This Week in Barrons – 4-2-2018:
With
the start of Baseball season: It’s becoming increasingly more
difficult to tell the players without a program. Everyday there is some new trade rumor or a
market ending event. Just last week the
market was seeing ‘strike-out after strike-out’ fretting about a trade war with
China – until China acknowledged that some concessions are necessary. Then South Korea started ‘putting the side
down in order’ until a new S. Korean deal was announced that: “Imposes a
limit of 2.7m tons of S. Korean steel exports to the U.S. per year” [That
is about 70% of the existing amount.] “The
deal will also allow the U.S. to extend its 25% tariff on imported Korean
pickup trucks, and will double the number of U.S. vehicles allowed to enter S.
Korea annually.” So, the trade war
is on hold because the world realized that the U.S. is customer #1 for
the world’s goods, and nobody wants to ‘cut off their nose to spite their
face’.
Then
we found out that ‘the closer’ was warming-up.
Right under our noses, it seems that China recently launched the
Petro-Yuan – their version of the Petro-Dollar.
As reported by Bloomberg: “With China being the world’s largest oil
consumer, yuan-backed crude oil futures for September have started being
offered on the Shanghai International Energy Exchange. Experts see China's yuan-dominated contracts
as historic – since the launch ends years of setbacks and delays from the time
China first attempted this listing in 1993.”
What’s troubling with this launch is that the U.S. dollar is the world's
reserve currency ONLY because of the ‘petro-dollar’. The petro-dollar is a nickname for a deal
that was stuck with the Saudi's decades ago – that guarantees oil sales would
only be priced in U.S. dollars. Given
every nation uses oil, that gave every nation a reason to accumulate U.S.
dollars. China is now threatening that
rationale. China buys most of its oil from Russia. By launching the ‘Petro-Yuan’, both Moscow
and Beijing told the world that they will be using their own national
currencies for all oil transactions, and therefore, will be reducing their U.S.
dollar holdings. Also in October of
2017, Beijing launched a new electronic payment system for settling
transactions in yuan and Russian rubles.
That means that settlements for Russian oil deliveries to China
(totaling over 60m tons per year) can be done seamlessly, and without U.S.
dollar interference.
Hayden Briscoe (Head of Fixed Income at UBS Asset Management) said: “China’s launch of its crude oil futures exchange will improve the clout of
the yuan in financial markets, and will threaten the international primacy of
the U.S. dollar. This is the single
biggest change to our capital markets – maybe of all time. This helps to cement the exchange's
viability, and challenges the existence of a petro-dollar system. This will decrease demand for the
greenback, and boost both U.S.
inflation, and demand for yuan from foreign investors eager to participate in
the Shanghai International Energy Exchange.
This will drive the price of the U.S. dollar downward.”
I
have written many articles suggesting that the Chinese wanted more global
exposure for the yuan. In 2010, I
thought that the Chinese would get the yuan included in the Special Drawing
Rights basket, and that was accomplished in October 2016. Now, they're really throwing down the
gauntlet. Oil has been dominated by
OPEC, and has been priced in U.S. dollars for decades. Since every nation needs oil, every nation
needed to inventory U.S. dollars – but not anymore. Russia and China have been very vocal about
being forced to use U.S. Dollars, and it looks like they ‘hit it out of the
park’ with this one.
If
the Shanghai International Energy Exchange really has legs, then this will
damage the U.S. dollar. What I will be
watching is how the slide in the U.S. dollar will affect the price of gold
(which is also priced in dollars). As a side note, other nations that
have tried to get away from using the U.S. dollar for oil didn’t fair so well –
just ask Libya, Iraq, etc. Just sayin’.
The Markets:
Despite crypto-currency
advertisements being banned on the most popular media platforms, intense
regulatory scrutiny, and a lot of bad press – money has been pouring into the
ICO market since the start of the year. Blockchain startups raised $3B through ICOs in
the first two months of the year - which is almost triple the pace of
2017. Smart (VC) money has also been
busy setting an all-time-high for crypto-investment in a 3 month period. Last week Morgan Creek Capital, the $1B hedge
fund run by outspoken blockchain bull Mark Yusko, announced it has acquired
Full Tilt Capital – a venture capital company dedicated to investing in
blockchain. Yusko thinks Bitcoin will
reach the $1m mark in coming decades. They are currently raising $500m in
additional funds in order to become the largest crypto hedge fund in the
world. Yusko is looking toward pension
and insurance funds as customers because ‘crypto’ is a non-correlated asset class
that will create disruptive power across all sectors.
It’s just business, but number don’t lie – below are the
stock price increases between December 2016 to March 2018:
Increase: Increase:
Facebook 32% Weibo 191%
Amazon 100% Nvidia 112%
Apple 48% ServiceNow 119%
Netflix 143% Shopify 200%
Google
30% Square 275%
Info
Bits:
- “Free-range Parenting…”
Utah passed a law that makes it
LEGAL for kids to do things like walk to school on their own. Very retro.
- “Do I have to…” Facebook's Mark Zuckerberg agreed to
testify before Congress about that time 50m FB users unknowingly had their
personal data shared with a political consulting firm in the UK. Zuck said that he’d be a ‘NO-SHOW’ when the UK asked him to
appear in front of Parliament.
- “Look ma, no hands…” Google’s Waymo showed off a new
driverless all-electric Jaguar.
It's planning to roll out 20,000 of these by 2022.
- “Who isn’t acquiring a
healthcare company…” Walmart (WMT) announced that they are engaged in early-stage talks about
developing ‘closer ties’ with Humana (HMT). This closely follows in the footsteps of
the CVS-Aetna and the Cigna-Express Scripts deals.
- “Gimme some money…” On Thursday, Under Armour (UAA) disclosed that some 150m MyFitnessPal
accounts were hacked.
- “Gimme
more money…” One week ago, the City of Atlanta's
computer system was hit by a malware attack that encrypted a big chunk of
the city's files. To unlock
everything, the hackers demanded a $51,000
ransom in bitcoin. This was
just the latest in a series of attacks against U.S. cities. Everyone thinks that SamSam (an
anonymous group of hackers) did it, but no one’s really sure. Governments aren’t exactly known for
their high-tech skill sets. The fact
that they're getting hacked and held for ransom on a somewhat regular
basis may mean it's time to throw out those Windows ‘95 computers and
start acting like it's 2018.
Crypto
Bytes:
- Coinbase announced that it will support ERC20 tokens. Three ERC20 tokens that are receiving considerable buzz
from the announcement are:
- 0x (ZRX): The 0x team has existing ties to Coinbase,
- VeChain (VEN):
Billionaire
Tim Draper is an official investor in
VeChain, and
- OmiseGO (OMG):
A popular
project that received a
commendation from the Bank of Thailand.
- Coinbase
is in talks to
acquire Earn.com for between $30 and $120m.
- Spring Labs: (a decentralized global
credit ecosystem that exchanges identities and credit information via
smart contracts) raised $14.75m in a seed funding round.
- MedCredits (a decentralized healthcare
market) partnered with Civic – a secure identity platform in hopes of
creating the world’s first decentralized public
registry of physicians.
- Komodo (a decentralized ICO platform) partnered with ValueNet – a
Beijing-based VC fund that will provide strategic consulting services for
decentralized ICOs occurring on Komodo’s blockchain.
Volatility can
often translate to ‘reversion to the mean’.
From there it will oscillate up and down – inside of a range. From
January 2017 to January 2018, the VIX (volatility index) bounced around
12. Then in February, the market
corrected a bit, the VIX quadrupled in price, and then settled back down to
oscillate around 20. Has the world
changed and re-set the VIX’s mean from 12 to 20, or is this just another
‘head-fake’ as we return to complacency?
Factually:
- DOW
ended Q1 DOWN 2.5% ending 9 consecutive quarters of gains – the longest such rally
since 1997. It also posted its 2nd
consecutive negative month.
- S&P ended Q1
DOWN and ended a 9 consecutive quarter
rally.
- NASDAQ ended Q1 UP 2.32% for its seventh straight
quarterly gain, but registered it’s 2nd straight monthly
decline
Market analysts are excited because a
seasonal trend is on the horizon. Dating
back to 1950, April has always been a
strong month for stocks. In fact,
April stands as the best month of
the year for the DOW, the 3rd best for the S&P, and the 4th
best for the NASDAQ. The DOW is below its all-time-high by 9.4%, the S&P is off by 8.1% and
the Nasdaq by 7.5%.
This week Facebook (FB) tried its best to quell the negative publicity surrounding
its recent data breach scandal. The
social media giant has decided to end its partnerships with several large data
brokers. These data brokers target
people in social networks for advertisers.
In addition, Facebook adjusted
the privacy settings on its service to give users better control over
their personal information. This action
by FB brought outcries of ‘foul play’ by 3rd-party data providers –
such as Axcion saying that it will lose $25m because of FB’s
actions.
As for the rest of Wall Street, you could
almost hear tiny voices saying: "Defend the 200-day moving average –
Defend the 200-day." Back on February 9th, the DOW was
down 1,600 points intra-day, and the S&P fell slightly through its 200-day
moving average. It was exactly THEN that
the Central Banks came in and pushed the DOW higher by 500-points, and saved
the day. Since then, we've rallied,
fallen, rallied, and ultimately fallen back to test the 200-day.
In terms of what’s next? I think they're going to string a few more
green days together, but I don't think we’re out of the woods yet. I have this nagging feeling that there's
another drop coming. I say that because
we haven’t seen a massive volume flush downward as of yet. I'd be all over ‘buying the dip’ (BTFD) if we
had a massive high volume dump, but without that – we’re in chop-mode. I think
next week’s tradeable rally lasts a few days, but after that – I’ll be looking
for another pull back. So, look for
plays to hop on to, but not to marry – not yet.
Top
Equity Recommendations:
Marijuana
stocks (HODL):
- Aurora (ACBFF),
- Cannabis Wheaton (CBWTF), and
- Canntrust Holdings (CNTTF).
- CannaRoyalty (CNNRF) announced a pair of acquisitions:
Kaya and Alta Supply.
- Friday Night (TGIFF) announced strong financial
results along with ones from subsidiaries American Medical and Infusion
Mfg.
- Aphria (APHQF)
announced that newly acquired Nuuvera would be renamed Aphria
International and focus on: Australia, Germany, Italy, Lesotho, Malta, Portugal, and Spain.
Options
(I LIKE):
- SPY, SPX, and DIA long into April 4th,
- Northrup Grummon (NOC) – long into April 20th
(earnings), and
- Raytheon (RTN) – long into April 20th
earnings.
An
article in Coindesk said that Bitcoin may be approaching the bottom of its bear
run. Bitcoin (BTC) hit a 50-day low of
$6,630, and there are indications it's going to get worse before it gets any
better. The speculation is that BTC will
drop in the $6,000-$6,600 range over the weekend. Historically, BTC repeatedly makes bull reversals
after it drops below 30 on the Relative Strength Index (RSI) – so any drop
below $6,614 should be short-lived. The
fact that BTC has recently recovered the $6,614 to $7,200 range only validates
the historical pattern. Going forward,
be on the lookout for:
- BTC finding a bottom over the weekend in the
range of $6,600-$6,000.
- A daily BTC close above $9,177 that would open
the door for a test of its major resistance level at $11,700.
- A significant bull run will only be triggered if
price breaks above $11,700.
- On the downside, look for multiple closes below
the $6,000 level, and that would trigger a continued sell-off.
Top
Crypto Recommendations:
- Bitcoin (BTC), and
- Fiat.
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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