This Week in Barrons – 2-25-2018:
"First they ignore you, then they laugh at you, then they fight
you, then you win.” … Mahatma Gandhi
Thoughts:
Info-Bits:
-
As Netflix stock nears all-time highs, CEO
Reed Hastings is selling. Maybe it’s
because advanced screenings of his upcoming series ‘Girls Incarcerated’ or ‘Bad
Guys: Vile City’ have left him a bit bearish. Or maybe he had
expenses to cover – like buying Madagascar.
But, anytime a CEO sells stock, you have to wonder what he knows.
-
Latvia (on the other hand) is
going through a major financial scandal.
Last week the U.S. accused a Latvian bank of money laundering, and
violating international sanctions by working with companies with known ties to
North Korea. The ECB froze the bank's accounts,
and now the bank is asking for an emergency loan to keep itself afloat. The bank is one of Latvia's largest
taxpayers, and if it collapses – the ripple effects will be felt across the EU.
-
The Korean Accounting Board
is preparing to recognize cryptocurrencies as ‘liquid assets’. This should further solidify cryptos, and
improve the government’s ability to obtain taxes resulting from their profits.
-
Venezuela just launched its
own cryptocurrency - the Petro. Venezuela
has the world's largest known oil reserves, and has long used oil profits to
prop up its socialist system. Lately,
oil prices have tanked and so has its economy.
Its fiat currency is worthless, and Venezuela's president thinks that their
own cryptocurrency will turn things around. The Petro is backed by oil, which the
opposition says is illegal. Like we need
more crypto-drama.
-
In the wake of launching the
Petro, reports are surfacing that Iran’s Minister of Information will announce
the development of an Iranian cryptocurrency.
With Venezuela and Iran facing U.S. sanctions, if both nations
can successfully bypass sanctions using
cryptocurrencies – be prepared for some strong steps by crypto-regulators moving
forward.
-
Monday is the day that Visa / LitePay will be
released in 41 countries. The world will
finally have the ability to seamlessly pay for everyday goods and services with
crypto. It will demonstrate a working
crypto-technology product that will actually be: cheaper, faster and better.
-
Did you know that: U.S. Customs Agents have
the authority to search your phone for crypto-assets? Do not have more than $10k undeclared – ok?
-
The World Food Program is expanding
their Ethereum-based blockchain payment system because their pilot showed
a 98% savings on all bank-transfer fees.
Hopefully more banks will become part of this solution.
-
California’s representative
Ian Calderon introduced a bill that would recognize blockchain signatures on smart
contracts as electronic records.
-
A ‘black swan’ event showed itself to
Wal-Mart last week. After reports showed that they were NOT making as much
money as anticipated from their online and grocery space – their stock tanked the
equivalent of 5.4 standard deviations. That’s
about as ‘black a swan’ as you’re likely to see barring a global meltdown.
Adding insult to injury, Amazon rallied on the news.
-
In 2017, Japan reported 669
potential cryptocurrency money laundering cases. In contrast, 346,595 were presented
from financial institutions, 15,448 from credit card
companies, and 13,259 from credit unions.
-
Dropbox could soon be ready
for prime time. The company filed IPO
documents with the SEC to go public later this year. Dropbox made $1.1B in revenue last year. They added 100m users (of their 500m total) in
2017, but only 11m are paying users. Their estimated valuation was $10B
in 2014.
Over the next 3 years, I won’t be surprised
to see the business models of Apple, Google, Microsoft, Amazon, Facebook come
under pressure, and all be changed in ways that could reduce their market value
by as much as 50%. The pace of disruption
is accelerating. Virtually all of the
market leaders from the early 2000’s are no longer in those same positions. In 2018, the cost and speed of technology is
becoming commoditized, and brains are always available for the right price. Scale is the deciding factor, until the trend
reverses and then those over-hanging investment declines become unstoppable. I view Facebook, Google, and Amazon as having
the greatest risk in so far as customer security and data privacy are concerned,
but Apple and Microsoft are the ones least equipped to turn things around in a downturn.
The best part about this thinking is
that nobody else in the universe believes a word of it.
The Market:
When I hear: "ALT-Coin season starts next month,"
I'm reminded of a sign in an Austin bar: "Free Beer –
Tomorrow." … @listendestro
… www.thedailybit.news
The past week
played out with Gold finding resistance and falling back, while Crude Oil
stumbled early and resumed its path higher later in the week. The U.S. Dollar bounced but stopped short of a
higher high, while Treasuries moved lower but then caught a bid at the end of
the week. Volatility held in a tight
range with a slight drift lower, but still notably higher than in January. The Equity Index ETF’s held in tight ranges on
the week, with the SPY and IWM stalling at their 61.8% retracements and their
50-day simple moving averages. The NASDAQ
faired a little better, holding over its 20-day, and at the 78.6% retracement.
Going into the
final days of February, equity markets have recovered much of their downturn
and are looking stronger. I’m looking
for Gold to bounce around in a wide range, and Crude Oil to resume its path higher.
The U.S. Dollar Index is pausing in its
downtrend while U.S. Treasuries are biased lower with interest rates moving
higher. Volatility looks to continue to
drift – potentially easing the pressure on index ETFs. The NASDAQ is the strongest of the markets,
and is looking to resume its long uptrend. The other markets are still holding under
critical levels, and are showing less positive conviction at this point.
The push-me / pull-you between high stocks and high
interest rates probably isn't going to go quietly into this good night anytime
soon. As much as the talking heads are
going to try and tell us that stocks can rise along with interest rates –
factually that’s a bit of a stretch. The
simple truth is: every significant market crash has been preceded by our Federal
Reserve raising rates. Every one of
them. When the FED says that it’s going to raise interest rates 3 times
this coming year – is the stock market really going to ignore that? I think it can for a while, but there will be
a tipping point.
Crypto-Bytes:
-
IBM is working on a blockchain solution with
Unilever to simplify Unilever's digital
ad supply chain, and to provide more transparency to its consumers.
- Microsoft is working to scale blockchain for a
distributed ID scheme.
- Ubitquity LLC is using blockchain tech to track
property records, deeds, and to transfer property ownership.
- CryptoBnB is an AirBnB-type of startup that uses
blockchain tech to match homeowners with vacation renters.
- Hill Top Security operates in the blockchain sector,
and is focused on finding and eliminating military-grade cyber threats.
-
Two newly launched
ETFs that attempt to correlate with blockchain tech are: Reality Shares NexGen Economy
Fund (BLCN) and the Amplify Transformational Data Sharing Fund (BLOK). Both funds do not directly correlate
to cryptocurrency price movements, but are comprised of companies committing
material resources to the blockchain environment for their proprietary use.
-
Over 60% of the Sub-Saharan
African population is unbanked, and ripe for a micro-loan / mobile blockchain solution.
-
Narendra Modi (the PM of India) declared that: “Technologies such as blockchain will
have a profound impact on the way we live and work.”
-
Ethereum Classic is fast approaching its
all-time high of $46 in advance of the Callisto airdrop on March 5th.
-
There are currently over 226 global,
cryptocurrency hedge funds. A year ago
there were 37.
-
Charles Noyes of Pantera Capital predicts
that by 2020 – Ethereum’s market capitalization will be 10 TIMES greater than
that of Bitcoin. At the moment, most of the projects on Ethereum’s platform are just on
paper, but that will change throughout 2018.
He views the projects most positioned for success to be: Augur (REP), 0x
(ZRX), and OmiseGo (OMG).
I thought
that Friday would follow the same pattern as the rest of the week, and it started
out that way. But in the afternoon (due
to some FED head comments) buyers came in, and we gained 350 DOW points. So what's going on? Earlier in the week the minutes of the Fed
meeting were released, and they were more hawkish than expected. They showed potentially more rate hikes than previously
anticipated – so the market went through its gyrations trying to deal with
that. But just as the market looked like
it might actually start rolling downhill – the ‘powers-that-be’ hatched a plan
to save it. They brought out FED head
Bullard (the perennial ‘keep rates at zero’ guy) and he said that he didn't
think there would be a need for the FED to do any more than 3 rate hikes. The market shrugged off that comment. So they brought out FED heads Dudley and Rosengren.
Dudley said that he sees bond purchases as being a viable tool to return U.S.
rates near zero, and Rosengren said it was quite likely that the Fed will need to
go back to buying bonds in the future. Excuse
me? Is this the same FED that's been
telling us that it was going to normalize its balance sheet and work off the $4T
that’s parked there? Yes.
You can
see from the above graphs the market’s reaction to the 3pm FED talks. Basically, they couldn’t buy stocks fast
enough. Here was the FED telling everyone
that if things got funky – they’d be restarting QE. Well isn't that
interesting? So, does that sound the ‘all
clear’, and we can just pile into stocks because the FED's got our backs? Maybe. It’s certainly interesting that they saw
something ugly enough that they figured they'd best get out in front of things
and help ‘goose’ it along.
The S&P,
DOW, and Russell indices all have a ways to go before they hit their upper resistance
levels. Therefore, the safe plays this coming
week all reside within the S&P, DOW, and Russell (small cap) stocks. The VIX (volatility index) is ‘flat’ from now until
81 days out – which means there is very little market clarity going forward. I expect volatility to remain at elevated
levels – until Chairman Powell begins to speak, and tells us what his feelings
are surrounding interest rate hikes. Another
reason for market instability is that there is no longer a ‘cap’ on
volatility. Previously, there were so
many people ‘shorting volatility’ that the trade was suppressing the volatility
futures. Now, that genie is out of the
bottle.
I
wasn't born yesterday or in Missouri – so I'm thinking ‘show me’ works here. That
big push on Friday did get the DOW and S&P above their 50-day moving
averages, but it also places them right in an area where they failed just 5
sessions earlier. If the DOW gets to 25,340
and holds the close, and the S&P moves to 2,755 and holds – then I’ll have
to guess that they're going to attempt a run back into the old highs. But if we can't get past those levels, we'll
either sink lower, or we'll see more talking FED heads come out in a hurry.
Tips:
Top Equity Recommendations:
Equities (‘HODL’):
-
Aurora (ACBFF),
-
GW Pharmaceuticals (GWPH),
-
McDonalds (MCD), and
-
Lululemon (LULU)
Options Opportunities:
-
DIA – the volatility in the Index is lower
than it’s respective top components: (Boeing, Goldman Sachs, MMM, and United
Healthcare). Therefore, being a
‘premium’ buyer inside the DIA should work out well over the next 30 days.
-
SPX – the expected move over this next week
is $43. Last week’s expected move was $53. Volatility has contracted, but i believe we
will be ‘cracking’ that $43 expected move range this week.
Top Crypto Recommendations:
-
Ethereum (ETH),
-
LiteCoin (LTC),
-
Nano (NANO),
-
Bitcoin (BTC), and
-
Lisk (LSK)
Until more trading pairs are introduced for alt coins, Bitcoin remains
the market barometer and will impact the performance of the entire altcoin
market. But altcoins with strong
fundamentals can still outperform Bitcoin in the long run due to their
lower market caps. In a market where 20%
swings are just another day at the office, it’s easy to get lost in the noise
and forget what your investment horizon is. Going forward, I’m looking for a move higher
out of NANO. Over 2 weeks ago the
security breach of BitGrail netted the thieves about 17m NANO. With the active selling that has taken place
over the past 2 weeks, the overhang should be absorbed and a move higher in the
offing.
BTC/USD ($9,647): Bitcoin broke the support line
of the ascending channel when it fell to the $9,500 level. If it bounces higher from here, the first test
for the bulls will be the $11,200 mark. If
this level is crossed, the final litmus test will be the $12,200 level. Above that, Bitcoin will become positive. The bears will gain strength if they are able
to sink Bitcoin below the $9,500 level.
ETH/USD ($833): Ethereum’s
fall to $787 was unavoidable. Aggressive
traders can use the dips below $850 to initiate long positions, but use a stop
loss of $770. The target objective is
$1,000, but watch the price action around $900.
If the ETH struggles to break resistance, just close it and wait for the
next setup.
BCH/USD ($1,172): Bitcoin Cash
also fell below its $1,200 support level – leaving bulls to defend the $1,150
level. If this level breaks, a fall to
$854 is likely. Resistance to a bounce
from here is at $1,400 and $1,680 level.
BCH has underperformed lately, so it may be easier to sit this dance
out.
XRP/USD ($0.94): Ripple broke
below $0.95, and hit a low of $0.85 last week. The $0.87 level is critical support. Below this line, we may see a retest of the overall
lows, and any bounce will face resistance at the $1.23 level. It is possible that XRP consolidates within
the $0.87 to $1.23 range for a few days.
XLM/USD ($0.35): Stellar bulls are
currently defending the support zone between $0.30 to $0.35. If XLM falls below $0.30, it will be a
bearish development. Bullish buying
opportunities exist once it breaks above the $0.48 level, but until then – it’s
better to remain on the sidelines.
LTC/USD ($210): LiteCoin is currently one of the strongest cryptocurrencies. It continues to trade above both the 20-day and
50-day moving averages. Any fall towards
the $200 mark should be used as an opportunity to build a long position with
$170 as a stop. On the upside, if the cryptocurrency
breaks above $220, it can easily rally to $240 and then on to $260.
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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