This Week in Barrons – 1-28-2018:
Thoughts:
My mail bag has been over-flowing, so allow me to answer the top 3
inquiries:
#1. Why
is entrepreneurship declining? The old entrepreneurship model
(that year-over-year increased the number of small businesses and small-business
employment) was based upon companies having a customer focus and not a fund-raising
one. The old processes resembled an
apprenticeship that had ‘want-tra-preners’ and mentors: (a) exchanging $0 up-front,
(b) agreeing to a trade of mentorship for equity, (c) an understanding of the
numbers, and (d) then educating the ‘want-tra-preneur’ on a ‘learn as you earn’
journey. That environment included: (a)
instantaneous feedback and assistance by the mentor(s), (b) success measured by
paying customers and cash flow, and (c) NOT making your customer and banker
one-in-the same. Then the government got
involved and incentivized entrepreneurship education, to the point of: (a) forcing
an up-front, ‘want-tra-preneur’ and mentor monetary transaction, that (b)
focused on the mentor’s ‘fee for services’, and (c) engaged both parties
actively working toward the goal of raising additional funds. The differences between the two processes became
immediately apparent with the new model showing: (a) a lack of instantaneous
feedback from mentors, (b) little knowledge of the numbers, (c) a disregard for
any deep customer relationships, and (d) the investor dictating who is customer
#1. This pushed sales and product feedback
much further down the lifecycle, and has allowed ‘bad ideas’ to remain on
life-support much longer than they should.
The current methodology focuses on a fund-raising destination rather
than a customer acquisition journey. ‘Want-ta-preneurs’
should use the following Q&A as a guide:
You ask: “Where is the person that will tell me straight away (before any
money changes hands): (a) if my idea sucks, (b) why it sucks, and (c) makes an
appointment for me to come back – once I fix it?
Look out for: “Well, we prefer to group-educate our trainees first, and
watch them pivot toward the right solution.
Because after all, every idea could be a good idea under the right
circumstances. We let our Demo Day do
the talking.”
You ask: “Ok, so when your ‘Demo Day’ comes around – do the really great
ideas & teams get the same amount of time as your ‘s__ty’ ideas and teams?”
Look out for: “Yes, everyone gets 7 minutes to explain their problem and
solution to the same audience. We let
the investors do the talking.”
It’s the ‘want-tra-preneurs’ job to sort out
groups that are engaged in giving participation trophies from those that are
truly good at what they do. The result of
the ‘participation trophy’ era – is that all of the winners ended up feeling
ripped-off and they went somewhere else.
Pittsburgh in the 90’s was swarming with Internet companies. Today, there is not one ‘crypto-currency’
idea in any of our ‘incinerators’. That
tells me that the WINNERS have gone somewhere else.
Yes, the old ways were more emotional and time-consuming. Mentors shared in the sense of urgency, and made
mid-course corrections like ‘saw teeth’ – rather than on weekly conference
calls. Customers were applauded – not hidden
behind the curtain. What sense does it
make taking money from 2,300 ‘want-tra-preneurs’ knowing that only 30 will
survive? Most of the time reminiscing
about the ‘good old days’ also brings back painful memories. In so far as turning ‘want-ta-preneurs’ into
entrepreneurs – I think it’s best that we turn back the clock, take our heads
out of the sand, and bring back the ‘good old ways’.
#2. Should
I mine for bitcoin? Here’s a site that outlines
how to mine bitcoin profitably: https://www.youtube.com/watch?v=UHQqWCreCBw. Most people evaluate bitcoin (BTC) mining using
today’s bitcoin prices ($11,400) – and conclude that it’s marginal at best. JT ran some numbers and assuming: (a) you MINE-n-HODL
(‘Hold On for Dear Life’), (b) power = $0.13 / kwh, (c) use an inexpensive miner
such as the Antminer S3 ($300) https://www.ebay.com/sch/i.html?_from=R40&_sacat=0&_nkw=bitcoin+antminer+s3&_sop=16
, and (d) BTC remains around $11,400 – you basically breakeven for the
year. However, if each machine mines .03086647
bitcoins / year, and if BTC is trading at $150,000 after 3 years – you then net
$12,500 / machine. But bottom-line, it only costs you $300 and a
breakeven downside to give ‘er a try.
#3. In
cryptocurrencies, what is the most important metric? Knowledge. According to
Raghee Horner: “We are looking at the natural evolution of currency
trading. It’s a mixture of the 1999 tech
culture and the 24/7 rhythm of the currency trading world.” I am constantly asked whether bitcoin will
see $26,000 or $6,000 and my answer is ‘YES’ to both. Bitcoin has broken it’s constant uptrend by
moving from $20k down to $10k. But that
is normal, market maturation. I think we
are destined for higher highs, and ‘yes’ we may take the scenic route (via $6k)
to get there. A CNBC guest said: “The
wacky action we’re seeing in crypto these days is the first sign of greed since
the Great Recession. There’s a chance that
bitcoin will suffer the same fate as ‘Pets dot com’, but the greed with which
investors are approaching cryptos actually bodes well, is indicative of rising
risk appetites, and should drive markets higher.”
Participants in the World Economic Forum in
Davos are being peppered with cryptocurrency questions. Traditional investors are still not willing
to accept the rising clout of the cryptocurrencies, and are pushing for tighter
regulation only to find their constituents rebelling. Just last week Robinhood (a commission-free
trading platform for equities) got into the act when it opened its doors to
commission-free crypto trading. They received
almost 250,000 new signees within the first 8 hours of the announcement. The crypto movement is global in scope as in Brazil
(for example) there are over 1.4m registered clients on the country’s
cryptocurrency exchanges compared to 619,000 registered accounts on the Sao
Paulo Stock Exchange. Knowledge is the
key to unlocking the deflationary advantages of
cryptocurrencies, and their attractive store of value features as well.
“Ma, I’m
going faster than I have in my entire life.”
And to corporations, cryptocurrencies could
be a way to retain and reward customers.
I keep hearing about a Facebook coin where: (a) Facebook would pre-mine a large pool of tokens, (b) distribute a significant
number to shareholders, and (c) hold the rest in reserve to distribute to users
based on traffic, original content, and upon their ability to share their
personal information. Facebook would
mandate that on-platform advertising be paid for with FB tokens. A FBcoin
market could quickly emerge where billions of users could sell, monetize
original content, and be rewarded for sharing their own privacy data with
advertisers. This would give Facebook
shareholders and users a valuable stake in the future growth of its platform
under a more decentralized set of rules.
FB is uniquely positioned to open up its tokens to a true, decentralized
blockchain system. A decentralized
market would result in far more explosive growth – and, by extension, token-based
returns for Facebook’s shareholders. If Zuckerberg really wants to
experiment with decentralized systems, a publicly issued crypto-token would be a
heck of a way to do it. Social media
badly needs a model that puts control back in the hands of people. I’m
hearing that FB and Mark Zuckerberg recognize that the most powerful gift he
can make to the world is a platform for creativity that empowers people by
fairly rewarding their ideas, self-expression, and privacy.
The Market:
There are a lot of things that shock me as of late, a couple of
those are:
-
Budweiser is no longer
the most popular beer in America. Bud Light, Coors Light, and Miller Lite are now
the top three best-selling beers in the U.S. The previous top-selling Budweiser dropped to
the #4 spot – with sales of all of the top 4 beers declining in 2017.
-
Bank of America (as much as it bad mouths crypto currencies) has
43 crypto-patents with another 5 in the wings.
-
President Trump slapped tariffs on imported solar panels and
washing machines, and big labor did NOT support him. Per SF, big labor realizes that shifting this
manufacturing to the U.S. will only increase the price of these items, making
them too expensive for the consumer, and lowering demand.
-
The S&P 500 has increased 7.45%
during the first 18 trading sessions of 2018, and has posted 13 records – the most
for any calendar month since February 1998.
-
The Dow Jones Industrial
Average is also up 7.68% for the year and has set 10 record closes. It is its sixth-best January in the last 68
years, and marked its longest monthly winning streak since 1958.
-
The Nasdaq has returned 8.73%
year-to-date. Even with the 4th
Quarter GDP finishing at 2.6% (below the 3.0% expectation), Wall Street is
‘partying like it’s 1999’.
-
When January is
positive, the market finishes the year higher 91% of the time.
-
Bank of America just came
out with a warning that one of their top indicators signaled a strong chance of
a 12% pullback in Feb-March.
It’s no
secret that medical marijuana is about to overthrow the $635B pain killer industry. It’s also no secret that the painkiller
industry is in a tough spot – with its products being addictive and leading to a
nationwide opioid epidemic. You can
either get on the marijuana train or watch it pass you by. Last week 2 of Canada’s major marijuana producers agreed to merge. Aurora Cannabis (Canada’s second largest marijuana
producer) will purchase CanniMed Thereapeutics. Canada
will become the first G7 nation (and 2nd country in the world
after Uruguay) to legalize recreational use of marijuana. I’ve liked Aurora Cannabis (ACBFF) since it
traded at $2, and last week it hit a high of $11.94. By buying CanniMed, Aurora will be the
best-in-class cannabis company with operations across Canada and the
world. But allow me to present 2 other cannabis companies that should be on your
radar:
- Aphria (APHQF = $16.35) which over the past 2
years has already gained just over 2,000%,
has two major advantages working in its favor. First, it has undertaken a
four-phase capacity expansion that will (when complete) deliver 1m square feet
of growing facility and produce over 100k kilograms of dried cannabis every
year. Second it has a stellar management
team. Many marijuana companies are expanding
with absolutely zero regard to profitability, Aphria prides itself on generating
positive EBITDA in each of the past nine quarters, and has been profitable in
each of the past two years.
- Cannabis Wheaton (CBWTF = $1.81) is potentially a
stock that has flown under most investors’ radar. Unlike traditional growers, Cannabis Wheaton
is a royalty company. Rather than handling the day-to-day operations of
growing weed, Cannabis Wheaton acts as a lender to help budding companies get
their grow operations or distribution off the ground, and in return receives a
percentage of the production. It's able
to buy ‘weed’ at well below market prices, sell it at market price, and pocket
the difference. Cannabis Wheaton has the
highest profit margins among all marajuana stocks, and is expecting an internal
rate of return of 60%. They have about
15 production deals on their books that are expected to yield a combined 230k
kilograms of dried cannabis a year by 2019.
This market
is in ‘melt-up’ mode. We’ve tied or
broken every market record ever set including the fastest 1K points ever, and the
longest period of time without a 5% correction. I don't mind a market that rises for a long
period of time, if the underlying fundamentals support the rise. But this market isn't running on fundamentals –
not even a little bit. After all, the
true Price to Earnings ratio of the Russell 2000 is 145. For this number to be realistic it should be
in the high teens. So at 145, we are 10X
higher than what it should be.
The whole world is bullish. Over in Davos Switzerland at the World
Economic Forum the world applauded Trump’s tax reform and put out grandiose
projections surrounding how much global growth we will see because of it. However none of the press releases seems to
contain the fact that the Swiss National Bank has now purchased over $92B worth
of U.S. stocks.
Honestly, I would like nothing more than a
strong economy full of high-paying jobs and opportunity. However, that’s NOT what we have right
now. We have a Central Bank fueled stock
market, with over 100m people out of the work force, and over half of our
population that can’t find $400 for an emergency. Those are not the types
of elements that comprise a DOW 26k market.
I continue to lean long, but it's a nervous long. While it's certainly fun making money in this
wild ride, the truth is that unless history is being re-written – there’s going
to be one heck of a correction coming. To think that this market can gain 2,000
points every month is insanity. Ride this bull market, but become a
professional bull rider. In bull riding,
when the rider makes it to 8 seconds, they pull their rope release, and hop off
the bull. Remember to pull your rope
when this market times out.
Tips:
Top Equity
Recommendations:
-
Marijuana & Energy stocks:
o Aurora
(ACBFF = $10.81) – higher w/ earnings on Feb 14th,
o GW
Pharmaceuticals (GWPH = $138.55) – higher w/ earnings on Feb 8th,
o Canntrust
Holdings (CNTTF = $9.35),
o GAStar
Exploration (GST = $1.30),
-
Options:
o BIDU
($260.25) - higher w/ earnings on: Feb 22nd,
o Costco
(COST = $198.91),
o Disney
(DIS = $112.19) – higher w/ earnings on Feb 6th,
o First
Solar (FSLR = $70.56) – higher w/ earnings on Feb 21st,
o Lululemon
(LULU = $79.08),
o Micron
(MU = $43.67), and
o Netflix
(NFLX = $274.60).
Top Crypto
Recommendations:
-
Ethereum (ETH),
-
Lumen / Stella (XLM),
-
RaiBlock (XRB),
-
NEO,
-
SiaCoin (SC),
-
STEEM, and
-
EOS.
Cryptocurrencies represent a paradigm shift to
our monetary system. A digital, monetary system could be routine within a short
amount of time. Bitcoin dominated the
scene at this time last year, with an 85% market share; however, it’s share is
now at
an all-time low of just 35%.
BTC/USD
($11,400 = Bitcoin):
Plus: Proven track record as a secure blockchain
solution, and potentially the only cryptocurrency known to
many of the investing public.
Minus: Eroding credibility due to
community controversies and constant hard forks, combined with its ineffective
and slow implementation of scaling solutions have forced some investors to
shift and jump to other coins.
Prognosis: Bitcoin is
currently in no man’s land, and is facing resistance at its downward trend
line, and even if bulls succeed in breaking out of this resistance – it can
only rally to its next higher downward trend line. I’m waiting for a confirmation bottom because,
if the bulls fail – the likelihood of BTC $9,900 and then $8,000
increases. Given we’re still below both the 20-day and 50-day moving
averages – the trend remains down and range bound. Watch and wait for a
break out above $12,200 before initiating any new long positions.
BCH/USD
($1,642 = Bitcoin Cash):
Plus: It was created
via a Bitcoin
fork that improved scaling by increasing the block size from 1MB to 8MB. It could dislodge Bitcoin
if it improved its mining hashing power.
Minus: There is constant pressure to increase the block size as the network grows. However, increasing block size is a linear
solution to an exponential problem.
Prognosis: Traders are presently not taking a ‘keen’ interest
in BCH, and as a result it has been trading in a tight range. Downside support exists at $1,479, and the
upside moving-average cross is likely to act as a resistance along with the $2,072
level. I’m not finding any tradable setup on BCH.
ETH/USD ($1,100 = Ethereum the 2nd largest coin with 18% market
share):
Plus: ETH operates in a community with strong leadership
(Vitalik is back on board) and an aligned vision. The EEA (Ethereum Enterprise Alliance is a who’s
who of heavy-weight supporters) virtually guarantees success, and is already processing a lot more transactions than Bitcoin.
Minus: It’s still has unproven scaling
solutions where a surge in network traffic can cause significant congestion (aka
CryptoKitties). It’s still difficult to
write secure, smart contracts. The DAO
hack and Parity wallet bug is a threat even if the Ethereum network itself is
secure.
Prognosis: Ethereum is
in a pullback within an uptrend because it is still quoting above both the
20-day and 50-day moving averages. Additionally, it has successfully held on to its
uptrend line. Downward support is all the way down at $900, while upward
resistance will be at: $1,174 levels. I’m awaiting the ‘squeeze’ to fire
and upward momentum to shift – which could happen any day now. In the meantime, long positions can be initiated
on dips down to the $1,000 level or above the $1,110 level.
Editorial: In a single year, ETH has
skyrocketed more than 13,765% since January 2017 when it traded at just
$10.22. And according to its co-creator, Steve Nerayoff: “The price of Ethereum
could ‘easily double or triple by the end of the year. What you’re seeing with ETH is an exponential
increase in the number of projects.
There are billions of dollars being poured into the ecosystem right now
– potentially 10 times more projects this year than last year, which could
easily lead to a more than doubling of the price by the end of the year.”
Introduced in 2013 by crypto researchers and developer Vitalik Buterin,
Ethereum is said to be the next Bitcoin. At the moment, the only difference between the
two is: (a) the price, (b) the fact that Ethereum introduces smart contracts
and computer algorithms that allow users to build and develop innovative tools
and systems, and (c) Ethereum also uses blockchain to cut out the need for
third parties – thereby saving the user both time and money.
XRP/USD ($1.225 = Ripple – a favorite of the
banking community):
Plus: Ripple is the preferred digital coin in the financial
industry, and has considerably better transaction fees
and times than bitcoin.
Minus: It’s regarded as the most
controversial coin, and companies need not use the Ripple token (XRP) when
using Ripple payment technology. The
majority of the XRP tokens are held by the Ripple Company – putting a
disproportionate amount of control in the hands of a few.
Prognosis: Ripple is likely to remain range bound between
$0.87 and $1.74; therefore, buy and sell appropriately. A trading opportunity will pop up only if the
supports of the range hold or if the cryptocurrency breaks out of the overhead
resistance.
With BTC’s dominance slipping, there is a
strong possibility that by this time next year, a new coin will emerge as the
cryptocurrency king, and the top four coins listed above could be overtaken
by some newer more powerful models – including:
-
RaiBlocks (XRB) which recently emerged from its
downward channel and is not firing on all cylinders, and
-
Lumen/Stellar (XLM) which (like ETH) never did break down
below its 50-day moving average and has resumed its upward climb. It will face resistance at $0.671. Once XLM breaks above $0.671, a move towards
the highs is likely – with a small resistance at $0.732. Wait for the break above $0.671 before
initiating a new position.
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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