This Week in Barrons – 9-10-2017:
“Whether a balloon lives or dies, strictly depends upon where you fly it.”… Richard Branson
Most importantly, I would like to express my most sincere thoughts and prayers to those caught in the path of Hurricane Irma. I hope you are safe, and reading this in the comfort of friends and loved ones.
Before I purchase any asset, I first determine if I’m an investor, trader or speculator in that asset. My answer strictly depends upon whether I can accurately forecast the price of the asset at the end of a specific time horizon.
I frequently talk to people who tell me that they are long-term investors, but want to know why the asset they purchased last week isn't up 20% by now. I truly understand that when you put your hard-earned money to work – you would like to see results. And I’d like to think that a well-timed buy will garner a quick response. But it doesn’t always work that way because markets are inherently unpredictable. Just when a stock starts to move and you jump in long – Kim Jong-Un decides to fire a missile over Japan and the Dow sells off for 200 points. That doesn't mean that you made a mistake, but it does force you to decide whether you’re a speculator, a trader or an investor. Jesse Livermore (in his book Reminiscences of a Stock Operator) said: “A speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but rather to profit by an immediate rise or a fall in the price of that asset.” In Jesse’s world, speculating is not gambling but rather defined as “making an educated guess (with 70% certainty) about where an asset's price will end. And it’s only the degree of certainty that rises as you move from speculator, to trader, and finally to investor.”
Is gold an investment? A lot of people will tell you that because gold has no inherent value, you’re strictly speculating that gold’s price will go higher in the future. But that’s not true because the price of gold is directly correlated with the U.S. dollar. As the dollar loses purchasing power through inflation – the price of gold tends to rise. In addition, when the economic environment gets a little dicey, gold prices tend to rise as a ‘flight to quality’. You can't bank on gold in the same way as a dividend producing stock, but gold (as an investment) serves an important role in any portfolio – especially as a hedge against inflation and a stock market sell-off.
Is bitcoin an investment? You can't (at least not yet) value bitcoin in relation to the U.S. dollar. But there's no denying the incredible run bitcoin and other crypto-currencies have enjoyed. It's interesting to me that bitcoin has become somewhat of an alternative to gold. Bitcoin certainly has more utility than gold – because you can actually buy stuff with it, and crypto-currencies (in general) are gaining acceptance on the world stage. Even the CBOE (Chicago Board of Options Exchange) will be offering cash-settled bitcoin futures in the spring of 2018. That’s an important step as it will single-handedly begin to stabilize the price of bitcoin, and will therefore lead to many more people using and trading it. The question is: At what price will bitcoin stabilize? It seems certain that bitcoin isn't going away, and if you already own bitcoin – then you're investing based upon the price being higher in the spring than what it is right now.
Is biotech an investment? Back in June, I remarked about a cancer drug trial for a company called Loxo Oncology (LOXO). The stock recently gapped up from $49 to $70. But even after that huge jump, can Loxo go higher? After all, what's a truly effective cancer treatment worth? We can all try to put a number on it, but unlike gold and bitcoin – it’s value is often determined more by politics and emotions than correlations. For example, just a couple days ago Gilead Sciences announced that they were buying Kite Pharmaceuticals (another cancer biotech company) for $12B. That acquisition put all cancer-related biotechs (like Loxo) in play, and it’s only via speculation that Loxo's stock price will continue to climb higher.
Personally, I invest in gold and bitcoin, and speculate on biotech. I base my category decisions solely on whether I can (with over 70% certainty) forecast their price next week – next month – or next year.
Speaking of UN-certainty, last week Equifax decided to tell the world: ‘Opps, I guess we’ve been hacked. Yes, it was a while ago. And sorry we didn’t tell you before now.’ Equifax is one of the three major U.S. credit reporting agencies and (among other things) is responsible for calculating your credit score. It seems that earlier this year, hackers broke into the Equifax data repository through a website vulnerability, and stole the personal information of 143m Americans – roughly two-thirds of all adults living in the U.S. They appropriated social security numbers, birth dates, addresses, driver's license and credit card numbers. That’s a lot of personal information that’s out there being sold. Equifax said that it’s cybersecurity was lacking because it didn’t want to spend the money to adequately protect your information, but offered up a website that allowed you to report your identity theft. However, what they failed to tell you is that by checking the identity theft box on their own ‘consumer protection’ website – their terms and conditions are worded so that it absolves them of any negligence and prevents you from suing them going forward. Honestly, I think I’ll be investing in Equifax on the short side.
“You do the math.”… Meg Ryan from the movie When Harry met Sally
In terms of predicting the weather, the three best sites – that truly ‘do the math’ are: weatherbell.com, bearpawsweather.com, and tropicaltidbits.com. Weatherbell.com has both a free and premium side. The premium side is used mostly by hedge funds and farm conglomerates – people that have a lot riding on how the weather will impact their crops. But the free side is packed with enough information that you can get a pretty good glimpse of what's coming your way. Joe Bastardi is one of their forecasters, and is about as good as it gets. He predicted that Hurricane Irma would hit the western side of Florida when everyone else was saying that it was going east – so he’s got my vote. If you want to look at the tropics, and get a really inclusive view of what's out there and where it might be going – then visit: bearpawsweather.com. They put all the charts, satellite photos, spaghetti tracks, cones, and official statements in one place. And on tropicaltidbits.com you will find the latest tracking models. The site allows you to pick what predictive model you would like, and proceed through it – hour by hour. Based upon the models that I’m seeing, I truly hope that somebody got the math ‘wrong’ on this one – because Irma looks to be the real deal.
Historically, the S&Ps have declined 2% over the 10 days before and after a major hurricane. The effect tends to moderate going forward due to the pickup in public and private spending. Underperformance is most noticeably felt in sectors such as: insurance, hotels, restaurants, airlines, telecom and cable providers (due to capital expenditures related to repair and cancellations), and industrials (due to rising supply costs, disruption in production, and transportation). The out-performing sectors are those tied to repair and replace such as: energy equipment and services, communication equipment, automobiles, air freight, distribution, basic materials, and engineering companies. The top performers typically are in the transportation-distribution sector (rising 3.1%), with construction materials coming in second (rising 2.9%).
This past week we learned that FED Vice-Chairman Stanley Fisher submitted his resignation effective Friday, October 13th. Mr. Fisher you’re right – it’s not as much fun navigating the world's largest economy when you are raising interest rates and paying back debt – versus pushing rates to 0% and printing money like there’s no tomorrow. In his letter to President Donald Trump, he cited personal reasons for his departure from his term as vice chair – that was set to expire on June 12, 2018. He knows the deal, and wants out before this thing really turns ugly.
September is a notoriously weak month for the stock market, and a couple of hurricanes could compound that weakness. Hurricane Harvey has already hurt the job market. Last Thursday the federal government reported that initial jobless claims surged 27% to the highest level in over two years. Most of that increase came from Texas. The markets are wary that Hurricane Irma will have an even larger impact on the broader U.S. economy.
Right now, it’s hard to be excited about the long side of this market – but that’s not to say it’s a ‘no-brainer’ going short either. The financials are rolling over. The energy sector (which was rallying after Hurricane Harvey) announced that it’s taking a break. For a stock to move higher – you need a lot of coordinated buying. However, for a stock to fall you do not need concentrated selling, but rather simply a lack of buying. Think of it like this: Nvidia (NVDA) is a great company, but what if everybody who wants to own NVDA – already owns it? Very seldom does a stock like NVDA trade sideways until finding more buyers. What most often happens is that institutions and ‘buy-n-holders’ have pre-set stop-orders on their NVDA shares. Meaning, that if NVDA falls to a certain level – it will automatically trigger their shares to be sold. Unfortunately, today’s markets are really good at ‘finding liquidity’, and will tend to drift toward these pre-set levels in order to intentionally trigger sell (or buy) orders. Selling often begets more selling and stocks like NVDA will then begin to drift lower until either: (a) corresponding buy orders are found underneath a much lower level of support, or (b) some brave souls attempt to ‘catch a falling knife’.
The pockets of strength in this market are somewhat localized to the biotech sector as of late, as we have a true flight to quality going on with bonds (TLT), the Yen (FXY), and gold (GLD). These safety plays along with a small ‘dead-cat’ bounce are reflected in my recommendations below. I will continue to discuss various shenanigans surrounding bitcoin and other crypto-currencies next week, but for now I’d like to reiterate my hopes and best wishes for those trapped in Hurricane Irma’s line of sight.
- UVXY – Sell Put Credit Spread – Sept 15: +26 / -26.5
- Gold Miners (DUST) – Sell Put Credit Spread – Sept 15: +17.5 / -18.5
- Boeing (BA) – Sell Put Credit Spread – Sept 15: +230 / -232.5
- Gold Miners (NUGT) – Sell Put Credit Spread – Sept 15: +37.5 / -38.5
- Gold Miners (JNUG) – Sell Put Credit Spread – Sept 15: +20.5 / -22
- Twilio (TWLO) – Sell Iron Condor – Sept 15: +27 / -30 to -29 / +32
- Lulu Lemon (LULU) – Sell Put Credit Spread – Sept 15: +57 / -57.5
- Ultra-Financials (UYG) – Sell Put Credit Spread – Sept 15: +89 / -90
- Small-Cap Bull (TNA) – Sell Put Credit Spread – Sept 15: +50 / -51
- SodaStream (SODA) – Sell Put Credit Spread – Sept 15: +54 / -55
- Ultra-Dow 30 (UDOW) – Sell Put Credit Spread – Sept 15: +59 / -60
- Athena Health (ATHN) – Sell Put Credit Spread – Sept 15: +125 / -126
- Avis (CAR) – Sell Put Credit Spread – Sept 15: +35 / -36
- Applied Opto (AAOI) – Sell Put Credit Spread – Sept 15: +51.5 / -52.5
My Crypto-Currency Holdings Include:
- Ethereum (ETH), Litecoin (LTC), Dash (DASH), Digix (DGD), MaidSafeCoin (MAID), Metal (MTL), OmiseGo (OMG), PIVX (PIVX), Patientory (PTOY), Steem (STEEM), and NEM (XEM).
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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Until next week – be safe.