This Week in Barrons - 1-21-2018

This Week in Barrons – 1-21-2018:

“At the N.A. Bitcoin Conference, you either get on board – or get out of the way”

… courtesy of JT

   The above picture of a Lamborghini being sold ONLY for digital currency should not come as a shock.  Every decade we go through a paradigm shift, and this one is focused on production and currency.  Right now, nothing in those 2 arenas is normal, and as SF points out – how can it be?

-       Almost half the men, ages 18-34 life with their parents – the highest level since the Great Depression.

-       One of America's richest cities (Seattle) is the site of 400 unauthorized homeless camps.

-       78% of the U.S. population lives without savings – paycheck to paycheck.

-       The wealthiest 10% of all Americans own 75% of the nation's wealth – a level not seen since the 1930’s.

-       Low income wage earners make LESS than they did in 1980.

-       Middle income wage earners make just 6% more than they did in 1980.

-       U.S. consumers have nearly $13T in total debt – the highest total ever.

-       73% of Americans die being an average of $60,000 in debt.

Why – because our wages are no longer connected to gains in productivity.

You'll notice from the graph above, that the divergence began around 1971 – the year President Nixon removed the U.S. dollar from the gold standard.  Why is this important?  Because the minute paper money started to be printed out of thin air – at the whim of governments and CBs – the barbell society was born.  So, it should not come as a shock when we see crypto’esque thinking embracing more and more of our life.  For example, we have Vladmir Putin – ‘Putin’ on the Ruble’

Let’s eat strudel, As we clean the kit-n-caboodle, Off everything from Chernobyl

… Putin on the Ruble.

Looking for approval, As we continue our removal, Of everything from Chernobyl

… Putin on the Ruble.

   Mr. Putin and Russia have been working on their crypto counterpart to the ruble for some time now.  July 2018, is when the first presentation is due, and I expect they’ll be: ‘Putin on the Ruble’.  Unfortunately, the underpinnings of the crypto-ruble go against the fundamental crypto-philosophy because: (a) the crypto-ruble remains under full control of the government, and (b) it’s centralized design risks a single point of failure.  Our future clearly holds more government-issued digital currencies, and for countries like Russia, Venezuela and China, cryptocurrencies provide a means of circumventing U.S. sanctions.  With these digital currencies right around the corner, it’s only natural that Russia, Venezuela and China embrace their decentralized crypto-cousins – that drove the crypto-buzz in the first place.

   And by-the-way, the U.S. dollar ain’t lookin’ so good these days.  Recently, the U.S. Dollar index closed at a three-year low against other currencies, and total shorts almost doubled to $4.6B since last week.  If the ‘old greenback’ continues to decline, then holding U.S. dollars effectively means that you’re losing money.  Cryptocurrencies offer a natural hedge to offset this continued dollar downfall.  Combine this with China, Russia, and Venezuela pursuing their own cryptocurrencies, the demand for petro-dollars will see even further declines.

   Yes, the crypto market suffered a correction last week, and it was THEN that I remembered the opening scene from ‘Boiler Room’ (a movie – circa 2000):  “Microsoft once employed more millionaire secretaries than any company in the world.  They took stock options over Christmas bonuses.  There was this photograph of one of the grounds-keepers next to his Ferrari.  You see stuff like that and it makes you think that anything’s possible – if you just get in early.”  A friend of mine wrote me with an interesting theory on the correction.  The cause of last week's crypto-chaos was potentially due to large hedge funds using expiring Bitcoin (BTC) futures contracts as safety nets to exploit the only sure-thing in this market – a large amount of new and overextended investors who are easily moved to panic sells during a correction. 

   On December 10, BTC futures trading went live, with the first set of those contracts expiring last week.  If you were a large hedge fund evaluating the crypto market, making a large bet on either the ‘long’ or ‘short’ side is extremely risky – since the expiration price of BTC could very easily be $50,000 or $500.   However, hedge funds know that crypto is still an emerging market with a large number of new investors / ‘dumb money’.   Given their ‘deep pockets’, they could have made large bets on BOTH sides to gain risk-free leverage, and use that leverage to manufacture market chaos. Here’s how it could have gone down:

-       First on Dec. 10^th, they sell a large number of BTC futures (at the current price of $15k each) – agreeing to pay them back a month later.  So, they are hoping that the price falls so that they can buyback BTC at a cheaper price to make good on their contract.

-       Secondly on Dec. 10^th, they also buy an equal amount of BTC at the market price of $15k/BTC.  This effectively cancels out their ‘short’ risk.

-       Last week (right before the futures contracts were due to expire), they then sell their long BTC for $15k each – ALL at once.  Like clockwork, that triggered stop-losses and panic selling from the consumer BTC market, virtually guaranteeing BTC falling well below their selling price.

-       Then they ‘ride the BTC dip’ that THEY created, buy back the BTC that they owed at a much cheaper price ($10k/BTC), and use those contracts to repay their original short position.

-       They sell the original contracts at $15k each, and buy them back at $10k each; therefore, they make $5k on each of the contracts.

-       For hedge funds with access to enough capital to move the crypto market, this play should be easy money.  It would also explain the series of huge dips (seemingly out of nowhere) that occurred last week.

   If this is correct, we should be able to predict this action in February.  The bad news is that I don't know how this can be stopped as long as the prospect of capitalizing off of market fear remains a huge carrot for the sharks in this market.  But, the way to profit off of it – is to do exactly what the hedge funds are doing: ‘sell-the-rally (STFR)’ and ‘buy-the-dip (BTFD)’.

   Finally, if you haven’t subscribed to: https://www.thedailybit.news for your daily crypto update – you need to, and yes it’s free!

The Markets:

“Always look up, because if you’re looking down – you’ll end up there”… Molly Bloom

   There is some really crazy stuff going on in the markets at this point.  Coca-Cola (KO), for example, is trading at 45 times earnings and 36 times cash flow – even though revenues DROPPED 14.6% year-over-year.  Merck (MRK), another Dow Component and S&P heavy-weight, is trading at 56 times earnings and 39 times cash flow – despite 3-year average sales DECLINES of 3.3% per year.  McDonalds (MCD) is trading at 25 times earnings and almost 50 times cash flow – even with sales being DOWN 10.4% year-over-year.  Between the Central Banksters buying stock, and the hundreds of billions worth of corporate stock buy backs, this market is at a point where all they can do is make excuses.  If your revenues are falling year over year, does it make sense for your stock to hit all-time highs?  Of course not.  So, we're in a melt up, and I don't have a clue how long it will last.

   That’s not to say that during the past two weeks, this 8-year bull market has looked as strong as ever.  The S&P hasn’t suffered a pullback of 5% (even over multiple days) since June of 2016.  The market has added $6.9T in market cap since the election of Mr. Trump.  And corporate America is starting to see what a lower corporate tax rate means, and how it impacts the bottom line.  Apple (for example) is expected to pay a one-time tax payment of $38B to repatriate their overseas profits, and will open a new U.S. campus as part of a five-year investment plan worth an additional $30B.

   As I look across the canvas, a ‘weed’ stock like Kush Bottles (KSHB) pops out at me.  Kush Bottles continues to grow and flourish in the cannabis industry based upon the legalization of recreational marijuana in California.  As regulatory measures increase, so will the demand for compliant packaging solutions.  Kush is a cannabis packaging company has started making its presence felt in the Nevada market and business is booming – with revenues rising over 250% in 2017.  They recently acquired CMP Wellness – a vaporizer company.  This is a clever move because vaporizers are one of the fastest growing categories in the cannabis market.

   In terms of the Government Shutdown, I see ‘business as usual’ in the financial markets on Monday.  This market is so detached from any reality that I'll be somewhat amused if there is even a ‘blip’.  That being said, this market is running on fumes.  Gone is any semblance of normalcy.  This market has nothing but pure momentum, and Central bank printing to back it up.  The problem that's lurking in the wings is that the IMF (the Central Bankster to all of the Central Banks) has made it quite clear that they want ALL Central Banks to start removing the stimulus that's been in place for years.  IF they do that (and yes, that’s a big IF) – then it stands to reason that markets will fall.  After all, if CB money sent the markets to these levels, then removing some of it should result in a pull back.  So, the question is: Are the CBs really going to materially cut back, or is this nothing but cheer leading?

   If you’re looking for a ‘tell’ in the markets, you need look no further than auto sales.  Even though Detroit automakers are smiling from ear to ear after selling over 17m cars for the 3^rd year in a row, a look ‘under the hood’ suggests that the industry may be headed for choppier waters.  Purchases by individual customers at dealerships (considered the most accurate reflection of demand) declined in 2016 and 2017.  The drop in retail sales has come even as manufacturers have resorted to heftier discounts and incentives – which eat into profits.  Sales incentives now comprise more than 11% of an average vehicle sticker price.  Other troubling signs include: (a) rising interest rates, (b) younger buyers showing less interest in owning a car, and (c) the supply of low-mileage used cars is growing – giving shoppers a viable option over buying new.  Mark Wakefield of Alix Partners is forecasting a moderate drop in auto sales this year, followed by steeper declines in 2019 and 2020.  This will come despite automakers like: BMW and Audi finishing new plants in Mexico, Volvo finishing one in South Carolina, Toyota finishing one in Mexico and Alabama, and Fiat Chrysler reigniting a truck plant in Michigan.  Therefore, if Alix’s predictions are correct and there is a sales downturn, it could not come at a worse time.  So, watch the consumer automobile sales numbers going forward – as a ‘tell’ to the economy.

   Your best defense is agility.  If things start to look sour, getting out before the other guy becomes paramount.  I haven't seen anything telling me that the run-up is over, but I’m not shy about booking profits either.  Let's watch the reaction on Monday to the Government shutdown, after all – it could be another ‘buy-the-dip’ (BTFD) opportunity.  

Tips:

   I find trading the crypto-markets much easier than trading the traditional equity markets – because there are no Central Banksters in the background.  My opening trading approach would be the following:

-       1^st – Open a free account on the crypto-charting platform:  www.tradingview.com

-       2^nd – Dial-up your favorite crypto such as ETHUSDT shown above.

-       3^rd – Add a free momentum indicator to the chart such as the ‘squeeze / momentum’ – red and green bars shown at the bottom.

-       4^th – And then simply BUY when the bars are green, and SELL when the bars are red.

-       5^th – If you wish to add a little more ‘spice’ to your trading, then download the free ‘Simpler Trading Propulsion Dots’ (shown in purple above) – and then buy or sell a ‘little more’ whenever you see the purple dots.

Top 5 Equity Recommendations:

-       Marijuana stocks:

o   Aurora (ACBFF),

o   Cannimed Therapeutics (CMMDF),

o   Canntrust Holdings (CNTTF), and

o   GW Pharmaceuticals (GWPH),

-       Energy Exploration stock:

o   GAStar Exploration (GST)

Top 5 Crypto Recommendations:

-       Ethereum (ETH),

-       Zcash (ZEC),

-       NEO (NEO),

-       Monero (XMR),

-       SaiCoin (SC), and

-       RaiBlock (XRB)

Here are some crypto-levels for the majors:

   The aggressive bulls jumped in this week and bought at lower levels.  However, unlike on previous occasions, the buying was not as ferocious.  This tells me that traders are not confident of a huge rally from current prices, and over the next days expect a range bound market in most of the top cryptos.

   BTC/USD ($11737): Bitcoin overshot my expected pullback, and fell to $9,300.  The bulls are attempting a reversal, which is likely to carry it to $13,202 – the neckline of the existing head and shoulders pattern.  From there it can go either way – back down to $9,300 or hold and continue the uptrend.  If you’re nimble, play the current rise into $13k – otherwise wait for more clarity.

   ETH/USD ($1,074): Last week’s $940 support did not hold, and Ethereum fell to a low of $770.  At that point, the bulls bought the dip aggressively, which carried ETH back towards its 50% Fibonacci retracement level of $1,097.  I’m expecting a continuation move into $1,174 and $1,284.  With a stop loss at $930, the risk / reward is not in a trader’s favor – wait for resolution prior to initiating new positions.

   BCH/USD ($1,808): The $1,733 level didn’t hold last week, and Bitcoin Cash fell to a low of $1,364.  The current increase is likely to face resistance at the $2,072 level, which was the support area for the previous range.  If the $1,364 area of support breaks, then a fall to $1,194 is likely.  The bearish view will be invalidated if BCH can sustain itself above the $2,072 level.

   XRP/USD ($1.40): Ripple fell all the way to its 78.6% retracement level ($0.91), which coincided with the lower end of its descending channel.  XRP has broken out of the descending channel; however, the present increase is facing stiff resistance at the $1.75 level – above which a move to $2.20 is likely.  If XRP fails to break above the $1.75 level, bears will attempt to resume its downward trend and test the $0.87 area.

    LTC/USD ($193): I thought that if Litecoin broke below $175.19, it would fall to $100 – but bears were unsuccessful in holding prices down.  If the bulls push the price above $205, a move to $225 is likely – where many of the moving averages converge.  This level will act as resistance, and I will wait to trade it until after it clears that level.

   XEM/USD ($1.06): NEM fell close to its 78.6% retracement level of $0.48 last week.  The bulls have commenced a buying spree and an increase to $1.45 can’t be ruled out.

   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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