This Week in Barrons – 8-12-2018:
“We can shape your vision to anything our imagination can conceive.”
Censorship … are we ready for it?
55 years ago a science fiction television show debuted called the Outer Limits. It successfully predicted the future by showing the above graphic and saying: “There is nothing wrong with your television set. Do not attempt to adjust the picture. We are in control of the transmission. We control the horizontal. We control the vertical. We can shape your vision to anything our imagination can conceive. For the next hour, we will control all that you see and hear and think. You are about to experience... The Outer Limits.” I’m afraid that those same thoughts currently apply to our main stream media, Facebook, Twitter, and YouTube.
You see, this past week tech giants Google / YouTube, Apple, Spotify, Stitcher, and Facebook all simultaneously banned Alex Jones and InfoWars from their platforms. This ‘coordinated censorship’ has a tinge of conspiracy, but rather than go there– just understand the slippery slope that exists when you encroach upon the freedoms of speech, thought, and expression. On one side you have everyone that wants all speech protected – no matter how ugly, and on the other you have those that want anything other than their own point of view stifled. While this battle isn't terribly new – what is new is how vicious, convincing, and life-changing the digital battleground has become. The point is NOT about ‘InfoWars’, but rather that Uncle Sam (or someone other than the giants themselves) must make a determination concerning whether what the giants are doing is legal. I always thought that the idea behind being free, is that you can listen to all manner of opinion, and then make up your own mind. If we give digital platforms the ultimate control, then we are turning back the clock to 1963 and allowing others to: “shape our vision to anything their imaginations can conceive.” What I never realized, is the ‘collateral damage’ that comes with the digital side. We won’t notice the control – because it will be disguised as help.
After all, there are countless inconveniences that make up any given day. Google (in particular) has made a business of assisting, and even completing many of these inconvenient tasks for us. But what happens when Google moves from ‘assisting’ to ‘decision-making’ on our behalf. Think about when Google starts driving our cars down our neighborhood streets using Google maps. Is Google getting us to our destination faster, or driving us closer to places that have paid them the most advertising dollars? Google’s new features: auto-completing our emails, predicting where we should eat and what we should listen to – are just a precursor to cultural-engineering and decision-making. So much for the phrase: “To err is human”.
And make way for personalized education courtesy of these same tech giants. They (along with our government) are in the process of changing the way we think. Our government is starting to teach people how to think entrepreneurially. As if that weren’t enough of an oxymoron, our government (because they aren’t the best with math and budgets) is advising young entrepreneurs to just ‘ignore the numbers’. I assume to prove their point, the government just funded a ‘bakery’ incubator in my area. Now, often the issue with local businesses is that they can’t generate the foot-traffic necessary to achieve profitability. For example: if a baker and their assistant each need to make $40k/yr. to survive, and their rent & utilities are $10k per month – the business needs to make profits of $200k / year ($1,000 per day) to simply ‘keep the lights on’. Assuming the average bakery item costs $2, and they make 20% profit ($0.40) on each item – that means the bakery must sell 2,500 items per day – 250 per hour – 4 per minute. What ‘entrepreneurial’ bakery do you know that has that kind of foot traffic? (And that’s assuming no equipment costs and nothing is being ‘saved for a rainy day’). So by ‘ignoring the numbers’ we end up with an entrepreneurial charity (disguised as a bakery) operating at the mercy of the government (or other suitable non-profit foundation). To quote MJP: “My frustration is that our government (and others) keep diluting, prostituting, and cheapening what was the true meaning of the word: entrepreneur. I remember when it referred to a risk-taker – NOT a taker of other people’s money.”
Increased censorship and control naturally causes a new wave of coloring ‘outside-the-lines’. The latest research shows that more and more companies are using non-standard accounting practices (non-GAAP) to show larger earnings increases and boost share prices. Professors Griffin and Lont found that the proportion of reported large earnings increases among the S&P 500 have more than doubled during this most recent bull market. And over 90% of those increases have come as a result of using non-GAAP accounting practices. And yes, our same group of tech giants are also leading the non-GAAP accounting parade as well.
What do we do about it? After all, our tech titans are all about entrepreneurship and apps running at the speed of light. As much as we may not trust tech – we want it to work. We’ve shown that we’ll sacrifice our personal freedoms (including data privacy) as long as it’s free. But the Alex Jones debate comes with a slippery slope – and one that you don’t know just ‘how slippery’ it is until you start sliding down it. I’m worried that our own powers of analysis (the ability to do the math) are deteriorating. My problem is, until I know whether Google is giving me the ‘right answer’ or the ‘right answer for Google to make the most money’ – I’m operating with one hand tied behind my back. The only solution that seems to make any sense to me is the one that brings back Alex Jones. Allowing the giants to be in control of the censorship rule book, is like allowing the fox to guard the hen house. It’s a situation that’s too complex and dangerous to play without full transparency and understanding. I feel like I’m back watching the Outer Limits and someone is “shaping my vision to anything their imagination can conceive.”
The Market:
Info-Bits:
- Space Force: VP Mike Pence unveiled the Pentagon's game plan to make Space Force a thing by 2020. President Trump is super pumped, and his campaign wants supporters to vote for their favorite Space Force tag line.
“To Infinity and Beyond”– I guess?
“To Infinity and Beyond”– I guess?
- Trade Wars: The Trump admin was hoping tariffs would pressure China to change its trade practices. So far, no dice. Instead, many U.S. industries are feeling the heat and saying: “Well, this really sucks”.
- UBER: Pump the brakes because NYC just approved legislation to stop giving licenses to ride-hailing cars like Uber and Lyft for a year. Some say ride-sharing adds more congestion to cities, while others say they make it easier for people to get around.
- YouTube wins over FB: A recent study shows YouTube traffic almost catching Facebook, and FB traffic being 50% of what it was two years ago. Google owns YouTube and their combined numbers put them in a league of their own.
- Wells Fargo: Just when you think it’s safe to enter WFC, they find yet another way to say: “I’m sorry.” Recently, it seems a computer glitch led them to incorrectly foreclose on 400 customers’ homes. Really? Jeez.
Crypto-Bytes:
- Data Privacy Tokens: The architect for Facebook’s secretive blockchain strategy is stepping down from the board of Coinbase. David Marcus has been appointed to lead a new dedicated team within FB focused specifically on blockchain and the data privacy token arena.
- EOS initiated a program called: “Hack, Pitch n’ Launch”. It will award $50,000 in funding to the top 20 teams at the EOS Global Hackathon.
- Bitcoin ATMs are being installed at 8.3 / day – bringing the total to 3,508.
- Such a Tease: The U.S. Securities and Exchange Commission (SEC) has delayed a decision on a proposed bitcoin ETF, pushing its final determination back by more than a month. Officials at the agency wrote that they were giving themselves more time to deliberate on whether to approve what would be the first exchange-traded product of its kind in the U.S. According to Alex Kruger: “Because a Bitcoin ETF is a big deal, the SEC isn’t jumping into any working relationship until the following concerns are addressed: (a) the underlying BTC spot market shows any resistance to manipulation, (b) other BTC markets embrace regulations, and (c) investors are more adequately protected.” But we also need to figure out: (a) how to calculate an ETFs net asset value. (b) How to ensure an ETF has sufficient liquidity. And (c) how to adequately improve our current custodial solutions.
On Tuesday, the markets were moving along relatively smoothly, and then all heck broke loose on the news wires. It seems that TESLA’s Elon Musk put out a tweet suggesting that he's thinking of taking TSLA private at $420 a share. That lit up the wires like nothing I've seen lately. Why? Well, first off, it's sort of a grey area as to whether doing something like that is even legal. Insiders are not supposed to "burn the shorts" by announcing something like that. Eventually TSLA was halted for "news pending"and when it opened it was instantly bid higher. What a zoo this market has become.
Last Week: was not a good week to “give up sniffing glue”. The Nasdaq (coming off an eight day winning streak) retreated on Friday, but still managed a +0.4% weekly advance. The DOW (on the other hand)dropped into negative territory for the week due to Friday’s biggest one-day percentage fall since July 11. Why the fall?
- Turkey vs the World: The plunge of Turkey’s Lira has ignited market fears because of one primary factor - bank exposure. Turkish borrowers owe: $83B to Spanish banks, $38B to French banks, $19B to U.K. banks, $18B to U.S. banks, and $14B to banks in Japan. It doesn’t help Turkey that the U.S. dollar has been strengthening since April.
- U.S. vs China: China announced that it would slap additional tariffs of 25% on $16B worth of U.S. imports. Chinese state media also accused the U.S. of having a “mobster mentality.”
- World Bank & Blockchain: The World Bank plans to issue the world's first global blockchain bond in order to raise funds. This should be a weighty mainstream endorsement for blockchain. They hired the Commonwealth Bank of Australia to manage the bond. The bond will have the name "Bond-i”– a reference to the Bondi Beach in Sydney.
- Tesla vs the Market: It seems Tesla has a human resources problem. Elon wrote: “As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla – all of whom are shareholders.”
Undervalued Biotech:
- Sarepta Therapeutics (SRPT = $129.53, +132.80% YTD): Sarepta Therapeutics recently entered into a strategic arrangement with Lacerta Therapeutics. According to analysts, SRPT can reach $270 (a 108% increase), but a target of $196.00 (+51.4%) is a more likely destination by year’s end.
- SAGE Therapeutics (SAGE = $148.36, -9.93% YTD) A practice-changing depression treatment is right around the corner as Sage’s depression and insomnia drug Sage-217 is likely to obtain approval from the U.S. FDA. SAGE is well-positioned to breach the $200 threshold with plenty of room to increase by +76.0% to $261 by end-of-year.
- Abiomed(ABMD = $377.83,+101.61 YTD) Abiomed manufactures the world’s smallest heart pump, and has an ever expanding addressable market. ABMD has quietly expanded its product lines and geographical coverage. Put ABMD on your radar as it advances toward $500 and eventually a 36% increase into $515.
Next Week:
At one point last week, the main U.S. benchmarks had climbed to within a half a percent of their all-time highs registered in late January. Then political turmoil, global trade disputes and worries over rising interest rates triggered a sell-off. Market analysts believe that the posturing between the U.S. and China on trade will be resolved over time without a significant slowdown in global growth. Q2 earnings season is coming to a close next week, and the only economic data being released are: retail sales on Wednesday, housing on Thursday, and a leading economic index on Friday.
The market’s all-time high is proving to be stiff resistance. Even if they figure a way to move past it – it may take a few attempts and fades before they can pull it off. Four sessions ago, the S&P put in a ‘gap-and-go’ kind of morning and it hit a high of 2863 – just 10 points from the all-time high. They had the momentum. They had the high-fives, but it traded sideways for 3 days prior to Friday’s puke. A lot of times the action surrounding a major resistance level ( such as an all-time high) is that the market has to bang its head on it, get pushed down, run up, bang again, get pushed down – until it finally breaks through or breaks down.
The technical indicators are softening: housing and copper are weak, the jobs report was a fantasy, inflation is rising, and wages are stagnating. We can either push through and start a whole new leg higher, fade 10% lower, or my favorite – push through to new highs to entice those on the fence and THEN pull the markets much lower. Let’s see.
You could buy ‘straddles’ on the indexes by buying out of the money puts and out of the money calls – and seeing which one rewards you. Something’s going to happen. With individual stocks I’m being cautious right here due to the high political winds and volatility.
Tips:
Top Equity Recommendations:
HODL’s:
- Canntrust Holdings (CNTTF), and
- Canopy Growth Corp (CGC),
- Ceco Environmental (CECE),
- Geron Pharma (GERN),
- Kala Pharmaceuticals (KALA), and
- Progenics Pharmaceuticals (PGXY).
Thoughts:
- CVS Health Corp. (CVS = $68.90 … -5.97% YTD): There’s no way to go but up for the shares of CVS. The company reported Q2 results that showed an EPS rise of 27% year-over-year. Pharmacy services was the main driver that pushed revenue higher by 5.7% to $20.7 billion. Analysts are forecasting a 46.7% increase of CVS to a high of $100.
- Amazon.com (AMZN = $1,887 … +61.31% YTD): If you want a stock that’s certain to reward, purchasing AMZN is a no-brainer. Amazon is operating in 8 out of the 10 industries that represent market opportunities whose value exceeds $1T globally. Their next price target is $2,300 (a +21.9% increase) as it prepares to exploit 2 more industries. Analysts expect the e-commerce giant to soon enter the gasoline and travel business. The company is currently into: apparel, B2B e-commerce, consumer Internet of Things, grocery, pharmacy, professional services, restaurants, and stores.
Crypto:
- Bitcoin (BTC = $6,300) - $40,000 by end of year
- Thoughts:
Analyst Mike McGlone believes that Bitcoin will plunge to last year’s average level of $4,000. Jeff deGraaf, head of technical research at Renaissance Macro Research has a more dire warning for the Bitcoin bulls: “Once the top is complete, it may even mean game-over for Bitcoin.”
- Bitcoin: The bulls have defended the critical support level at $6,075 for the past two days. BTC will show the first signs of bullishness once it sustains above $7,200. There is a strong possibility that BTC remains range-bound between $6,000 and $8,500 – because twice both bottom and top positions have held. Therefore, aggressive traders can enter long positions at $6,800 with a stop below $5,900 and an expected rally to $8,500.
- Ethereum: ETH is struggling to bounce off critical support at $358. On August 8, the fall to $346.35 was the lowest level since November 19 of last year. If the bears continue, the fall can extend to $280. Though the RSI is already in oversold territory, I am not confident about a bounce because during the previous fall, the RSI had become deeply oversold before a recovery happened.
- Bitcoin Cash: BCH made a new year-to-date low on August 8 when it fell to $564. I anticipate strong buying in the zone between $537 to $619. BCH will gain strength if the price sustains above $620. Conversely, if the bears break below $537, the coin can slump to $400.
- Litecoin: LTC has retraced all the way back to the levels seen in mid-Nov. of last year. This is not a good sign. There is support between $48 and $52 and I would expect this to hold. Any buying will face stiff resistance at the 20-day EMA and at $74.
Options:
- Deere (DE) – Aug 17 Call Butter-Fly for earnings: +145 / -150 / +155,
- Home Depot (HD) – Aug 17 Call B-Fly for earnings: +195 / -200 / +205, and
- Lowes (LOW) – Aug 24 Call Butter-Fly for earnings: +100 / -105 / +110.
Thoughts:
- EWZ The American Institute of CPAs newest report mentioned that 48% of investors surveyed said that market volatility was a good thing. These same investors should love EWZ – the ETF for Brazil. EWZ has been pushed around by politics and weakness in recent months. If you’re looking for some high IV to sell premium, and if you think EWZ might stay in a range – then the short Iron Condor that’s long the 31 PUT, short the 33 PUT, short the 39 CALL and long the 41 CALL in the September expiration with 42 days until expiration is a neutral strategy with a 71% probability of making 50% of its max. profit before expiration.
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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Until next week – be safe.
R.F. Culbertson
Until next week – be safe.
R.F. Culbertson
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