This Week in Barrons – 9-3-2017:
“We have 3 cats. It’s like having children – without the tuition.” Ron Reagan
The two most expensive elements in a person’s life are college tuition and housing. Student loan debt has ballooned to an all-time high of $1.4T, and student loan balances have jumped 150% over the past 10 years and now average over $34,000. For graduates, student loans may shape the rest of their lives – from buying a car and a home to getting married and having children. The percentage of borrowers who owe more than $50,000 for college has tripled over the past 10 years. 57% of recent graduates have expressed buyer’s remorse surrounding the cost of their education, and 36% said they would NOT have gone to college if they fully understood the associated costs.
And as far as housing is concerned, for much of this country’s working class the ‘American dream’ is dead. In the chart below, each bubble represents a city – with the color corresponding to the amount of money the average family has remaining after expenses. The darker the shade of red, the worse off you are.
San Antonio (Tx.) is the only one of the top 10 most popular cities where a working-class family can still enjoy a decent living. Out of the top 50 most popular cities, only 12 qualified for that same distinction. Geography plays a major role as: Newark (N.J.), Chesapeake (Va.), and Jacksonville (Fl.) are the only coastal locations where a worker can also support a family. How many of those same coastal locations were on the West Coast? None. The best location within the top 50 populated cities from a financial perspective is Fort Worth (Tx.) – which leaves a working family with a $10,447 surplus at the end of the year. On the flip side, that same family would need an additional $91,184 just to break even in New York City (N.Y.).
The Kauffman Foundation gave Pittsburgh (Pa.) a rare distinction this past week when they reported that Pittsburgh is currently tied for LAST place (with Milwaukee) among the 40 major metro areas – for entrepreneurship and new business creation. The U.S. Small Business Administration reports that nationally 20% of all new businesses fail within the first year. Kauffman puts that figure closer to 80% in Pittsburgh. There should be ‘Mentorship Wanted’ signs posted in every coffee shop in the ‘City of Champions.’
“I wonder what comes first, DOW 30,000 or Bitcoin 30,000?”… Ryan Vlastelica
These targets represent vastly different growth stories. The Dow Jones Industrial Average is currently trading around 22,000, and would need to rise about 36.5% to hit 30,000. Bitcoin is around $4,800, and would need to climb over 500% to make that same goal. But bitcoin (the world’s largest crypto-currency) has been on a blinding rally. Over the past 12 months it has soared more than 700% - gaining 400% year-to-date and doubling in the month of August. Repeating that performance over the next 12 months would be enough to put it across that finish line. However, the volatility in bitcoin isn’t for everyone, and because bitcoin lacks the traditional valuation metrics of stocks – a target of $3,000 could be just as plausible as one of $30,000.
But the saga surrounding digital currency isn't slowing down any time soon. The latest episodes occurred on Friday, when Dalia Blass of the Ropes & Gray law firm was appointed to lead the SEC’s Division of Investment Management – which approves and regulates exchange traded funds (ETFs). The twist here is that Dalia Blass represented the Winkelvoss twins in their efforts to create a bitcoin ETF. The SEC had rejected two bitcoin ETF proposals earlier in the year, but in their response left themselves a way out by indicating that if a regulated futures market for bitcoin were developed they might reconsider. Recently, the Commodity Futures Trading Commission (CFTC) gave LedgerX permission to create such a futures market. Coincidentally, the SEC has also agreed to hear an appeal from the Winklevoss twins. With Blass at the helm and a regulated futures market in the ‘wings’ – this entire market space could get turned upside down in a hurry.
Why does a bitcoin EFT matter? A bitcoin ETF would open-up bitcoin investing to institutional investors. It is currently difficult for institutions to invest in bitcoin because most mutual funds, hedge funds, and pension funds have specific rules about the types of assets they are allowed to own. Institutions are typically allowed to own ETFs, but not the underlying asset. Bitcoin is difficult to store, and requires additional security and backup processes. Many investors are either unwilling or unable to buy and store Bitcoin, but would like exposure to the asset itself. Here is where an ETF matters. A bitcoin ETF could be bought and sold just like a regular stock, but with all of the advantages of the underlying asset class. Those advantages include flawless transactional abilities, and the potential of building rule-based (smart) block-chain contracts. What’s a smart block-chain contract? Well, imagine that you were fortunate enough to get delivery and a loan for the latest Tesla Model 3. But you were unfortunate enough to miss a loan payment. A smart block-chain contract: (a) would know that you missed the payment, (b) could automatically refuse to allow you access to your vehicle until you made the payment, and (c) could autonomously drive the car back to the dealership.
Given this is Labor Day weekend, we learned on Friday that the U.S. created a measly 156,000 new jobs in August, and revised downward their job creation numbers for the previous several months. We fell short of the jobs estimate, and that 156k even included the 103,000 jobs created by the fictitious birth/death model. (As an aside, the monthly household survey found that we actually LOST 73,000 jobs.) The following ‘jobs’ chart was recently published regarding how automation and robotics will impact your specific job category over the next 10 years. The dark areas represent the number of jobs LOST in a particular sector.
It seems that the first jobs to fall will be those working in retail, fast food, driving, and corporate assistants. Henrik Lindberg, chief technology officer at Zimpler believes that about 50% of today’s jobs will be gone in under 10 years. Occupations that are expected to remain in demand are those that require compassion, understanding and moral judgment – such as nurses, teachers and police officers.
In terms of last week’s market action, Merrill Lynch tells us that mutual funds and ETFs that invest in U.S. stocks saw $2.6B in net outflows during the week that ended last Wednesday. That marks the 10th straight week (and the longest stretch in 13 years) where investors have pulled money from the markets – yet the markets continue to rise. Lord Jacob Rothschild, founder and chairman of RIT Capital Partners, has minimized his exposure to the “risky and unstable” U.S. market. He explains: “We do not believe this is an appropriate time to add to risk. Share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured.”
This past week Thomas Hoenig (Vice-Chairman of the U.S. Federal Deposit Insurance Corp.) published his letter to the U.S. Senate banking committee in which he proclaimed: “In 2017, U.S. banks used 99% of their net earnings toward purchases of their own stock and paying dividends to shareholders (including themselves). Therefore, they legally manipulated markets in plain sight by pushing their own share prices up using cheap money availed to them by the very Central Bank that is supposed to regulate them."
The ‘Big Three’ central banks (the FED, the European Central Bank, and the Bank of Japan) have collectively held rates at 0% for the past 10 years. They have purchased $14T worth of assets – worth a staggering 17% of ALL global GDP, and are still collectively buying $200B of assets per month. Add to that figure the Swiss National Bank, the Norwegian Sovereign Wealth Fund, and efforts from other sovereign funds around the globe – and you have to wonder about the end game. At this rate, Central Banks and sovereigns are going to OWN EVERYTHING in a relatively short period of time. They have been given free license to print money out of thin air, and spend it at their own pleasing. Quickly Central Banksters will be the majority shareholders in hundreds if not thousands of global companies. What happens then? These are the same Central Banksters that destroyed the currencies of 17 nations and implemented the ‘Euro’ as a test to prove that centralized planning out of Brussels is better than sovereign nations. These are the global elites. What happens when they own 51% of Apple, Facebook, GM, Exxon, Wal-Mart, etc.? To me, it’s scary to think that Central Banksters (that have no ‘skin in the game’ because they have printed their money out of thin air) are major shareholders (17%) in the largest corporations in the world. Is their end game to own everything? Because if it is, they’re well on their way.
"I've been around a long time, and life still has a whole lot of surprises for me."… Loretta Lynn
State-backed cryptocurrencies are key to the adoption of blockchain technology, according to Morgan McKenney an executive with Citi’s investment banking group. According to McKenney, every payment method has an environment in which it's best suited, and in any number of blockchain environments – cryptocurrency is the most suitable payment method. For example, ownership records of private market securities and other assets are currently largely held by lawyers and trusted third parties – requiring the presence of middlemen to conduct trades (including all IPOs). Blockchain and crypto-currencies can fulfill all of those requirements – without the middleman. Think about all of those banking and legal fees that corporations would save.
And this weekend is offering you a buying opportunity in the crypto market as bitcoin touched the $5,000 mark and immediately dropped 10%. Use this level to your advantage to purchase bitcoin (BTC/USC) at a discount. Ethereum (ETH/USD) rallied to my first target of $390 and was rejected. I’m using this as a buying opportunity – given ETH remains potentially the best technically positioned coin investment going forward. Litecoin (LTC/USC) ran all the way into my $90 target, where it also was rejected. As long as Litecoin remains above $70 (the top end of its channel), this depression should be short-lived and viewed as another buying opportunity.
For the S&Ps and Nasdaq, this next week should bring another push higher, and potentially see the S&Ps touch 2,500 and the Nasdaq 6,070. However, be wary of the financials (XLF) as they could be spoilers to this party. The Nasdaq (up 22% YTD) is riding Apple (AAPL) higher as it’s up 41% this year. If we wondered where some of that monthly $200+B is flowing, we need to look no further than Apple. Apple is up 61% over the past 3 years, and 41% this year alone. Apple has a new product launch scheduled for Sept 12th, and if its stock can rally an additional $30 a share – it will become the first U.S. company to cross the $1T mark in market capitalization. When that happens, the market cap of Apple will be slightly less than that of Mexico, and one of the top 20 global economies.
- Amazon (AMZN) – Buy Put Butterfly – Sept 15: +900 / -920 / +940
- Netflix (NFLX) – Buy Butterfly – Sept 15: +165 / - 170 / +175
- UVXY – Sell Put Credit Spread – Sept 15: +22 / - 24
- XLU – Buy a Put Debit Spread – Oct 6th: +55.5 / -53.5
- Baidu (BIDU) – Sell Put Credit Spread – Sept 8: -225 / +227.5
- Boeing (BA) – Sell Put Credit Spread – Sept 15: +230 / -232.5
- Gold Miners (NUGT) – Sell Put Credit Spread – Sept 8: +30 / -32
- Gold Miners (JNUG) – Sell Put Credit Spread – Sept 8: +16 / -17.5
- Palo Alto Network (PANW) – Sell Put Credit Spread – Sept 8: -41 / +42
- PayPal (PYPL) – Sell Put Credit Spread – Sept 15: +57.5 / -60
- Sina (SINA) – Sell Put Credit Spread – Sept 15: +97.5 / -100
- Twilio (TWLO) – Sell Iron Condor – Sept 15: +27 / -30 to -29 / +32
My Crypto-Currency Holdings Include:
- Ethereum (ETH), Litecoin (LTC), Bancor (BNT), Dash (DASH), FunFair (FUN), MaidSafeCoin (MAID), Metal (MTL), OmiseGo (OMG), PIVX (PIVX), Patientory (PTOY), 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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