This Week in Barrons - 9-17-2017

This Week in Barrons – 9-17-2017:

“Bitcoin is a fraud.” … Jaime Dimon (CEO of JP Morgan Chase) … 9/12/2017

Mr. Dimon – You’re losing the ‘Race for the (fiat currency) Cure’:

Mr. Dimon, this past week at the Developing Alpha Conference I heard you call bitcoin a fraud.  Not minutes after you finished your statement (as seen by the graph above detailing bitcoin purchases) your bank started buying bitcoin hand-over-fist.  Your bank finished that day’s crypto-buying frenzy slightly behind Morgan Stanley but ahead of Credit Suisse in the ‘Race for the (fiat currency) Cure’.  The above snapshot combines client and bank crypto-purchases, but I was a little surprised to see JPM as the 4^th most active buyer of bitcoin notes on a day where you called it a ‘fraud’.  It’s yet another example of a bankster doing their variation of the ‘pump-and-dump’.  I just thought that you (being one of the world’s most influential banksters) after calling bitcoin a fraud – would have instructed your bank to be net ‘sellers’ and NOT net ‘buyers’ of crypto for at least one day.

But it goes further than that – doesn’t it Mr. Dimon?  JPM doesn’t simply purchase bitcoin notes after you call it a ‘fraud’, JPM is also heavily immersed in the ‘blockchain’ technology associated with the crypto-currency world.  In fact, JPM has applied for over 175 U.S. ‘bitcoin alternative’ patents since 2013.  JPM is also working on additional Ethereum-based blockchain solutions alongside Zcash’s (another crypto-currency) development crew.  To jog your memory, your Ethereum project is called ‘Quorum’, and has its own Github repository that explains how the permissioned blockchain does not need consensus mechanisms like Proof-of-Work (POW) or Proof-of-Stake (POS).

Oh Mr. Dimon, if that memory escapes you – maybe a picture of one of your previous derivative executives Ms Blythe Masters, (pictured above) along with a Bitcoin appreciation chart will jog your memory?  After all, Ms. Masters (after leaving JPM) started her own blockchain firm called Hyperledger which is now run by the Linus Foundation with Ms. Masters remaining on its board and heavily involved with their blockchain efforts.  And you must remember the departure of your former 50-year-old veteran commodities trader, Mr. Daniel Masters, who joined JPM right after college and recently left JPM announcing the Island of Jersey’s first fully regulated Bitcoin hedge fund.  It seems that his Global Advisors Bitcoin Investment Fund (GABI) will hold bitcoin denominated in sterling, and focus on U.K., European and Middle Eastern clients.

Mr. Dimon, if you think bitcoin is in a bubble – according to currency experts: you ain’t seen nothing yet.  They are expecting bitcoin to surge over 300 times – when it is granted ‘legitimate currency’ status.  Iqbal Gandham, U.K managing director at eToro, has mapped other ‘legitimate currencies’ against bitcoin and the math is telling him that once bitcoin attains ‘legitimate currency’ status – it will be worth upwards of $1m per coin.  He simply equated the Satoshi (the tiniest component of bitcoin = 0.00000001 bitcoin) to the ‘penny’ and asked the question: “When the Satoshi equals one penny – what does bitcoin equal?”  The answer becomes over $1m per coin.  This also falls in line with John McAfee’s prediction of bitcoin reaching $500,000 over the next 3 years.

Mr. Dimon, you do remember that you and your fellow banksters were the impetus for bitcoin – as it was created at the height of your financial crisis - yes?  It emerged as one of the clearest alternatives to government-backed currencies.  It is decentralized from central banks or governments, and underpinned by a blockchain technology that acts as a non-alterable digital ledger.  In fact, for many, the blockchain technology is the most crucial and lucrative aspect of the crypto environment.  It’s that aspect in particular that allows it to execute things like: mortgages, stock trades, and loans without any bankster intervention.

Mr. Dimon, your exact quote was: “Bitcoin is a fraud because it’s value is being driven by speculation and not by utility.”  If you’re saying that bitcoin has not seen wide-spread adoption for day-to-day transactions, and is missing that ‘killer app’ – you’re right.  But, the number of bitcoin transactions occurring across the globe has been rising by leaps-and-bounds in 2017.  And those ‘killer apps’ that you wish to see are not only being built by independents but by the likes of: Microsoft, Google, Oracle, Apple, and JPM as well.  So, I must assume (at this point) that the crypto-currency ‘fat lady’ is warming up.  Sure, there are regulatory rumblings out of China in order to better control their ICOs, and yes, the Chinese have closed 3 crypto-exchanges.  But that leaves over 20 open and active crypto-exchanges, and China is still doing the bulk of global bitcoin mining.

In fact, just this week Merrill Lynch named bitcoin along with the FAANG stocks their two most ‘crowded trades’.  Their survey is one of the most respected on Wall Street as it includes over 200 global fund managers with at least $600B under management.  ‘Crowded’ simply means investors believe that there are too many people on one side of the trade, and it could be due for a reversal.  But I don’t see you calling Facebook, Apple, Amazon, Netflix and/or Google frauds.  And I haven’t seen any of those stocks on your ‘must sell’ list.

So, Mr. Dimon, it appears that your ‘bitcoin is a fraud’ remark was not only a well-time publicity stunt, but also an extremely profitable one to JPM.  Unfortunately, you cannot hide the fact that JPM is deeply invested in blockchain technology, and JPM (like hundreds of other financial institutions) is just hoping that it won’t be totally replaced by crypto and blockchain technology in the years to come.  I’m often reminded of the great Henry Ford quote: “If the people ever understood the banking system…there would be a revolution in the morning.”

The Markets:

Factually:

-       The S&P 500 reached the 2,500 mark for the first time while posting its largest weekly gain since January.  These gains came together with the news that the Republicans in Congress are preparing to release the outline of a tax reform plan later this month.

-       Traders paid little attention to another missile test by North Korea.

-       The Japanese Yen saw its biggest weekly fall in 10 months, and the U.S. dollar its largest rise since April.

-       And OPEC is forecasting higher demand for its oil in 2018, and is pointing toward a tighter global market.  The International Energy Agency (IEA) is also reporting that the oil glut is shrinking due to the strong European and U.S. demand along with production declines.  Of course let’s see what happens once Houston comes fully back on-line.

What continues to bother me is our underfunded corporate and government employee pension plans.  Boeing (as an example) for the past decade has largely neglected its pension fund deficit – all the while doling out lavish rewards to its shareholders.  What is causing me to raise an eyebrow is how Boeing plans on fixing this problem.  Just last month, Boeing made its largest pension contribution in over a decade when it transferred $3.5B of its own stock into the pension fund.  It's a bold move, and to pension experts, one that isn’t worth the risk.  Why didn’t they just ‘cash-out’ the shares and transfer the cash into the fund.  Instead, after a record-setting 58% rally this year, Boeing is betting that it can keep producing the kind of earnings that push their shares even higher.  If all goes well, not only will the pension fund benefit, but Boeing says it will be able to forgo contributions for the next four years.  If anything goes awry, the $57B pension fund (which covers a majority of its workers and retirees) could easily end up worse off than before.

            So, the pensions (and retirement) of so many of Boeing’s employees - rest on the idea that the market never crashes.  Does anyone but me see a problem with that?  This is just like the Norwegian wealth fund, which wants 70% of its pension money in equities.  Either they know that the Central Banksters will never let stocks fall, or they've been conned into something truly frightening.  My guess is that they have seen so much financial engineering, and so much manipulation, that they're banking on things going just swimmingly forever.  Maybe they should consider the following headline: “CVS Needs Aggressive Buybacks to Meet FY18 Estimates.”  Jefferies (the brokerage house) is saying that based upon organic growth, revenue, and expense estimates – the only way that CVS is going to make its earnings projections is by re-purchasing a lot of their own stock and thereby reducing the number of shares outstanding.  I’m guessing that CVS will sell corporate debt to fund a massive stock buy-back program, boosting earnings per share, while incurring a huge debt liability during a time of rising interest rates.  Who does this benefit again – oh yeah – the current executive team.

            Market-wise, the 3 major U.S. stock benchmarks ended the week on a bright note despite the twin hurricanes.  Unfortunately, the devastation brought about by Harvey and Irma in succession will have a negative impact on the U.S. economy.  The early estimates indicate that the effects will have a downward impact on third-quarter growth.  According to economists, the damage by Harvey could reach $160B – which should earn it the notorious distinction of being one of the costliest storms on record.

            There is an FOMC meeting this coming week.  The good news for the meeting is that the U.S. dollar is being ‘crushed’ as of late, and that increases the probability of higher inflation going forward.  The markets are not anticipating anything coming out of the meeting, and expect the meeting to have a more-dovish stance than normal given the storms.

            What has me worried for this coming week is the SKEW.  The SKEW measures the value of the out-of-the-money puts against the out-of-the-money calls.  The SKEW is currently extremely high (sitting around 1.45) and is saying that more investors are buying out of the money puts (hedging against stocks going down) than calls.  It’s also telling me that the experts are looking for the market to move in larger increments this coming week.  So, when the pros tell me that this ‘wild market ride’ is going to continue a while longer – I’d best listen.

Tips:

Recommendations:

Bullish: (Sell PCS = Sell a Put Credit Spread):

-       Applied OptoElec (AAOI = 58.3) – Sell PCS – Sept 22: +53/-53.5

-       Gold Miners (DUST) – Sell PCS – Sept 22: +20.5 / -21.5

-       First Solar (FSLR = 50.45) – Sell PCS – Sept 22: +44/-45

-       Gold Miners Bear (JDST = 49.38) – Sell PCS – Sept 22: +45/-46

-       Lumentum Hldgs (LITE = 57.25) – Sell PCS – Sept 22: +52.5/-53

-       Restoration Hdwr (RH = 73.3) – Sell PCS – Sept 22: +68.5/-69

-       Shopify (SHOP = 120.26) – Sell PCS – Sept 22: +109/-110

-       SPX Futures (SVXY = 86.04) – Sell PCS – Sept 22: +75/-76

-       UltraBull QQQ = (TQQQ = 115.11) – Sell PCS – Sept 22: +110/-111

-       Wayfair (W = 79.76) – Sell PCS – Sept 22: +73.5/-74.5 for $0.15

-       DBV Technologies (DBVT = 43.46) – Sell PCS – Oct 20: +10 / -15

-       Axovant Sciences (AXON) – Sell Iron Condor – Oct 20: +5 / -15 to -22.50 / +40 // and Buy a Call Debit Spread – Oct 20: +20 / -40

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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