RF's Financial News

RF's Financial News

Sunday, June 10, 2018

This Week in Barrons - 6-10-2018

This Week in Barrons – 6-10-2018:



Billy Crystal: “What are you saying, they fake orgasm?  Well, not with me.”
Meg Ryan:    Right.  All men are sure that it never happened with them, and 80% of women have done it at one time in their life … YOU DO THE MATH!
… Meg Ryan & Billy Crystal in ‘When Harry Met Sally’ (1989)

“You Do the Math”
   Does anyone ‘Do the Math’ anymore?  Since 1998 (as long as I’vebeen playing this game), our Central Banksters have continued to ignore the math and continued to pull bigger and bigger rabbits out of their hats.
-      They tell us that there’s zero inflation out there because that new $500 TV has more features than your old $300 one.  So the more expensive unit is ‘statistically’ cheaper than your 2-year old, unavailable model.
-      When our GDP didn’t rise as much as anticipated, they simply changed the GDP calculation to include: prostitutes, cocaine, and old TV reruns.  After all, nothing boosts GDP like hookers and blow.
-      When our unemployment started climbing out of control, our politicians simply changed the calculation.  Using the old (1995) measure, our unemployment rate would be 21%,and NOT the 3.8% you’re told today. 
-      When the jobs numbers didn’t agree with the politicians, they came up with the ‘Birth/Death’ model. Of the 223k jobs that were formed in May – 215k of those were FAKE ‘Birth/Death’ model jobs.
-      When people working part-time jobs at McDonalds started buying $600k homes, our politicians invented Quantitative Easing – that put $600B in toxic assets on the backs of the taxpayers rather than on our bankers.
-      When bailing out banks became a ‘no-no’, the Cyprus ‘bail-in’ concept was created that turned depositors into unsecured creditors.  That way when the bank gets in trouble – they can legally use YOUR money to solve it.
-      But the math that topped them all was the implementation of negative interest rates.  Never in the history of mankind were you forced to PAY THE BANK for making a deposit – until now.

   Did you ever wonder why so many hedge funds failed over the past few years?  It's simple.  Hedge funds are generally run by intelligent people that DO THE MATH.  They know that this economy can't sustain itself – so they shorted stocks only to see their logic fall due to the Central Bank’s printing presses.  So, we’ve now spent untold trillions of dollars since the 2008 crash, and we have: 
-      2%GDP economy,
-      An unemployment rate of 21%,
-      History’s largest portion of working adults over the age of 65,
-      A population where 44%can't find $400 for an emergency, 
-      And a record-high stock market.

   This week Ken Langone (founder of Home Depot) came out proclaiming public education as the "biggest single problem confronting America. We've got to bring people into the work process where they have a chance to carry themselves.  The United States ranks #1 in terms of how much money it spends per student; however, ranks 28thin terms of results.  So we’re spending the money, but not getting the results.  We are not equipping our children with the math and reading comprehension skills that are required.  What happens 20 years from now, when we have not prepared our kids to be intelligent?"
   JR writes: “It’s scary for parents who are forking over millions for their kids’ college education – at the expense of their own retirement and medical care.  And it’s scary for the kids that are leaving college with debt they cannot handle.”



   According to PM, our outstanding student debt just hit $1.5T for the first time – exceeding both auto loan debt ($1.1T) and credit card debt ($1T).  The trend is accelerating given student debt accounted for just $600B ten years ago.  42% of the people that go to college take out loans, and women take on more (and larger) student loans than men.  Women currently hold 67% ($900B) of the outstanding student debt in America.  Couple that with college-educated women making 26% less than their male counterparts, and an ugly picture unfolds. Both veteran investor Jim Rogers and former Dean Robert Craig Baum said:“The higher education bubble (which is 1/6thof the U.S. economy) will likely burst with the force of all previous catastrophes combined.”  It seems that the average new grad owes $28,400, and over 20% of those borrowers are now delinquent.
  Our colleges / universities have sipped the Kool-Aid to the point that they:
-      Rely on their inflated real-estate investments to survive,
-      Look the other way when it comes to student loan defaults,
-      Accept the rise in tuition above inflation as the norm,
-      And expect a downsized, part-time, adjunct faculty to subsidize their inflated tenured track.
   A wise person once told me: “You can delay the math – you just can’t ignore it.”


The Market: 



"It is not the answer that enlightens, but the question."  – Eugene Ionesco

   This week we found out thatFacebook is in the middle of yet another data privacy scandal.  This time, it's about how it shared data with Huawei - a Chinese smartphone company that the US considers a national security threat.  In fact it shared datawith at least 4 Chinese electronics companies.  These agreements (dating back to 2010) gave private access to user data to: Huawei, Lenovo, Oppo, and TCL.  We also found out that Facebook gives data access to over 50 other hardware makers including Amazon, Apple, and Samsung.  These 2007 deals gave Facebook an early foothold in the mobile market, and allowed Facebook mobile to grow so rapidly.  Facebook confessed that the hardware agreements gave away not only user information, but information on all of their friends, work and education history, relationship status, and likes.  It seems the more we peel back the Facebook onion – the more it stinks to high heaven.

Info Bits:
-       Saudi Arabia recently awarded its first woman’s driver’s license.  It never allowed women to drive before because: “driving leads to promiscuity and vulnerable ovaries.”
-       Last week Apple (AAPL) hit an all-time high as news filtered out that Apple’s new updated investment application will now have interactive charts and business news.  Apparently, 20-year-old fintech is the best Apple can come up with.  Oh – it will also offer me-mojis.
-       Microsoft dropped acasual $7.5B to buy GitHub – the coding platform your developer friends won't stop talking about.  Go ahead and git it!
-       The Atlanta FED is predicting 4.8% GDP growth this year.
-      Venezuela’s inflation rate is 27,364% as of May 31st.
-      It ain’t easy being Google.  The EU wants to fine them $11B for anti-trust violations.  They’re taking heat for doing (then not doing) the Pentagon’s Project Maven.  Shareholders are trying to tie executive compensation to diversity.  And Apple and Amazon are both bigger than they are – ugh.
-       "With tears in my eyes, I finished it," said a woman who took a Harvard Law exam while in labor.  It seems mama's got a brand new – law degree.

Crypto Bytes:
-       Germany’s Federal Ministry of Finance confirmed that 6 financial institutions have launched cryptocurrency trading operations.
-       Bitcoin is NOTthe optimal avenue for money launderers – it’s property.
-       ING Group Bank’s CEO Ralph Hamers sees deep adoption of blockchain technologies – 5 years away.
-       China has pegged blockchain’s economic value as: “10 times more than that of the Internet.”
-       Indonesia will soon classify cryptocurrencies as commodities.  
-       Australia’s Commonwealth Bank coughed up over $700m to settle anti-money laundering and counter terrorism cases this past week.
-      Binance is hot right now.  They’re becoming a decentralized exchange that is being supported by their native token: BNB.  BNB just hit a new all-time high relative to Bitcoin.
-      Circle (Goldman’s crypto exchange) is looking to obtain a federal banking license, and broker trader rights from the SEC.  Hmm, I remember when Goldman said that they were never getting into crypto.
-       2018 MIT grads have the option to store their diploma on the blockchain.
-       ICOs raised nearly $2B in May – bringing 2018’s YTD total to $11B. 

   Bullish sentiment is back on Wall Street with U.S. stocks posting their strongest week in months.  The NASDAQ hit an all-time high, while both the DOW and the S&P traded at multi-month highs.  The gains came despite uncertainty over our tariffs and trade policy.  For the week, the Dow Jones advanced 2.8% (its biggest weekly gain since March), the S&P gained 1.6%, and the Nasdaq rose 1.2%.  
   This weekend we’ll learn what the G7 really thinks about the U.S. tariffs.  President Trump is maintaining his tough stance and will not back down from the line he has taken on trade.  The U.S. wants to bring down its trade deficits that just hit a nine-year high of $807B.  China accounted for 47% of the U.S. trade deficit, but the G7 countries were responsible for another 25% of it.



   This week birthed a new market sector: Communications Services.  It was created from the top corporate names from the Telecommunication Services, Information Technology, and Consumer Discretionary sectors.  The changes will take effect on September 28, after the market closes.  Some of the companies that will comprise the newly created communications services sector are:
-      Google (GOOGL), Facebook (FB) and Activision (ATVI) will move from the  technology sector to join AT&T (T) and Verizon Communications (V) in the broadened Communications Services sector.
-      Disney (DIS), Comcast (CMCSA) and TripAdvisor (TRIP) will also join.
-      Netflix (NFLX) (currently in the consumer discretionary group) will  also move – allowing the new sector to become 11% of the S&P. 
-      The proponents of the change say that the new sector is a diverse mix of companies facilitating communication, and those offering related content and information through various media.

Weed Bill C-45 was passed – with amendments.
-      The Canadian Senate engaged in a marathon session of more than 6 hours on Thursday, June 7 – before approving Bill C-45 – the Cannabis Act.  Once law, it would be legal for adults to possess and share up to 30 grams of dried cannabis for recreational purposes.
-      In the light of the positive progress towards recreational legalization,it will result in big gains for the three biggest Canadian cannabis companies: Aphria, Aurora, and Canopy Growth.
·      After the bill is finalized, it will still take about 12 weeks for provinces and territories to prepare for retail sales.  Edibles and concentrated variants such as marijuana gummies and oils would also be available.

   This market continues to creak, groan, stop for fuel, and inch its way higher.  There's no volume.  It's not even an exciting run.  But it’s up, and it feels better to be on the side that's moving.  I think that the S&P still has a date with the 2,800 – at which time I think things could run into some trouble.  Sector rotation has been brutal.  The markets loved the techs in the beginning of the week, but disliked them (even the famous ones) near the end of the week.  Energy has been moving like a yo-yo, but the DOW stocks have recently been in favor.  How long before they switch to the small caps, is anyone's guess.
   I think the easy money is in the ETF's, like the SPY, DIA, SMH, and IWM.  That way you don't have to be a genius and find the exact stocks that are moving higher.  But 2,800 on the S&P is only 20 points away – so we could see some exaggerated chop as the market nears that level.  If we break through 2,800, then there's no question we'll test the all-time highs.  We don't belong there, but that's never stopped them before.


Tips:



   Bitcoin traders are hoping the cryptocurrency market will provide them with some direction after this week’s lull.  Bitcoin (BTC) continues to trade with a tight range from $7,300 to $7,800. If BTC were to break below $7k, it would only trigger another wave of selling. But the real fear will come if it breaks the $6,000 low, which would represent another 20% correction. 
   Bitcoin bull Tom Lee, still maintains his $25,000 year-end target price.  Lee said, “In our view, the fact that Coinbase and Circle (two major crypto players) are moving closer to SEC approval,suggests that the crypto regulatory outlook is improving.”  He and others believe that improving the regulatory outlook could be the impetus for digital currencies to move higher.
   Robert Sluymer told CNBC that BTC is set up for a price breakout in the near future.  He explained that there are “some very important levels coming up for Bitcoin in the next couple of days / weeks.” Even though Bitcoin’s price was unable to rally in May, he notes that Bitcoin’s longer-term price trend is still “technically up”with $9,500 as a critical level.

Top Equity Recommendations:
   Marijuana stocks (HODL):
-      Canntrust Holdings (CNTTF), and 
-      Canopy Growth Corp (CGC)

   Options:
-      AMZN – BOT: +1685 / -1687.50 – June 22ndCall Debit Spread,
-      BA – SOLD: -370 / +367.5 – June 15thPut Credit Spread,
-      FB – SOLD: -190 / +187.5 – June 15thPut Credit Spread, and
-      PYPL – BOT: +82.5 / -87.50 – July 20thCall Debit Spread.

   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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