This Week in Barrons – 12-31-2017:
“This way of thinking causes
an effect that will take years to reverse.” Betsy DeVos … Secretary of
Education
I’m the first to admit that history is the
best judge of a philosophy, but that entire ‘participation trophy’ thing stunk
from the get-go. Now, the numbers are confirming
it:
-
A Hudson
Institute report noted that jobs added by start-up companies are down from
3m in 1990 to 2.3m in 2010, and below 1.8m today.
-
Since
2009, we're averaging less than 8 start-up jobs per 1000 Americans versus 11
during the Bush and Clinton administrations.
-
In
1990, start-up wages made up over 12% of total corporate wages versus less than
8% today.
-
Today
(per MJP), nonprofits account for 10.3% of all U.S. employment, and by including
government workers – 26% of all U.S. workers are NOT concerned about
profitability.
-
And
why should they be – non-profit wages INCREASED 49.2% between 2000 and 2010.
Do you really think it’s coincidence that the
decline in start-up jobs occurred at the same time as the rise in non-profits
and non-profit wage growth – which was directly in-line with the ‘Participation
Trophy’ mentality.
When something goes ‘this wrong’ with
start-ups, the first place I look is toward our coaching and management. So, what happened to the basic fabric of our
entrepreneurial education to suddenly have us stress mediocrity over
superiority? What caused us to go from
stressing fundamentals (knowing your numbers) to delivering incubator space and
ping-pong tables? After all, every
entrepreneur knows that ‘distribution is king’.
Ignoring all the hogwash about limited production, and selecting beta
groups – everyone knows that ‘distribution is king’ and ‘cash makes no enemies’. But in the late-ninety’s, an entrepreneur’s
first question changed from: “What PAIN am I solving for my customer?” to
“Where can I get funding for this idea?”
We began to put our best opportunities behind a ‘pay-to-play’ wall. The entrepreneur thought he was winning by
thinking about money first, but if the Internet taught us anything it was to
think about distribution FIRST and money LAST! Now, last is not never – it’s strictly putting
the end-user / customer before your banker.
The entrepreneur was ‘coached’ into becoming an entertainer who was suddenly
afraid of someone stealing their wares.
They hid behind a funding wall – scared to say customers and prospects
names, talk of profitability, or doing anything too earth-shattering. Well congratulations educators and coaches, you
have achieved mediocrity. And you’re propagating
that thinking via incubator and accelerator farms. To this day, I’ve never met a start-up entrepreneur
whose big issues were finding:
-
Office
Space,
-
Tax
Benefits,
-
A cheaper,
faster, better lawyer and accountant, or
-
A
way to capitalize on their race, creed, or sex.
The current start-up landscape includes incubators,
accelerators, incinerators, and respirators focused on all of those
elements. But what I didn’t understand
until recently was that the ‘state-affiliated incubators’ get paid on the
number of jobs entrepreneurs ‘think’ that they will create versus the actual success
of that small business. I know how this movie
ends. We now have entrepreneurs that
don’t understand:
-
Their
numbers – until they can’t turn the lights on,
-
Their
markets – until they are a ‘solution in search of a problem’, and
-
Their
people and how to lead them – until their people leave.
The accelerator
model is trying to solve real production, finance, marketing, and leadership
issues with real estate, office space, tax credits, and ping-pong tables.
The part that is fascinating to me is how
openly these established organizations are bad-mouthing the ‘crypto-currency’ arena
– when in fact it’s the only one that is raising major interest (and dollars) in small amounts
of time. The crypto arena does NOT abide
by the ‘Participation Trophy’ philosophy.
They are producing actual solutions to problems: from micro-loans to complete
sector disintermediation to currency substitution. The good news is that crypto-companies are
NOT signing up to be a part of these ‘incinerator’ solutions. In fact, when I mentioned an accelerator to several
crypto-companies they laughed. After
all, why would they need office space when their crypto-teams are scattered
from the U.S. (both coasts) to the Far East to the Middle East and throughout Europe
(East and West).
In response to the traditional funding
sources thumbing their noses at the crypto-arena, they (like true
entrepreneurs) invented new sources of capital – Tokens and ICOs. Having lived thru the 1999 era, I saw
first-hand brilliant CMU nerds attack the Internet space with a vengeance. Today, although the institutions remain –
there are no rumors and no stories. Which
tells me that students have abandoned the ‘respirator’ model (that ends with
them owning less than 4% of their own company), and have gone ‘old school’. They’re either: (a) partnering with a
customer on a solution set, or (b) finding their own path and funding via friends,
family, Tokens and ICOs.
It’s time for entrepreneurial education (and
the incubator) to re-invent itself and deal less with real estate and more with
real content. That will require educators
to develop a completely new curriculum. Let
the Token / ICO model serve as a warning shot, because traditional
‘respirators’ need to worry that ALL of the good ideas will circumvent their real-estate
and ping-pong tables – in favor of today’s knowledge and real mentorship. After all, giving every ‘incubatee’ 7 minutes
of fame during a Demo Day is like giving a 10-year-old a ‘Participation
Trophy’. It penalizes the top prospects –
that did work hard, and put in the time.
But who can blame the current educators / ‘incinerator’
managers – because life is good. They
are being paid top-notch, non-profit wages for:
- 20-year-old jokes and power-points,
- Non-profit (no numbers) performance, and
- For headlines, rather than bottom lines.
The Tokens
/ ICO funding route flies directly in the face of today’s ‘Participation Trophy’
driven model – and only one will survive.
I’m betting on the crypto-entrepreneur to sort it out. They’re paving the way forward, but beware:
-
There
are no participation trophies,
-
There
are no demo days,
-
It’s
about sales and knowing your numbers,
-
It’s
about winning and owning your niche,
-
It’s
not for everyone – and it really never was anyway.
The Markets:
“To Infinity … and Beyond” … Buzz
Lightyear - Toy Story
Remember 2017
when:
-
Serena
Williams won the grand slam while pregnant,
-
Equifax
sang: “Baby got hacked,'
-
The
net was deemed no longer neutral,
-
The
word ‘bitcoin’ was Google’s top search term,
-
J.Q.
Public could no longer afford 1 bitcoin or an iPhone X,
-
The
U.S. Dollar had its worst year since 2003, while bitcoin was up 1,350%,
-
#MeToo
and #TakeAKnee took off in a big ways,
-
Trump
said ‘au revoir’ to the Paris deal & TPP, and put DACA, NAFTA, and Iran on
notice,
-
M.
Flynn resigned, J. Sessions recused, J. Comey left, and J. Kushner explained,
-
Wouldn’t
it have been nice if hurricanes Harvey, Irma, and Maria could have doused the
flames in California and Oregon,
-
To Amazon,
it’s a ‘Prime’ world and we’re all just living in it,
-
Venezuela
turned to bitcoin to solve its economic crisis,
-
Global
stock markets grew by $12.4T, with Argentina and Turkey setting the pace with
increases of 77% and 48% respectively,
-
The
Catalan people started singing: “Should I stay or should I go?”,
-
Las
Vegas regained the world’s deadliest shooting title – and Congress didn’t do a
darn thing about it,
-
Holiday sales increased
by 4.9%, and online shopping was up 18.1%,
-
Sexual
harassment, stolen trade secrets, and a CEO losing his job = #DeleteUber,
-
Disney
dated FOX, CVS courted Aetna, and AT&T tried to marry Time Warner, and
-
The
Nobel Peace Prize went to the International Campaign to Abolish Nuclear Weapons
– as N. Korea told us they ‘were just getting started’.
When experts
were asked: “What would it take for this bull market to end?” They responded:
Jim Fink: Bull
markets are nurtured by low inflation, low interest rates, and high profitability.
A spike in energy prices would trigger higher
inflation and cause corporate profits to plunge. Hostilities in the
Middle East could push China into an economic recession – resulting in global
stagflation and the worst energy-induced bear market since 1974.
Ari Charney: The world's central banks are beginning
to take away their easy-money policies that have helped inflate financial
assets. Policymakers never figured out why the global economy has
remained this weak for so long – which makes me suspicious of their sudden
optimism about a synchronized expansion.
Linda McDonough: Decreased trade via tariffs, taxes, and
a focus on domestic manufacturing will increase inflation. Higher trade barriers
and interest rate hikes are a natural recipe for disaster.
Scott Chan: Fear of a recession (caused by slowing China
growth) will naturally propagate weakness throughout the stock market.
John Persinos: The stock market is pricier now than in
1929 and in 2007. Low interest rates have
spawned bubbles in stocks, bonds and housing. The FED, ECB, and the Bank of Japan are
beginning to shrink their balance sheets.
It’s doubtful that they will get it right.
4 Investment ideas for the New Year:
Logistics companies like FedEx (FDX) and
United Parcel (UPS) are once again in their busiest months of the year. According to the National Retail
Federation, the heavy rise in shipments, in and around the holiday season, are
primarily attributable to the rise in global e-commerce. E-commerce grew by over 10% in 2017 – more than
double the overall retail increase. This
staggering growth in e-commerce is expected to be maintained over the next few
years – virtually guaranteeing FDX and UPS a place in most investment
portfolios. A third shipping stock that has a bright future is XPO Logistics
(XPO). It’s about 1/6th the
size of FedEx and 1/10th the size of UPS; however, the company has about 10,000 contracts
with owner-operators. I think XPO (which
specializes in shipping and delivering big and bulky packages) has the greatest
potential of all three shippers over the next year. Especially since 2 weeks ago rumors began
circulating that Home Depot (HD) was interested in acquiring XPO. It was also rumored that Amazon.com (AMZN)
was considering making an offer. The XPO
advantage lies with its 10,000 independent carriers, and surrounding its
ability to deliver and set-up large, bulky packages such as appliances and
electronics (think 70” TVs).
Another company worth considering is Xoma (XOMA), which is
focused on the discovery, development and licensing of therapeutic antibodies. XOMA has been on an upward trajectory
since August following the signing of licensing agreements
with Novartis for gevokizumab and
the use of its IL-1 beta targeting antibodies in the treatment of cardiovascular
disease. XOMA stands to earn significant milestone
payments and tiered royalties on sales of gevokizumab. In 2017, XOMA's
shares were up 743.60%, and positioned for increased growth.
Sangamo Therapeutics (SGMO) is a clinical-stage biotech company focused on genomic therapies
using genome editing, gene therapy, gene regulation and cell therapy. SGMO entered into an agreement
with Pfizer (PFE) for the development and commercialization of gene therapy
programs for hemophilia. Prospects for the company are good with shares up by 450% alone last
year.
Dynavax
Technologies (DVAX) is a commercial-stage biopharma company focused on the discovery and
development of novel vaccines and immuno-oncology
therapeutics. DVAX shot up in July following a favorable
recommendation from the FDA's Vaccines and Related Biological Products Advisory
Committee for Heplisav-B, a
vaccine for immunization against the Hepatitis B infection in adults. Heplisav-B is the first FDA-approved product
from Dynavax. The vaccine is expected to be launched in the
first quarter of 2018. The stock price was
up by 373% last year. The regulatory action makes Heplisav-B the first new Hepatitis B
vaccine in the U.S. in more than 25 years, and the only two-dose Hepatitis B
vaccine for adults.
This year’s rally has been relentless – putting
most of the big ETFs and stocks at almost 2-standard deviation levels. But
it was the first time since 2012 that international stock
exchanges outperformed the U.S. This coming week brings in the ‘January
Effect’. The effect is a seasonal increase in stock prices during the
month of January. Analysts generally
attribute this rally to an increase in buying, which follows a drop in prices
that typically happens in December when investors (engaged in tax-loss selling)
prompt a sell-off. Another possible
explanation for the January rally is that investors use year-end cash bonuses
to purchase investments the following month.
I've seen some powerful January rallies, and
those that rolled right over. This one
has the ability to do either. The market has just had an incredible 20%
run – on top of rising for most of the last 8 years. History tells us that trees don't grow to the
moon, and markets don't rise forever. There could be a ton of investors
that are just hoping the market holds up into January, and then take profits. Because if you took profits last week, you
would need to pay those taxes in April of 2018, but if you waited until this
coming week – you wouldn’t see the tax man until 2019. So, I can
make a case that there will be people taking some ‘off the table’ in January. But then again, a lot of large institutional
investing is done on an annual basis. If
you're a pension fund and you just closed out 2017, you will likely inject a
ton of your new year’s cash right into stocks.
And this year we have the added benefit of a
new corporate tax plan paving the way for higher business profits. As much as valuations are stretched with high
P/E (stock price to earnings) ratios, if corporations can increase their ‘E’ (earnings)
– then their ‘P’ will indeed go higher. My
guess is that this market finally runs into trouble sometime around
mid-February. Let’s not forget N.
Korea. There’s a ton of military chatter
out there about ‘war’. I would NOT be
surprised if shortly following the Olympics in South Korea, some form of
military event takes place that could rattle the markets.
And this year our FED is reversing its 30-year old policy of adding liquidity to
markets. By the end of 2018, the Fed
says it will be draining about $600B a year from the U.S. money supply. Therefore:
-
Instead of lowering interest rates, our FED will be pushing them
higher,
-
And instead of supporting the stock market as the world’s #1 Buyer,
it will become the world’s #1 Seller.
Be careful out there.
Tips:
In 2017, cryptocurrencies
have generated wealth like no other asset class. While Bitcoin has garnered
most of the attention, there have been hundreds of other winners. Ethereum was the second leading currency;
however, within the past two weeks Ripple has skyrocketed from a low of $0.22
on Dec. 10 – to a high of $2.47. That’s 1,024%
within a 20-day span. As a result,
Ripple has now overtaken Ethereum as the 2nd most valuable
currency by market cap. Nick Colas,
one of the first Wall
Street analysts to cover Bitcoin, believes that 2018 will see a surge in
volatility in the crypto-arena – with about 40% failures. If that happens, crypto-market knowledge and timing
become much more important. A buy and
hold strategy, similar to 2017, might not be the best way to trade.
Equity
Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread)
-
Aurora – ACBFF (7.63) – Long Stock from $2 /
share,
-
GST (1.05) – Long Stock from $1 / share,
-
ABT (57.05) – Sell PCS – Jan 19th:
- 57 / +55, $0.62,
- ABBV (96.71) – Sell PCS – Jan 19th: -95
/ +92.5, $0.66, and
-
UNH (220.46) – Sell PCS – Jan 12th:
-222.5 / + 220, $1.38
Crypto
Recommendations:
-
Be
on the lookout for any of the following being added to Coinbase exchange: XRP,
DASH, IOT, QTUM, OMG, NEO, STRAT, and WAVES.
-
BTC ($13,080) I did not expect this strong of
a pullback. If it remains below its
50-day EMA – its target is $5,745. I
expect $10,705 and $8,000 to be support on the way down. No trade.
-
ETH ($724) The 20-day EMA has been broken, and I suspect we will
test the $646 level of support and maybe $600 below that. ETH becomes positive above $770. Between the 20-day EMA and $760, we are
likely to witness a volatile range-bound trading action. No trade.
-
XRP ($2.29) Ripple roared past $1.5, reaching an intraday
high of $2.474. Keep a tight stop, as I
fully expect Ripple to enter a consolidation / accumulation phase. No trade.
-
IOTA ($3.40) Bulls
have successfully defended the $3.03 level, but have not been able to push it appreciably
higher. I’m looking for IOTA to trade
within the $2.62 to $3.60 range, and I will buy only on a breakout.
- - LTC
($222) Litecoin has broken below the neckline of the head and
shoulders pattern, and should continue lower into next week. Strong support comes in $175.20, and $110
after that. The bearish view will become
invalid with a close above $240. No
trade.
- - DASH ($1,026) DASH broke below its 20-day EMA level of
support. If bulls cannot defend this
level, the next stop is $800 and $650 after that. No trade.
- - XMR ($334) I am expecting range-bound
trading action in Monero. Despite the
most recent bearish action, $300 is the next level of support and $245 after
that. No trade until the fall is
arrested.
When
the crypto-markets are experiencing bearish action, a good strategy is to wait
until the decline ends before buying – rather than being brave and trying to catch
a falling knife.
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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