RF's Financial News: October 2017

Sunday, October 29, 2017

This Week in Barrons - 10-29-2017

This Week in Barrons – 10-29-2017:

“My grandfather and Thomas Edison sold electric cars at the 1900 Paris World’s Fair.” … Al Jardine

Thoughts:

I remember growing up in York, Pa. with the milkman delivering our milk in an electric truck – so as to not wake-up the neighbors. Those electric trucks were: reliable, oblivious to outside temperatures, but required a pretty ‘hefty’ battery. Factually, the sun blankets the earth with enough solar energy in one day, to power everything on the planet for a year. We simply need a process to harness that energy, and a battery to store it. After all, a lot of power is required to push 2,000+ pounds of electric vehicle (EV) 200 miles, at highway speeds, with the electronics and HVAC running. In a perfect world, you would: install 12 solar panels on the roof of your house, capture enough energy in a day to charge your storage batteries, and use those batteries to re-fuel your car overnight. But we ain’t there yet. While battery technology has come a long way in the last 100 years, it still: doesn’t hold a charge long enough, gives back the energy unevenly, takes too much time to re-charge, and ‘quits’ after X number of cycles.

In 2015, the world purchased 1.26m electric vehicles. In 2016 sales increased by 58%, and in 2017 sales have increased 86% year-to-date. Cities are passing laws against fossil fueled vehicles: Oxford (UK) will be all-electric after 2019, Oslo by 2022, and Paris by 2030. Because of the increased EV demand, manufacturers are trying to incorporate more exotic materials (like lithium, graphene, cobalt, and graphite) into the manufacture of their batteries.

If you haven’t tried driving an EV, go to www.turo.com and rent one for a day. The first thing you’ll notice is how quiet it is. There is simply no engine noise. Secondly, you’ll notice the power. These silent beasts launch themselves effortlessly from a stop, and are nothing short of pure fun. From there the questions start: (a) How much does it cost? (b) How does it drive? (c) How far will it go on a charge? And (d) Do I need a home charging unit?

I chose a Nissan Leaf (EV) as a typical, middle-of-the-road example:

The sticker price of this car is: $35,445

- Dealer handling fee +$600

- Dealer discounts (-$4,500)

- Nissan Finance Discount (-$6,000)

- Federal Tax Credit (-$7,500)

- State Tax Credit (varies) (-$4,653)

The net cost for this fast, silent, pollution-free, almost free to refuel, carpool-lane eligible, and almost luxury car is an amazing: $13,391. However, in order to get the $6k financing discount, you must agree to a zero-money-down, 0% loan for 72 months. This apparently is a combination of negative interest rates in Japan, and the tendency of buyers to spend money on add-ons like service plans and extended warranties (which can be rejected). It comes with an 8 year, 100,000-mile warranty. The Leaf felt faster than my current car, and only a couple of notches below the Tesla Model S – which is so fast and fun that it’s dangerous (for me). The Leaf goes 110 miles on a charge, and refuels overnight when plugged into a normal outlet – or in 30 minutes at a DC charging station. It gets over 115 miles per gallon – which is 6X my current car’s mpg.

I’m not a rocket scientist, but: if the demand for electric cars continues to annually double, and if cities continue to ban the internal combustion engine – then more batteries are going to be required and ‘not included’. And correspondingly the demand for the chemicals that go into these batteries is also going to go through the roof. The current ‘battery du jour’ is the lithium-ion battery with its high-energy density and specific cathode formulations. Graphite is the most common material used in the anode, and the electrolyte is most often a type of lithium salt suspended in an organic solvent.

I wouldn’t recommend jumping on every company that happens to mention graphite and lithium in the same sentence; however, there are a handful of companies that are well positioned in the space. One of the best is the Albemarle Corporation (ALB), specializing in lithium, bromine, and refining catalysts. While currently trading at $139/share – they’re expensive, but they are the ‘best-of-breed’. Right behind them is FMC – also expensive, but well positioned in lithium. Third in line is SQM. After those three names, we fracture into some smaller and more interesting companies:

- LACDF is based out of Vancouver, and has a new project working in Nevada. If it works, it will turn this $1.60 stock into a $5 or $10 overnight.

- Mason Graphite (MGPHF) is a $2 stock that also has some interesting new areas coming on line.

- SYAAF has large graphite reserves.

- And if you like ETFs, LIT is the lithium based ETF, and REMX is the rare earth and strategic metals ETF.

Those are my choices for companies that will be providing the chemicals that will help store electricity, and power our cars going forward. Take a look at them and see if there's anything in there that ‘shocks’ you on this Halloween eve eve.

The Market:

Friday was more ‘treat than trick’ and a big day for ‘tech’. Factually:

- Google is still bringing in the big ad dollars, and its profits are soaring.

- Amazon is going ‘gang-busters’ – especially with the addition of Whole Foods to its shopping cart. Unfortunately, no one on the earnings call asked Amazon why their tax rate fell from 46% to 18%. Also, nobody seemed to care that Amazon’s retail operations still lost $822m last quarter, and the profits from AWS (their cloud operation) were over $1B – aided by one very large, $600m customer – the C.I.A.

- Twitter shocked the world by saying that ‘might’ be profitable (for the first time) next quarter.

- Rumors are swirling around Apple that their iPhone 8 sales are under the weather.

- CVS isn’t taking anything lying down as it announced that it is in talks to buy insurance company AETNA for more than $66B.

- Chipotle discovered that it needs to hire better ‘financial engineers’. They allowed their earnings miss to bring down their stock price. Versus GM, who still LOST $3B, but made a big deal of their operating profits beating estimates – so their stock price rose.

- GE remains in a heap of trouble. With their stock being down 30% this year, their new CEO, John Flannery, is slashing costs by delaying building their new Boston HQ, grounding their fleet of corporate jets, and disposing of the company cars for top execs.

- Economic data propped up Wall Street last week as the U.S. economy expanded at a solid 3% annual pace.

- The University of Michigan’s consumer confidence survey showed that consumer sentiment in October was the strongest it’s been in 13 years. Over half of all respondents expect good times next year, and anticipate the expansion to continue uninterrupted for the next 5 years.

Last week the ECB announced the ‘almost-tapering’ of their QE program. When you read through their announcement, depending upon what happens – nothing changes. I mean, currently the ECB prints 60B Euros a month – and uses them to buy corporate debt, bonds, and stocks. The plan is to cut that to 30B a month starting in January, 2018 – and move the ending date of QE out to September of 2018. So, they’re planning on doing less – for longer. But the details revealed that: “if the outlook worsens, the council can opt to increase QE in both size and duration.” So, they’re going to taper unless something looks funky, and then they'll go right back to doing 60B Euros (or more) per month.

This week Warren Buffet chimed in (again) on bitcoin – joining those who believe it is in bubble territory. "You can’t value bitcoin because it’s not a value-producing asset," he said. In 2014, he also advocated that investors stay away from bitcoin entirely by saying: “It’s a mirage.” Of course, we all know how bitcoin has rocketed higher by over 1,000% since his Warren’s 2014 remark. So, if history is our guide, we should all invest in bitcoin and wait for the next 1,000% increase.

Last week French investment bank Natixis urged investors to prepare for: “The U.S. economy to slow down substantially as early as 2018. There is a limit to the rise in the participation rate and the employment rate; given real wages are slowing down," wrote analyst Patrick Artus chief economist at Natixis. "Investors should therefore prepare for the consequences which would include a brief rise in interest rates, a market sell-off, and a depreciating dollar.”

Analysts from Goldman Sachs (GS) have identified the big winners from Trump's tax plan, and it is the companies that will be re-patriating their overseas cash. These U.S. companies stand to bring back $250B in foreign profits if the tax legislation is passed. The biggest beneficiaries of a repatriation tax would be tech companies. The tech sector accounts for 70% of the total S&P taxable cash stashed abroad. The top stocks set to benefit are: Apple, Citrix Systems, Cisco Systems, Juniper Networks, Microsoft, NetApp, Oracle, Qualcomm, Verisign, and Western Digital. Currently, S&P companies have about $2.5T in permanently reinvested overseas earnings, including about $920B of untaxed overseas cash. Goldman estimates a repatriation tax reduction like the one proposed (an 8.75% tax on cash and 3.5% tax on earnings) would result in $250B gradually returning to the U.S. – while $540B would remain overseas. The non-tech companies that would reap the most benefits from repatriation are: Abbott Labs, Amgen, Foot Locker, General Electric, Johnson & Johnson, Merck, Priceline, Ralph Lauren, and Waters Corp.

Heading into the last days of October the equity markets look strong. I’m looking for gold to move lower in the short run, while crude oil looks for a new 52-week high. The U.S. Dollar has renewed strength and looks to continue higher, while U.S. Treasuries are biased lower but at long term support. Watch for emerging markets to move higher as they’re holding right below break out levels. Volatility looks to remain low – keeping the bias higher for the equity indexes. The indexes also are looking to move higher on both the short and intermediate timeframes, though the small-cap index (IWM) may need a swift kick-in-the-pants to get out of its consolidation phase.
The Q3 earnings season is past the halfway mark with results from 54% of the S&P 500 members already out. Total revenues for the 272 S&P 500 members that have reported are up +6.7% from the same period last year. However, when this earnings window closes, the next thing that the market is going to be looking for is a December interest rate increase. Could the end of earnings and another quarter point rate hike, finally be the bell that signals funds to take some profits off the table? It certainly could be. Even if you're the biggest bull ever minted, you have to know that this market can't go straight up forever. Every bubble eventually finds its pin.

But, we’re in the middle of a ‘melt-up’ period like 1999 – where all bad news is ignored, and all good news is rewarded. I expect that the early part of the week will include some ‘backing and filling’ after that huge ‘up-day’ on Friday. The pattern has been to buy-the-dip (BTFD). So, if you’re looking for some quick action, a market stall on Monday could be your chance. After all, ‘red’ days are few and far between, and if we get one – it will often be erased the next day. Lean long, and hope for the best. This is definitely 1999’s déjà vu all over again.

Tips:

Research shows that big institutional money is currently staying out of Bitcoin. But honestly, very few investors saw the beginning potential in Amazon, and some are still calling it a bubble. Disruptions are not easy to understand, and historical metrics fail when judging new concepts. Most big names (including Warren Buffet) are in denial, and are praying for a crash to say: ‘I told you so’.

Bitcoin / BTC ($5,710): After days of rally, gravity is finally catching up with Bitcoin. Currently, it is finding it’s 20-day EMA support just above $5,500. If support at $5,500 breaks, it could easily slide to $4,950. Also, the RSI is forming a negative divergence. The previous two negative divergences were followed by a sharp drop in prices. On the other hand, if the support holds then Bitcoin is likely to remain range-bound between $5,600 and $6,000 – with the next buy zone being triggered by it making new highs. I don’t have any ‘buy’ set-ups just yet.

Ethereum / ETH: ($295): Ethereum’s chart has formed a large equilateral triangle pattern. It has resistance from $300 to $315, and the first level of support is at $275, where we find both the trend line support and the horizontal support. If this support level breaks, the next lower support is $250. I will wait for clear signs of a bottom formation before recommending any trade.

Litecoin / LTC: ($54): Litecoin did not hold my $57 support level and is back into the $44 to $57 range. It has support at $55 and again at $50, below which it will fall to the lower end of the range at $44. The first signs of bullishness will be when the digital currency breaks out of the downtrend line and rallies above $58. Until then, all pullbacks are likely to be sold into.

Recommendations:

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

- Cirrus Logic - CRUS (122.85) – Sell PCS, Nov 3^rd: +51 / -52, $0.17

- Financial Bull - FAS (61.02) – Sell PCS, Nov 3^rd: +57.5 / -58.5, $0.20

- Jr. Gold Miners - JDST (65.09) – Sell PCS, Nov 3^rd: +56.5 / -58, $0.25

- Marathon Pete - MPC (58.47) – Sell PCS, Nov 3^rd: +54 / -55.5, $0.20

- Royal Carib - RCL (124.21) – Sell PCS – Nov 3^rd: +119 / -120, $0.37

- Restoration Hware - RH (86.64) – Sell PCS – Nov 3^rd: +79 / -80, $0.25

- Short Vix Fut - SVXY (106.27) – PCS – Nov 3^rd: +95 / 96.5, $0.27

My Crypto-Currency Holdings continue to Include:

- Bitcoin (BTC), 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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Sunday, October 22, 2017

This Week in Barrons - 10-22-2017

This Week in Barrons – 10-22-2017:

Last week former President Barack Obama offered these words: “If you have to win by dividing people – you won’t be able to govern or unite them later.” Former President George W. Bush echoed a similar sentiment: “Our arguments are turning too easily into animosity. Our disagreements are escalating into dehumanization. We’re judging other groups by their worst examples, and ourselves by our best intentions.” Because after all what are we … Barbarians?

Prime Minister Rajoy of Spain should be giving a big thumbs-up to that ‘barbarian’ remark. This week he is expected to take formal control of Catalonia (the semi-autonomous region in northeast Spain that includes Barcelona). Earlier this month, Catalonia voted to break up with Spain. Spain said the vote was unconstitutional, and has repeatedly called on Catalonia to back off its plans. Catalonia sent those calls directly to voicemail. The result is that next week Spain will make the bold move to remove the Catalan leaders, and bring the region under their direct control. Investors beware – this will not only test Spain’s democracy, but could also mark a spread to other areas of the European Union.

Yescarta surfaced last week as a newly FDA approved gene therapy for cancer patients treating adult lymphoma. Doctors pull cells from a patient's immune system, genetically modify them to attack and kill cancer cells, and then inject them back into the patient's body to fight the disease. The good news is that virtually all of the treated patients saw their cancer shrink or disappear. It’s ‘barbaric’ to learn that the drug costs almost a half-million dollars per patient.

Do you find Amazon’s behavior – of having cities bid for the location of their next HQ – a bit ‘uncivilized’? They’re promising a $5B facility, and 50,000 jobs over the next 20 years. While the city groveling was embarrassing, the taxpayer-funded incentives are worse. With virtually all of the 100 bidding cities begging and bankrupt, Seattle (their current HQ site) is saying ‘bye and good riddance’.

I find it ‘crude and unrefined’ that Nielsen (the company that tracks our TV viewing) still measures it as if we were back in the early 90’s. In fact, Nielsen just announced that it will soon begin to track the streaming services (Hulu, Netflix, Amazon, etc.) – with one small exception. It won't be tracking people who are watching on their phones, and some other portable devices. So Nielsen, it seems we’re still back in the ‘stone-age’ because you can’t track ANY of the 15 hours per week that the average millennial spends consuming video content.

Last week, the barbarians finally caught and killed Daphne Caruana Galizia using a car bomb. She's the investigative journalist who was reporting on the Panama Papers in Malta. Last year, she exposed the offshore accounts and shell companies that politicians, officials, and celebrities used to hide their wealth. Most recently Ms. Galizia was leading the charge on completing the puzzle, and was (until recently) a “one-woman Wikileaks.” R.I.P.

   And then there’s Bitcoin that hit another all-time-high of over $6,100 per coin last week – a 500% year-to-date increase. In fact, a $1,000 Bitcoin investment in 2010 would be worth over $35m today. Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, sees 2 scenarios that would potentially send Bitcoin into the stratosphere:
-       A user-profile expansion that would include institutional money such as endowments, foundations, and pension funds. After all, even institutional investors can contract FOMO (the fear of missing out).
-       A bigger catalyst would be a downturn in the U.S. stock market. Carlson writes: “Endowment funds would flow into Bitcoin, if there was evidence that it acted as a diversifying asset during a stock market correction. And once a few pulled the trigger – the herd mentality would kick in.”

   Abigail Johnson (Fidelity Investments CEO and a ‘crypto’ supporter) see 4 barriers to adoption:
-       Technology: “There is currently a tradeoff between privacy, scalability, and achieving peer-to-peer settlement. Right now, you can’t have all three.”
-       Regulation: “Innovation is outpacing regulation. Regulators still have a steep learning curve, and that will cause growing pains.”
-       Control: “Bitcoin’s network (by design) has no formalized structure, and institutions would like the ability to influence the developer community.”
-       Humans: “Crypto is often seen as a solution in search of a problem. We need use cases that drive clear benefits for individuals and institutions.”

Ms. Johnson continues: “This technology has the capability of doing for the transfer of value what the internet did for the transfer of information. I’d love it if the technology itself became slightly less ‘barbaric’ and more civilized and refined.” After all, the most recent poll shows that nearly 60% of all respondents believe that Bitcoin will hit $30,000 (from $6,100) before the Dow Jones Industrial Average does (from $23,000). Watch out for Bitcoin to continue to bring out the ‘barbarian’ in all of us.

The Markets:

It's hard to come up with riveting commentary about a market that only goes up. Despite the fact that it is earnings season and thousands of companies are spilling their guts about their last quarter – in many ways it’s worthless drivel. After all, IBM released earnings last week and their stock went up $10 a share – even though their revenues actually fell for the 22nd quarter in a row! I suspect that despite all the reasons this market should fall, it is going to continue to melt up into year end. Think about it, if you’re a fund manager and you haven't believed in this rally - you only have 2 choices: (a) try and explain to your clients why you didn't do so well, or (b) hold your nose and dive in. I think we're seeing a lot of diving going on, and we will simply gain more into yearend. This momentum is strong, and while I think people are going to pay dearly for all of this – it’s not happening right now. Right now, bad news is ignored, and good news is rejoiced.

The bulk of company earnings are set to come in over the next two weeks. Thus far, almost 20% of companies in the S&P have reported earnings for the third quarter. The reports show earnings growth of 2%, and 76% of the results have beat consensus estimates. Currently the market is focused on the world’s improving economic conditions, and on the growing expectations for tax relief. According to Bruce Bittles, the chief investment strategist at Baird, tax reform is expected to return over $2T in overseas profits which will be used for even more corporate stock buybacks. And no one can argue with President Trump’s tweet that since his election – the stock market has gained more than $5.2T in value.

But this is NOT normal. Some investors believe that this is simply a repeat of what happened back in 1995 - 2000 – the ‘Internet bubble’. Back then, markets went higher on the hope that the new ‘Internet’ would produce big profits for start-ups with nothing more than a napkin and a phone. But the profits never materialized, and most were sorely disappointed. Other investors believe that this is more akin to the 2004 - 2007 era – the ‘Real Estate bubble’. It was a time when real estate could not go down, and companies were making gobs of money because of all the financing and building. That also ended badly.

For me, I simply think we’re witness to the single greatest coordinated money printing operation the earth has ever seen. We can all add up the money printing numbers, but the fact is – we have NO IDEA what amounts are being printed and distributed. Why? Because the Central Banks have hundreds of ways to print and distribute without telling us. I remember in 2011 when the FED's emergency lending program was audited. They found that our own FED had lent $16T to various European banks during the 2008 melt down. This was money that was printed that no one told anyone else about.

Forbes at the time wrote: “$16,000,000,000,000.00 was secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world's banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion-dollar bailout is obvious – the American public would have been outraged to find out that our Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.”

This was a headline that was made pseudo-public. Who knows how much money was really printed and given away. When Alan Grayson asked FED-head Ben Bernake: “Who got the money?" Mr. Bernake answered: "I don't know.”

So, what we have is a market that is being fueled by so much liquidity that a percentage of it is landing in the stock market. The buyers don’t care about fundamentals – why should they? If $50m in untraceable dollars fell into your lap – wouldn’t you put some of it to work in the market? Besides, it just so happens that the stock market is the single largest and easiest way to ‘launder’ money.

The only questions then become: (a) Does it stop? (b) Why does it stop? And (c) How does it stop? Some suggest that it doesn't have to end, and we can just print forever. However, that brings up the concept of hyper-inflation hitting at some point. Some feel that they will ‘juice’ these markets until a replacement for the global reserve currency is set in stone – and then pull-the-plug. Others believe they'll continue to print and buy up large positions in the world’s leading companies – until one day governments will own everything.

This has already gone much further than I would have ever expected. But judging by Friday, there's more where that came from. You need to continue to lean long, and hope for the best.

Tips:

Bitcoin / BTC ($6,100): The market cap of Bitcoin alone is now over $100B, and is almost 60% of the entire digital currency market. Money is currently pouring into Bitcoin while altcoins are getting hammered. At some point in the near future, (around the Ethereum Developer’s Conference) the other popular coins are likely to offer an excellent buying opportunity. For Bitcoin, I’m looking for a target of $6,350 and another one in the $6,850 range. I don’t recommend fresh trades up here, and I’m keeping my stop loss at $5,600.

Ethereum / ETH: ($300): Ethereum has been falling, but should hold the $275 level. I’m not buying on the way down, but rather waiting for the move higher to begin. That will give us 2 to 3 days to begin a new uptrend.

Litecoin / LTC: ($60): I’m looking for Litecoin to hold the $57 level and begin to slowly climb higher. I would initiate long positions at $63. My stop loss remains at $55 with a short-term target of $75.

If you like investing in ETF’s, the 5 best ETF investments are: (a) TQQQ – NASDAQ 100, (b) TNA – Small Caps, (c) FAS – Financials, (d) XBI – Biotech, and (e) UPRO – the S&P 500.

Recommendations:

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

- Electronic Arts (EA = 113.62) – Sell PCS – Oct 27: +109 / -110, $0.17

- Jr. Gold Miners (JDST = 57.40) – Sell PCS – Oct 27: +53 / -54, $0.20

- Ionis Pharma (IONS = 64.39) – Sell PCS – Oct 27: +60.5 / -61.5, $0.20

- Micron (MU = 41.50) – Sell PCS – Oct 27: +38.5 / -39.5, $0.16

- Nike (NKE = 53.08) – Sell PCS – Oct 27: +50 / -51, $0.14

- Restoration Hdwr (RH = 83.79) – Sell PCS – Oct 27: +77 / -78, $0.20

- Roku (ROKU = 21.87) – Sell PCS – Oct 27: +19 / -20, $0.15

- Shopify (SHOP = 102.10) – Sell PCS – Oct 27: +95 / -96, $0.15

- SOXL (SOXL = 71.65) – Sell PCS – Nov 17: +97 / -98, $0.35

- SVXY (SVXY = 108.19) – Sell PCS – Oct 27: +102 / -103, $0.15

- SVXY (SVXY = 108.19) – Sell PCS – Nov 17: +92 / -93, $0.13

- Wynn (WYNN = 142.33) – Sell PCS – Nov 3: +138 / -143, $1.96

- YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88.5 / -90, $0.38

- YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88 / -89, $0.15