This Week in Barrons –
8-13-2017:
“What’s coming is a big, self-driving truck that will
run over this economy.” … Antonio
Garcia Martinez – former Facebook Exec.
Thoughts:
The key is to embrace the right disruption
early – after all, you can’t fight innovation.
Sounds easy, but the issue is that disruption shows itself in many forms
with many false positives. Just the
other day I went for a walk through my local mall. As I walked around Macy’s everywhere I looked
there were signs saying: "Everything must go…40 - 60% Off." As
I made my way around the 100+ unit mall, I saw: closed stores, discount stores,
and no people. Don't get me wrong, this
place is not an old, dumpy mall. One
store that I walked into had just a few lights on and no air conditioning. The icing on the cake was seeing that a
plastic-surgery facility had opened up next to the Food Court. Is this the Amazon effect? I don't
think so.
E-commerce accounted for 11.7% of total
retail sales in 2016 – up 15.6% over 2015.
So, if on-line is just 12% of retail, what happened to the mall? I think people simply have less money to
spend – which coincides with credit card debit hitting an all-time high last
week. Add to that: car sales puking,
3,300 retail stores being closed, malls looking like downtown Detroit, and a
stock market closing near its all-time highs – this simply reinforces the fact
that the retail buyer is not out there putting their cash to work in the
market. It’s our Central Banks printing
money, buying stocks, keeping rates technically negative – that have kept this
market elevated.
What bothers me is not that our Central
Banksters are doing this, or even the rampant fraud and manipulation, what
bothers me is that our current financial media personalities are not calling
them out on it. Imagine the talking
heads saying: “Today’s market is up despite a bad jobs report that showed us
creating 395k part-time while losing 54k full time jobs, or despite corporate
earnings – which are actually 5% lower than they were in 2015. It’s up because of our Central Banksters and
the Swiss National Bank (SNB) that now owns $84.4B of our stock market. In December, the SNB owned $63B in U.S.
stocks. In March, they owned $80.3B, and
in June $84.4B. The SNB invested $17B
in Q1, but only $4B in Q2 – tapering their buying by 80%. Does this ‘tapering’ mean that they won’t
continue jamming this market higher?
Imagine if the ECB stopped their 103.4B purchasing of corporate
bonds?” A narrative like that from our
‘talking heads’ would be insightful.
Unfortunately, what we have is simply reminiscent of financial insight
from 1999 - remember:
-
David Kathman
saying: "Just by looking at the financial numbers, you wouldn't think that
GeoCities was worth $5B.” http://news.morningstar.com/articlenet/article.aspx?id=1106
-
James Glassman
& Kevin Hassett writing in Sept. 1999: "Stock prices could
double, triple, or even quadruple tomorrow and still not be too high."
-
David Kleinbard
saying in 2000: “Terra Networks Buys Lycos for $12.5B” http://money.cnn.com/2000/05/16/europe/terra/
AND said again in 2004: “Daum Communications Buys Lycos for Pennies at $95m.”
-
And then there
were Jim Cramer’s winning picks in Feb. 2000: “You want winners – okay – write
‘em down.” He then proceeded to produce
a list completely void of winners – which was tough to do even back then.
o
Ariba (ARBA) =
now out of business,
o
China Herb Group
(ISLD) = now out of business,
o
Exodus
Communications (EXDS) = now out of business,
o
724 Solutions
(SVNX) = now out of business,
o
Inktomi Corp.
(INKT) = now out of business,
o
Virtus
Investment Partners (VRTS) = now down by 80%,
o
Surna (SNRA) =
now trading for $0.12,
o
Mercury
Interactive (MERQ) = now out of business, and
o
Inspirit Energy
Holdings (INSP) – now trading at $0.16.
As you can see, disruptors are as tough to
spot today as they were in 1999. But
what’s different this time is that these same experts KNOW what they’re saying
is bogus because they’ve seen the movie before.
But they just continue to play the same old game. It then becomes our job to (a) recognize disruption
(i.e. the Tesla electric / autonomous truck), (b) understand the advantages
(less fuel & wages), and (c) figure out the cascading dominos (millions of
unemployed drivers & more re-charging stations). You need to take it upon yourself to analyze
the situation – because it’s neither their job nor their agenda.
The Market:
Well, the markets couldn’t pull off 10
consecutive ‘UP’ days. They probably
came up short due to the escalating tensions between the U.S. and North Korea. Specifically, President Trump’s words saying
that N.K. has to stop their threats, or N.K. will see ‘fire and fury’ like
never before. That statement moved gold and bitcoin higher, and stocks
lower. The discussion going on in the
Pentagon right now is: Do we go in with conventional weapons, take out
his nuke's, and his government – or do we leave it all alone, and wait until
he’s a true threat to LA?
I think China summed it up best when they
said: “Don't go in first". That is to say, if N.K. fires on a U.S.
installation such as Guam, China won't get involved. But, if we start something militarily, they
will be forced to step in and defend N.K.
FYI, one element that hasn't gotten much press is that N.K. has told the
U.S. that they are willing to talk about putting their nuclear program on hold,
if the U.S. and South Korea stop their joint military actions. We have refused to stop.
I have to think that over this weekend
calmer heads will prevail and the U.S. and N.K. will continue talking.
With that, our market could be in for a sharp rise on Monday. The first job for the markets will be
reclaiming the S&P’s 50-day moving average – with decent volume.
Eric Peters of One River Asset Management
sees a major shift coming and writes: “All previous periods of extreme asset
valuation required investors to imagine a vastly different tomorrow – a wildly
optimistic future. But today, they
expect the opposite. Due to unfavorable demographics and
over-indebtedness, investors expect yields to remain flat forever, interest
rates low into perpetuity, and inflation to be non-existent. They are using these low rates to justify
extreme valuations across other asset classes – causing a disconnect with the
real economy. Basically, they want tomorrow
to look EXACTLY like today. Bond yields can’t rise – despite every
major central bank looking to hike interest rates and exit QE. They expect governments to tolerate
historically high levels of income inequality – despite their citizens voting
for the opposite. And they expect rising
global debts will somehow be supported by declining global growth.” Eric sees a historic reversal, and is getting
long volatility.
One way to take advantage of increasing
volatility is to buy the UVXY, and another is to buy bitcoin. Bitcoin and other crypto currencies have had
some of their best rallies when viewed as a flight to quality. This weekend bitcoin (BTC) made another
record by smashing through the $4,100 level.
Crypto has tripled in value – year-over-year. As MCC said: “You don’t buy bitcoin (BTC) to
make 20% or 30%, you’re not hoping to see BTC go to $5k or even $10k, you’re
waiting for BTC to make it to $100k or $500k – so that the risk matches the
reward.” If we see additional market
adoption of bitcoin, you will see prices in the $100k to $500k range. I would recommend you visit www.coinbase.com and open a bitcoin
account. Use www.gdax.com to manage that account, and watch https://www.youtube.com/watch?v=lcCIjIAqM-4
to eliminate all BTC fees.
Crypto currencies are seeing user growth
continue to outpace government regulation.
They are seeing technical and toolkit advancement (charting, buying
& selling spreads, and options) continue to outpace user growth. And are looking for validation (maybe a
Russian volumetric block chain test) before going mainstream.
MCC goes on to explain that the crypto-community
is run by nerds – who’s reputations are built on code releases. Everyone
knows (for the most part) who is working on what and when it will be
released. Www.coinbase.com and www.gemini.com are the two most reputable
exchanges because they adhere to governmental regulations, and operate within similar
arenas as Fidelity or Vanguard.
Currently, crypto-networks will not support 300m people making daily
transactions, and that’s where off-chain vs on-chain scalability arguments take
shape.
Investing in crypto reminds me of those
early ‘Internet’ years, and requires that you pick the right disruptor. There is a clear separation between money
being thrown blindly at a crypto-dartboard, and investors armed with
understanding and the ability to ‘get-er-done’.
Some crypto products that I’ll be discussing over the next several weeks
and months will be: distributed exchanges (idex), cryptographically verifiable
hedge funds (iconomi), untraceable transactions with 0-knowledge proofs
(zcash), micro-transactions for browser-advertising (bat), verifiable fair
gambling (funfair), file storage reduction services (storj), and distributed
computing (golem) – to name a few.
Tips:
When I look at a chart of Bitcoin and see
the damage that was done in the market last week, I can only conclude that the
world is bullish on bitcoin. A 77%
month-over-month growth rate is nothing to sneeze about. And when I look at what’s in front of our
markets – North Korea is not the biggest hurdle this market has to climb. After all:
-
August is
historically the most volatile month, but Sept. and Oct. aren’t great either.
-
Margin debt is
at historically high levels. If
volatility persists, margin calls will begin and selling will beget more
selling.
-
Market internals
are crumbing, with the number of stocks making new lows dwarfing the number
making new highs.
-
Over th e past
100 years, a year ending in the number ‘7’ has always had a bad late summer and
fall.
-
And on August 1st,
the DOW Transports began to flash a ‘red’ sell signal.
Global financials (based upon the following
chart) are also in a precarious position.
Either European junk bonds need to fetch a higher return (which will be
difficult given the current negative interest rate climate in Europe), or U.S.
Treasuries need to decline in rates (which will be difficult given our FED’s
higher interest rate trajectory).
Heading into August options expiration week,
the equity markets are showing signs of tiring, especially the small cap index
(IWM). Look for Gold and Bitcoin to
continue higher while oil consolidates at resistance. Year-to-date the S&P (SPX) is up 8%, the
NASDAQ (QQQ) is up 19%, and the Small Caps (IWM) are up 0.7%. The financial sector (XLF) lost 4% last week
– leaving it up only 5% for the year.
The financials (XLF) and energy (XLE – down 16% for the year) are taking
their toll on the overall S&P performance.
Last week we ‘cracked’ outside the expected
move on the S&P (SPX) to the downside.
This coming week the levels on the SPX are 2483 on the high side, and
2400 on the low side. Consider 2438 as
an inflection point. If we begin to move
above that level, we should quickly explode to 2450. However, moving below 2438 would lead us very
quickly down to 2411 – and cracking below 2400 would cause things get crazy.
If you’re going to sell volatility this
coming week, do it in the VVIX or by buying the UVXY. The VVIX options are into their 87th
percentile – so that is clearly the place to sell volatility premium. Some other reasons to play a bounce next
week:
-
#1 The Put /
Call ratio is extremely elevated
-
#2 We have had 2
closes outside the Bollinger Bands, and that tells me we are due to revert back
to the mean.
-
#3 The Russell has
come down into its 200-day Moving Average – which tells me that this ‘flush’
has found support.
-
#4 And the Yen –
when reviewing time and price, should begin to fall and correspondingly move
our markets higher.
Recommendations:
-
Apple (AAPL) –
Buy the Sept 8th 160 (+1) / 162.5 (-3) / 165 (+2) unbalanced
Butterfly for a Credit of $0.76. This
has you risking $174 to make $300 with a 73% probability of winning the
trade. AND if Apple completely ‘tanks’ –
you get to keep the $76 credit.
-
Global Bitcoin
Fund (GBTC) – Bullish – buy the shares,
-
Alibaba (BABA) –
Bullish by selling a Put Credit Spread,
-
McDonalds (MCD)
– Bullish for a run into $165,
-
Nvidia (NVDA) –
Bullish and looking for support around $150,
-
NetFlix (NFLX) –
Looking for a Pin around $175,
-
Goldman (GS) –
Looking for a Pin around $225,
-
Simon Prop Gr
(SPG) – Looking for a Pin around $160.
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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