This Week in Barrons - 3-11-2018

This Week in Barrons – 3-11-2018:

Thoughts:

   I believe that small business is NOT the job creator of our economy.  A survey of 2,165 small businesses just released by the Kaufmann Foundation (presented to me by MJP) helps drive home that point.

1.  Over half of all small businesses surveyed had no employees.  Another  statistic shows that 85% of current small businesses are 1-person shops.

2.  The profile of the ‘Older Business’ that is still alive after 5 years, is in direct CONTRAST with the current ‘Startup’ profile.  This tells me that we are either: (a) in for a tremendous amount of small business failures, (b) in for a complete ‘about face’ in our economic business climate, (c) our government is backing the wrong horse strictly for voting / political purposes, and/or (d) ALL of the above.

   But let’s not rush to judgement.  The same survey released more data surrounding our newly minted entrepreneurs.  We also found out:

1.     With all of our new government sponsored incubators, accelerators, and respirators – 64% of all new businesses never used any of them.

2.     It’s twice as hard to hire good people as it is to find a place to locate.

3.     It’s 40% easier to find FUNDING for a business than it is to find paying  CUSTOMERS for one.  And it’s a shame that in over 90% of the cases – the funding will ‘dry-up’ before the customers ‘catch-on’.

4.     In over 2/3 of the businesses, it’s darned near impossible to make any money to keep the business – in business.

   And right on cue, a group of business incubators (that was shown to be irrelevant by the survey above) released their results to a question: “What are the most important qualities of a successful startup founder?”

1.    Work & Action:  Startups need DOERS not thinkers.  Founders need to be ‘hands-on’ with the business.  Actions remove doubt.  You need to learn quickly what does and does not work.

2.    Customer Knowledge: Even though finding funding is easier than getting customers – entrepreneurs need to bite the bullet and learn how to sell.  Learn what customers want, and what it costs to acquire and retain them.

3.    Know the Numbers: Figure out how to make money.  Understand cash flows accelerating receivables and delaying payables.  These items are more easily learned when you have money – then when you don’t.

4.    Listen to Everyone:  Your willingness to listen and learn gives you the ability to excite others.  Your ability to be a persuasive communicator and focus on sales will be the determining factor between winning and losing.  There is no business problem that increased revenue won’t solve. 

   Now that we know: actions, sales, and financial accountability are the main issues for survival – you would think that incubators would teach: budgets, selling the decision-maker, and timeframe(s).  But alas, only a handful include this in their curriculum.  Instead they teach: (a) ‘creating’ rather than ‘doing’ a business model, (b) ‘pitching’ an investor rather than ‘selling’ a customer, and (c) ‘speaking’ in an elevator versus ‘listening’ to your prospect.  Government monies must be flowing so freely to incubators that results just don’t even matter.

   This is becoming even more apparent as cities are getting into the ‘incubator’ act.  Pittsburgh is now proposing a taxpayer-financed effort to underwrite small-business startups.  To quote Colin McNickle: “Why would any city set up a fund to make grants to businesses so they could pay the city for permits and licenses?  If a startup can’t afford a license, how can it afford equipment, supplies, and employees?  If the city is eager to help startups, why not waive the cost of permits and licenses for the first year?”  Equally troubling is the fact that businesses that are not ‘politically correct’ will not qualify for the grants.  Years ago, Dr. Richard Florida proved that cities that require businesses to adhere to their philosophy will NOT attract the entrepreneurs most likely to succeed.

   There is a better way, and that is to cut business taxes and jettison the anti-business mindset that tries to impose social goals upon a business.  A good job beats a ‘socially desirable outcome’ any day.  As Colin writes: “Absent a reversal of our government’s oxymoronic groupthink – an economic renaissance will be but a historical footnote.”

   Let’s assume that we know our current batch of startups won’t succeed because they lack the right profile.  And let’s also assume we know what makes small businesses successful, and we’re intentionally not teaching those elements.  That means our politicians and government organizations know that this small business ‘effort’ is just that, and our job growth comes from existing medium to large sized corporations.  And any small business talk is strictly designed to keep people catching the ‘fish’ that is tossed to them – rather than teaching them to ‘fish’ for themselves.

The Markets:

"Every once in a while, a new technology, an old problem, and a big idea turn into an innovation." ― Dean Kamen

   When MJP asked me to place ‘where we are’ on the hype / technology adoption charts above, I thought – What a great question.  As I look at the two overlaid cycles – I think we have just barely ‘Crossed the Chasm’ but are still in the ‘Trough of Disillusionment’.  I think this because financial institutions that know in their hearts that a digital currency solution is the correct path – are still fighting to maintain the status quo.  They know that a decentralized cryptocurrency operates without a single point of failure – which is the only way to win against hackers and bad actors.  Even J.P. Morgan is fighting to use traditional methods in the offshore banking industry, even though the transfer of fiat currencies require significant manual labor for: transaction verification, anti-money laundering checks, and payment clearing.  Cryptocurrencies like Bitcoin and Ethereum have significant advantages in a number of these areas including: security, borderless transaction settlement, efficient payment clearance, and lack of dependence on centralized service providers.  Although the offshore banking industry is valued at $32T, maintaining the status quo still rides above ‘cheaper-better-faster’ solution for now – and hence my positioning on the graph.

Info-Bits:

-       "We're aware of the problem and working to fix it" is what Amazon said about Alexa’s new-found ability to randomly laugh at people.  They also said: “Don't worry, robots really can't take over the world.”

-       This week health insurer Cigna said they’re ‘coughing-up’ $52B to buy Express Scripts.  This deal combines one of the country's biggest health insurance companies with the largest pharmacy benefits manager.

-       Hundreds of doctors in Canada are saying: ‘Thanks, but no thanks' to a pay increase.  They're signing a petition to have the government take back their raises, and put them toward higher nursing wages and giving patients more services.  Congrats - that’s the most Canadian thing I’ve ever heard.

-       People talking about trade wars seem to forget this is NOT 1930 – when the U.S. was the largest exporter in the world.  Today, we're not even in the top 10, and we run an $800B deficit.  When you run an imbalance that large – you are in the driver’s seat when it comes to tariffs.  As J. Paul Getty said: "If you owe the bank $100 that's your problem.  If you owe the bank $100 million, that's the bank's problem.”   Gary Cohn lost the trade war battle, and now he's the latest to vote himself off the island.

-       News that Apple’s iPhone sales were 1% lower in February was met by stories of new 2018 iPhones – one which will reportedly cost over $1,500.  Can an iPhone cost as much as a laptop?  I’m sure this seems like a good idea to somebody.  Even with a 6.5 inch screen, I’ll still need to spend more money for reading glasses.

-       "We are horrified" said the Utah State Bar after accidentally emailing a photo of boobs to every lawyer in the state.  It wasn’t their ‘breast’ move.

-       The Wall Street Journal reported Tuesday that online retailer Amazon is in talks with major banks about building a ‘checking-account-like’ product to offer its customers.  The report said the effort is focused on something that would appeal to younger customers and those without bank accounts.  The move by Amazon would remove a major barrier to shopping on its website – the lack of a credit card.  Amazon would let consumers store their money with them in anticipation of spending it later.  By teaming up with a bank, Amazon is clearly thinking bigger than just a few dollars in a transactional account.  Will Amazon begin to take your entire paycheck as a direct deposit?  Never say never.

-       Uber’s male drivers earn about 7% more than their female drivers because it seems that men drive faster than women.

Crypto-Bytes:

-       Remember Mt. Gox?  After the exchange went belly up, a trustee was appointed to recover the funds.  The good news is that they have recovered over 200k BTC and have been selling them feverishly since December, 2017.  The bad news is that they still have 165k Bitcoin left to sell.  The concern is that the price of Bitcoin has fallen 20% since they started selling, and with 165k Bitcoins left to play – the downward pressure on BTC should continue.

-       The Binance exchange continued its excitement last week as a number of accounts had their balances drained due to an elaborate phishing attack.  Binance restored the balances, but a wild ride was had by all.

-       The SEC announced that all digital asset exchanges that list security tokens on their trading platform “must register with the SEC as a national securities exchange or be exempt from registration.”

-       PayPal reduced cryptocurrency transaction times – according to a recent patent filing.  It will operate a parallel payment system on top of Bitcoin or other cryptocurrencies that will authenticate transactions in real time.  This proprietary network will give PayPal cheaper transaction fees along with an additional security layer.

-       3 college students are starting an ice-cream delivery service in San Francisco that will run solely on bitcoin's Lightning Network – they’re calling it: Block and Jerry's.

   Last week investors were engulfed by anxiety and tension through mid-week over President Trump’s plan of imposing tariffs on steel and aluminum imports.  The situation became more unsettling when Trump’s chief economic adviser, Gary Cohn, announced he was calling it quits.  Our stance angered several countries, and the European Commission President Jean-Claude Juncker offered up his view: “This is a basically stupid process … but we can also do stupid.”  By Thursday Trump had softened his stance on the tariffs and granted exceptions to NAFTA partners Canada and Mexico.  And by the end of the week we were in rally mode when the jobs data showed us the largest gain since mid-2016.  For the indexes:

·       The S&Ps gained 1.7% on the week – up 4.2% year-to-date with financials, industrials and technology leading the way.

·       The DOW gained a weekly 1.8% to close above 25,000 for the first time since the end of February.

·       And the NASDAQ is up 9.5% year-to-date, and set its first intraday high since January 26^th.

   The reason for the market’s optimism was the strong jobs report, and the news that Trump and North Korea's leader Kim Jung Un will be meeting face to face.  It was important for bulls to get this market up and over its 50-day moving average, and that was accomplished in stunning fashion on Friday.  Now, the quest will be for trying to attack the all-time highs set back in January.  I have little doubt that we’re going to try and attack the all-time highs; however, the big test will be when they do – can they exceed those highs?  I think the whole scenario can be summed up by one statement: IF we succeed in making new, all-time highs – we’re probably going to see an extended rally that lasts a few months.  IF we attack the highs and get rejected – then I think we start a multi-month sideways and down pattern that goes lower than the February lows.  So for now, I'm staying long and watching how the markets deal with the all-time highs.

Tips:

   The market will be watching closely the retaliatory trade actions by other countries in response to Trump’s steel and aluminum tariffs.  On a positive note, a month has passed since the S&P 500 underwent a correction, and stocks have moved higher by 7% since then.  Next week we have: (a) the inflation report on Tuesday, (b) retail sales on Wednesday morning, and (c) housing starts and building permits on Friday.

Top Equity Recommendations:

Marijuana stocks (HODL):

-       Aurora (ACBFF) – is thinking of listing on the NASDAQ, along with its current Toronto listing,

-       Cannabis Wheaton (CBWTF), and

-       Canntrust Holdings (CNTTF).

Options (I LIKE):

-       LuLuLemon (LULU) – pinning around $81 on March 16,

-       Amazon (AMZN) – pinning around $1,600 on March 16,

-       J.P. Morgan (JPM) – pinning around $115 on March 16,

-       Deckers (DECK) – long into March 16,

-       Nvidia (NVDA) – long into March 16,

-       EBay (EBAY) – long into March 16,

-       Micron Technology (MU) – long into earnings on March 22,

-       Microsoft (MSFT) – long into March 29,

-       Sketchers (SKX) – long into April 20,

-       Tyson Foods (TXN) – long into April 20, and

-       Take-Two Interactive (TTWO) – long into April 20.

Top Crypto Recommendations:

-       Bitcoin (BTC),

-       Ethereum (ETH),

-       Nano (NANO),

-       OmisGo (OMG), and

-       Cash.

   News continues to pound the cryptocurrency markets stifling attempts of any recovery.  The news swing from the Binance exchange being hacked to the SEC requesting trading platforms that deal with digital assets register as exchanges.  In large part, regulations have proven to be positive for currencies attracting institutional funds.  In other news, Japanese regulators have come down hard on CoinCheck and six other exchanges.  As a rule of thumb, I believe it’s better to buy only after something stops falling – because in a bear market people dump their holdings at ridiculous prices.  In terms of price points for each of the individual pairs:

   BTC/USD:  Bitcoin broke below its 50% Fibonacci retracement level.  If bears can keep the price below $9,000, we’re headed for $8,404.  I would like to see clarity and any support level hodl before initiating any new trade.

   ETH/USD:  Ethereum fell to the expected level of $637.  ETH is currently in a downtrend as the price is trading inside a descending channel, and below both the moving averages.  Any rebound from the current levels is likely to face selling pressure at multiple resistance zones.  The advantage is with the bears until bulls can break out and sustain above these two overhead resistances.

   BCH/USD:  I have been expecting Bitcoin Cash to correct to $950 for a while now, but the bulls have held it above $1,000.  If bulls can’t sustain BCH above $1,150, bears will attempt to sink BCH towards the next support of $854.  I’ll only change my bearish view once BCH rallies above $1,400.

   XRP/USD:  Ripple is forming a large range from $0.56 and $0.70 on the downside to $0.90 to $1 on the upside.  My target is $1.22.  This may turn out to be a roller coaster ride because trading inside ranges like this can be volatile.

   XLM/USD: Stellar has moved below its $0.32 support level.  I’m looking for it to touch $0.22 – the lower part of its descending channel.  I will buy it only after it remains above $0.32 for a couple of days.

   LTC/USD:  Litecoin broke and closed below its descending triangle, and that leads me to believe we will see $160 and potentially $140 after that.  Because both moving averages have flattened out, we should see range-bound trading for the next few days.

   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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