This Week in Barrons - 3-25-2018

This Week in Barrons – 3-25-2018:

#DeleteFacebook and #UnspoilMe:

   Since the Cambridge Analytica data scandal broke last week, Mark Zuckerberg (the CEO of Facebook) has been the focus of intense criticism.  His early public responses to the scandal failed to address any of the key questions surrounding Cambridge Analytica’s misuse of people’s personal data.  In his final interview with CNN, he still attempted to convince us that Facebook was the VICTIM.  A hashtag campaign: #DeleteFacebook is fully underway, and even Elon Musk has deleted the Facebook pages for Tesla and SpaceX.  Personally, I don’t see Facebook becoming MySpace over night, but let’s ‘backup’ and set the scene.

   Employing subterfuge, Cambridge Analytica (with Facebook’s knowledge and permission) hired 270,000 people via Mechanical Turk to answer questions in an application that they installed on Facebook.  That application gave Cambridge access to the group’s Facebook (FB) information – along with the information of their 50 million friends.  Although the 270k people may have given Cambridge Analytica permission to access their own data – the other 50m NEVER gave their consent.  And NONE of those violated gave Cambridge Analytica permission to use and distribute their data.

   We all know that FB is in the business of selling our private information to governments and corporations.  What’s surprising is that FB refuses to take responsibility for doing it.  When the Russians invaded FB, FB refused to acknowledge it.  Now Cambridge compromises 50m FB users, and FB claims that: “It’s not a data breach.”  I can only assume that at FB making money takes precedence over ethics, employees, users, or our country’s elections.  With Monday’s resignation of FB’s Chief Information Office, it was revealed that he was pushing for increased transparency surrounding Russia's campaign antics but was told to ‘cease and desist’ by FB leadership.  Lately, the FTC is reviewing whether FB violated a consent decree that regulated user privacy, and if 50m users were in fact exposed – then FB’s legal exposure will be in the trillions.  A former FB data operations manager explained that data extracted by 3^rd party developers “could not be monitored by FB.  In fact, executives turned a blind eye to the security risks because legally they would be in a stronger position if they didn’t know about the abuses.”

   Cleary FB understands that all the power today comes from chips (computers) not clips (guns).  We need to stop coughing up our life stories (for free), and allowing FB to slice, dice, and sell them to advertisers – so we can be influenced.  We’ve allowed our social networks to become the custodians of our personal information, and it’s time to take it back.

   Then there’s Google, Siri, and Alexa – all home gadgets capable of voice interaction, playing music and audiobooks, assembling to-do lists, setting alarms, streaming podcasts, controlling smart devices, providing weather, traffic, and news, etc.  And it seems that they are even capable of ‘laughing’ at me.  I remember in 2015, Samsung drew criticism for its always-on voice detection policy that stated: "Please be aware that if your spoken words include personal or other sensitive information, that information will be among the data captured and transmitted to a third party."  If that wasn’t creepy enough, it seemed that owners of Samsung Smart TVs were also vulnerable to spying.  Newly published documents detail a problem called ‘Weeping Angel’ – an attack designed by the CIA and United Kingdom's MI5 that make Samsung smart TVs look like they're turned off when they're not.  When the CIA was asked about the program they said: “We would never use them to spy on Americans.  Samsung TVs are sold all over the world, and there are bad people everywhere.”

   Okay, so we have a history of the CIA spying on people through Samsung TVs, Facebook releasing personal data on the world, Google and Siri listening to everything that’s said, and Alexa laughing at us – could it get stranger?  Sure, it seems Samsung has a new program called ‘Unspoil Me’.  It solves the problem of someone spoiling the ending of a TV show for you.  Simply go to the Samsung website http://www.samsung.com/se/unspoilme/eng/, they will hypnotize you, and REMOVE the memory of that show’s ending.  Their website clearly states: “You decide what TV series you'd like to forget.  Then you will be guided through a self-hypnosis, digital, audio experience – led by a certified hypnotist.  The experience lasts for about 23 minutes, and has to be experienced without interruption in order to work.  Once you've completed the hypnosis it's recommended that you get one nights sleep, before you watch your TV show for the first time – again.”  http://www.samsung.com/se/unspoilme/eng/ 

   For me, creepy just hit a whole ‘nother’ level.  The same outfit, that worked with the CIA, wants to crawl around in my head, and help me ‘forget’ things - really?  They say it will only remove that TV show – honestly?  It’s probably an over-reaction on my part, but something tells me that there's more to this than just wanting to let me see a TV show through a fresh pair of eyes.  Bottom line, we need to start taking back our own information and privacy.  My friends have been moving off Facebook for years.  Now that Facebook’s stock is down, shareholders are suing, and users are losing trust - #DeleteFacebook along with Alexa, Google, Siri and Samsung all are in the cards for me.

The Markets:

A couple Crypto-Bytes:

-       10 Years: is how long Twitter and Square CEO Jack Dorsey thinks it will take until Bitcoin becomes the single global currency of the Internet.

-       Yi Gang: newly appointed head of China’s Central Bank said: “Bitcoin is a currency that provides freedom to anyone that uses it”.

-       Fundstrat Global Advisors: “We believe the current crypto purgatory period will last for between 150 and 175 more days.  That implies the bull market for alt-coins really starts mid-August to mid-September”.

-       Peter Thiel: PayPal co-founder: “I would be long Bitcoin, and neutral to skeptical of just about everything else … with few exceptions.”

-       VersaBank: is beginning to secure digital assets via their own blockchain-based bank.

-       PwC: announced a blockchain audit service that should give companies more confidence that the technology is being used properly.  PwC is already seeing traction as a major exchange and a digital wallet provider have signed up as customers.

-       Jane Street: a global liquidity provider and market maker, revealed that Bitcoin was just added to their list of tradable assets.  Being a high-frequency trading firm that trades $13B in equities, their announcement is a clear indication that prominent providers are getting involved in crypto.  For traders looking to make a quick buck on Bitcoin’s intraday price movements, Jane Street’s entry isn’t making their lives any easier.

-       Cybersecurity and blockchain: A recent report declares cybersecurity a top impediment to economic growth, and cites blockchain as a potential “aid to help the economy function more efficiently and securely.”  The statement describes blockchain as being “nearly invulnerable to cyberattacks”.  So while there’s been no official endorsement of Bitcoin, central bank digital currencies continue to be likely contenders to win Congressional approval. 

   Last week U.S. stocks were besieged following the convergence of three major Wall Street threats.  (1) Our FED 2.0 raised its benchmark interest rate by a quarter percentage point to between 1.5 and 1.75%, and places the new effective federal funds rate at 1.63% - the highest since Sept. 2008.  (2) Pres. Trump announced the beginnings of a trade war with China by signing a memorandum that imposes up to $60B worth of tariffs on Chinese goods.  The memo stipulated a 30-day consultation period to begin after a list of appropriate Chinese goods was submitted – leaving a window for the two countries to hold discussions.  China responded by saying: “China doesn’t hope to be in a trade war, but is not afraid of engaging in one.  China hopes the U.S. will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”  (3) Finally, a $1.3T government funding bill was signed.

   In a weekly response to those events, the DOW and S&P plunged by almost 6%, and the NASDAQ dropped below 7,000.  After all, a full-blown bi-lateral trade war could damage the global economy, and significantly bring down profits of major U.S. exporters.  The markets’ biggest sectors (technology and banking) slumped the most due to their massive overseas business interests.  Bank stocks fell because investors sought refuge in bonds, driving yields down – which is detrimental to bank profits.  The only bright spot was the marijuana industry when Pres. Trump exempted Canada from the tariff discussion, and Canada passed Bill C-45 – further securing country-wide ‘weed’ legalization after June, 2018. 

   Last week I showed the DOW inside a narrowing sideways cone – wondering which direction it would break.  There were hundreds of reasons for it to break to the downside, and only 2 to the upside: Central Bank and Corporate intervention.  This week the downside won, as Friday’s DOW closed at 23,533 – approximately 200 points from its 200-day moving average of 23,357.  That will be the next level of support, and ‘yes’ I think we will get there.  Why?  Last week’s 700+ and 400+ point down days were on just above-average volume.  For a washout to end, there needs to be a large volume capitulation day – and we haven’t had that yet.  Our markets are currently in a short term oversold condition.  Only 15% of the S&P remains above their 50-day moving averages – so a bounce is in order.  Watching how far that bounce takes us before we roll over again will be key to deciding whether the correction is over.  After all, last week was the worst for the market in over 2 years.  Tomorrow, we could experience ‘Margin Call Monday’, or at minimum – increased volatility.

   If you have a long portfolio, it’s time to begin to assess your risk.  Last week’s expected move in the SPX (the S&P Index) was around $45.60, but we moved $164 = 3.6 TIMES that amount.  This means that the option market professionals are not handicapping risk correctly – and that’s scary.  Although you may think market volatility has increased enormously, looking back over 20 years of data shows that last week’s actual price movement was only ‘slightly’ above average.  This means we could see larger 5 to 6% moves going forward – rather than the 2 to 3% moves that we’ve experienced lately.  And even though the recent downside moves in a stock like Amazon have been large, we’re not even back to Amazon’s December levels.  Think for a minute, if Amazon (which currently sits at $1,500) fell to its December level of $1,100 – the devastation that would fall upon the NASDAQ would be horrific.  It would NOT necessarily be caused by people selling Amazon directly, but more by Mutual Fund and ETF (QQQ-style) redemptions.  Because Amazon has such a prominent weighting inside many of the global funds and ETFs, it would take a significant hit by virtually any global exit strategy.  For next week, the SPX is expected to move $77 in 4 trading days – which is 1.75 times last week’s 5-day expected move.   The Financials are looking at twice their normal implied volatility, and if the bonds rally again – the financials will get crushed.  So, a bounce is to be expected – but a lot of people will be selling into that bounce.  I’m wondering if we see a little flight-to-crypto = safety this coming week.  Just be careful and remember – cash is a position.

 

Tips:

   In recent days, daily volumes of Bitcoin, Ethereum and the other cryptos have  remained low, but if they can sustain the current daily trading volume over the next few days, the market may be able to rebound.  Currently, I’m not finding any buy setups in the cryptocurrency space.  If Bitcoin can break above $9,561 – I’ll change my tune, but until that point my next buy point for Bitcoin is at $4,450,  In order words, ‘look out below’ unless we pierce above the $9,561 level.

Top Equity Recommendations:

Marijuana stocks (HODL):

-       Aurora (ACBFF),

-       Cannabis Wheaton (CBWTF), and

-       Canntrust Holdings (CNTTF).

Options (I LIKE):

-       SPY, SPX, and DIA short into March 25^th,  

-       Northrup Grumman (NOC) – long into April 20^th (earnings), and

-       Raytheon (RTN) – long into April 20^th earnings.

Top Crypto Recommendations:

-       Bitcoin (BTC),

-       Ethereum (ETH), and

-       Cash.

   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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