alive, the S&P has to first get over and hold its 50-day moving average, and then has to overcome the 2,468 area. Until then, I’m looking at this market with a skeptical eye. With things like the debt ceiling looming, and with all the noise over happenings in the White house – I think that this chop continues for a while.
My thoughts and prayers go out to the folks in Texas who are dealing with Hurricane Harvey.
An ETF firm based in Connecticut is launching a new fund that will invest in bitcoin-based derivatives and other exchange products. REX ETFs, founded in 2014, filed to create the "REX Bitcoin Strategy Fund" on Friday, but instead of investing directly in the crypto-currencies, the fund intends to buy bitcoin futures contracts and exchange-traded notes. REX CEO Greg King stated: “The fund does not expect to invest directly in bitcoin, but rather the fund will invest in financial instruments that provide exposure to the price movements of bitcoin – including futures contracts linked to the price of bitcoin. We believe crypto-currencies are a phenomenal innovation that will impact finance and investing for decades to come." Earlier this month, the CBOE announced plans to launch bitcoin derivatives. Also, US-based money manager VanEck is looking to launch its own bitcoin ETF. Simultaneously, the SEC is looking into reviewing its rejection decision surrounding the crypto-currency ETF proposed by Cameron and Tyler Winklevoss.
Notice from the above chart on Lisk (LSK) there are various technical set-ups that would have allowed you to triple your money in less than 1 week. All 3 of these technical set-ups are perfectly aligned: (a) the RSI breaking through resistance, (b) the MACD crossing over on rising volume, and (c) the Bollinger Bands exploding past their Kelltner Channels. It’s these technicals that also exist within my crypto-currency recommendations below:
- Amazon (AMZN) – Buy Put Butterfly – Sept 15: +900 / -920 / +940
- Apple (AAPL) – Buy Butterfly – Sept 15: +155 / -160 / +165
- NetFlix (NFLX) – Buy Put Butterfly – Sept 1: +155 / -162.50 / +170
- UVXY – Sell Put Credit Spread – Sept 15: +22 / - 24
- Wynn Resorts (WYNN) – Sell Put Credit Spread – Sept 1: +128 / -130
- Russell Sm-Cap (IWM) – Sell Put Credit Spread – Sept 1: +132.5 / -134.5
- S&P (SPY) – Sell Put Credit Spread – Sept 1: +241.5 / -242
- Kohl’s (KSS) – Sell Put Credit Spread – Sept 1: +36 / -37.5
- Western Digital (WDC) – Sell Put Credit Spread – Sept 1: +85 / -87
- Gold Miners (NUGT) – Sell Put Credit Spread – Sept 1: +30 / -32
- Gold Miners (JNUG) – Sell Put Credit Spread – Sept 1: +16 / -17
- Nasdaq (QQQ) – Sell Put Credit Spread – Sept 1: +138 / -140.
- Ethereum (ETH), Litecoin (LTC), Dash (DASH), Decred (DCR), Digix (DGD), Lisk (LSK), Monaco (MCO), Pivx (PIVX), Augor (REP), Waves (WAVES), Ripple (XRP), Monero (XMR), and Z-Cash (ZEC).
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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