This Week in Barrons: 9-23-2018:
Are you feeling conned?
I think you have every right to feel like you’ve been conned into thinking that these are: “The best of times.” Why? To quote David Rosenberg (said sarcastically):“The US consumer is so strong that in the past 3 months: sporting goods sales are down -13.6%, department stores are down -6.9%, auto sales are down -4%, clothing and accessories are down -2.2%, and the list goes on.” If these are the best of times, I can’t imagine what a recession looks like! The overall economy is NOT the best it's ever been, but there are areas that are doing extraordinarily well. Nationwide housing sales have been sagging for the past 6 months, but if you can swing a hammer, you can easily find work in Florida and California. The ‘barbell effect’ is a natural occurrence when Central Banks print, and governments spend.
By printing money and distributing it, governments create the illusion of prosperity. I would normally show facts and charts, but my goal here is to prevent you from being conned. A sure-fire way to guard against this – is for YOU to become a better sales person / story-teller. In today’s techno world, interpersonal communication has never been more important – and yes that is somewhat counterintuitive. Today, those individuals who are better at expressing their ideas – often experience sudden, massive increases in wealth. Inthis age of artificial intelligence, globalization, and robotics, the one skill that continues to separate individuals is sales – mastering the ancient art of persuasion. You need to learn how to combine words and ideas to ignite people’s emotions and imagination. It’s true that the tools we use to communicate with have changed. It’s also true that the way we process information via stories, emotions, and empathy – has not. Storytelling is not new – it dates back 2,000 years to Aristotle. And despite all of our techno abilities, the average person still requires their communication to be received at a 6thgrade level. Even Google (a company with theoretically all the data in the world) is transforming their culture in order to become better storytellers. Google knows that it needs to become more persuasive, clear, understandable, and memorable. How is Google doing it? They’re teaching every employee sales – the art of storytelling.
Richard Branson (the CEO of Virgin) once said: “I do not believe you can be a great leader without being a good storyteller. You cannot persuade another person to change their mind without emotion.” Aristotle’s 3-part formula for persuasion still works. It starts with credibility and character. Secondly you add in a logical argument. Finally you need emotion – because nothing happens without emotion. Dr. John Medina at the University of Washington said: “The brain does not pay attention to boring things.” He found that after talking to over 500 companies, 94% said that the person with good experience but exceptional communication skills is more likely to be elevated to a position of leadership than someone with better experience but weaker verbal skills. Communicators are more successful at selling ideas, products, and engaging teams – because engagement allows a much deeper connection.
Entrepreneurs and business leaders need to be able to excite people about a vision and bring people into that journey. Navy SEALs are constantly being forced to translate their vision into clear and concise strategic missions. As they will tell you: “It’s not enough just to be able to pass the physical requirements of Hell Week. You must be a good communicator in order to get the most out of your team.” This communication and collaboration skill set can then be used across cultures and across teams.
Great sales people stand out because they have an unfair competitive advantage – they understand the ‘emotional’ requirement. 90% of an idea is an expectation of what you hope to achieve. Geoff Ralston, a partner in Y Combinator, said: “Communication and the ability to persuade is fundamental in the success or failure of an opportunity. At no time in history has sales been as important as it is today. We need to stop calling it a soft skill. The art of combining words and ideas to move people to action, is not a soft skill in today’s global environment – it’s fundamental to your success.” So rather than remaining fearful of being hunted and conned – simply develop and practice the toolset necessary to at minimum recognize and eventually out-sell the hunter / con-artist.
The Market:
According to Michael Harnett (Chief Investment Strategist of Bank of America Merrill Lynch) the Great Bull market, that started after the financial crisis, is dead due to slowing economic growth, rising interest rates, and too much debt. In its place will be a market that features lower returns and questionable liquidity. After all, Central Banks have used over $12T to pump-up various easing programs, and have forced over 700 global interest rate cuts. Our own FED led the way with: 7-years’ worth of near zero interest rates, a balance sheet containing over $4.5T in toxic assets, and a 335% stock market surge since the crisis lows. Michael is advising his clients to follow the 3 I’s rule: “Inequality, Innovation, and Immortality." He is emphasizing bio-tech, technology disruptors, and inflation. "We’re worried about current debt levels. Since September 2008, Chinese debt has risen 460% to $40T, and total U.S. Government debt has increased 82%. Investors are underestimating the Fed's resolve to normalize policy, and this will cause short-term government bond yields to eclipse longer-term rates. This condition is known as an inverted yield curve, and has preceded each of the past seven recessions. I realize that our FED is saying: 'This time it’s different'. But it’s our feeling that a more hawkish-than-expected FED is most likely the catalyst for fresh losses across a broad band of asset classes." Michael is on the look-out for: currency overvaluation, domestic overheating, and massive schisms in global markets. He’s watching the bank stocks – which have nudged higher along with interest rates. If that relationship breaks down, it would signal a larger negative impact from Fed tightening.
Facebook + Tinder: In an effort to bring young people back into their product, Facebook (FB) recently introduced an online-dating product called ‘Dating’. It stresses users looking for meaningful long-term relationships rather than quick hookups. In other words, there is zero swiping. FB (although late to the dating party) has a huge advantage: most people already have a FB account. With younger people using FB less, Dating may be enough to lure them back to the social site now preferred by their parents. The app requires you to create a separate Dating profile – including up to 9 photos and/or ice-breaker questions like: “What does your perfect day look like?” Facebook then uses its algorithm to match you with potential dates. To start a conversation, users will need to respond to one of a potential date’s 9 photos or questions. I’m anxious to see if FB is able to re-capture their lost youth via Dating.
Info-Bits:
- Hot seat:
o Facebook: Facebook was hit with another lawsuit over allegations of gender discrimination. It says that the company's tech allows for employers to target job postings to a specific gender. In this case, the jobs only popped up on guys' feeds.
o Amazon: Yesterday, the EU said it's looking into Amazon and how it handles data from smaller third-party sellers. There are concerns that the 'Zon could use this data to figure out what customers like, and then make its own (cheaper) version of the same product.
o Spotify: A former Spotify sales exec is suing the company for alleged gender discrimination. She says male employees were taken on boys' trips to places like strip clubs, and women didn't get invited. Spotify said that it does not tolerate discrimination of any kind – at any level.
o Mark Cuban: Mark Cuban is calling everyone he knows for damage control. In response to an investigation into the Dallas Mavericks’ workplace behavior, the Mav’s owner is donating $10m to groups that focus on women in leadership roles and fighting domestic violence.
- Breaking up is hard to EU. The EU is still mad that the UK wants to break-up. Back in 2016, the UK voted to say, 'It's not me, it's EU’. As it turns out, breakups are hard, especially if you want to stay friends with (trade) benefits. A while ago UK Prime Minister Theresa May unveiled plans for a new trade deal that had the UK sticking to a bunch of EU regulations (environmental & labor) in exchange for the UK being able to set its own tariffs. Some Brexit hardliners were not ‘down’ with that, and neither (as we found out last week) is the EU. PM Theresa May is now singing: ‘I don’t know how to love EU’, and the EU is in the: ‘EU be EU’mood as of late.
- RememberThe Matrix: Feeding knowledge directly into your brain, just like in that sci-fi classic The Matrix, could soon take as much effort as falling asleep. Researchers have developed a simulator which can feed information directly into a person’s brain, and teach them a new set of skills in a shorter amount of time. It could be the first steps in developing advanced software that will make Matrix-style instant learning a reality. Thus far, subjects who have received brain stimulation via electrode-embedded head caps have improved their cognitive abilities 33%over the placebo group.
- Porsche is making a difference:
Porsche’s sleek battery chargerswill fully power Porsche EVs in just 15 minutes. Until now, if you wanted a fun, stylish, luxurious, long-range electric car – you had to buy a Tesla. The only drawback was stopping every 200 miles for 30 minutes to charge your car to 80% strength. As Porsche prepares to launch its fully electric sedan, it’s facing the problem of how to stand out in a field full of cool EVs from the likes of: Benz, Jaguar, BMW, and Audi. Porsche’s differentiating solution is the ‘Electric Pit Stop’. It can add 250 miles worth of charge in just 15 minutes working at 300 kW. (Non-Tesla chargers work at 50 kW and Tesla typically works at 120 kW.)
Crypto-Bytes:
- PNC & Ripple (XRP) have tied the knot: PNC (the Pittsburgh-based banking giant) has linked up with Ripple’s xCurrent to use its technology for cross-border transactions. “Providing instant payments instead of waiting 2 to 3 days is a real game-changer”,said Asheesh Birla – Ripple’s SVP.
- Investors are fading ICOs: Total ICO (Initial Coin Offering) funding plummeted to $800min August – down from $5.4B in June.
- Transfers without borders: Next time some ‘know-it-all’ confidently tells you that there is no legitimate use for bitcoin – tell them how the Palestinians are currently using the cryptocurrency to connect to the global economy. Without PayPal (or any equivalent) bitcoin’s permission-less and censorship-free properties have empowered a community in the Gaza Strip and West Bank to send and receive value abroad and to shop online.
- The Blockchain Association: Coinbase, Circle, Digital Currency Group, Polychain Capital, and Protocol Labs founded the aforementioned lobbying group and have hired a former Senate aide and Overstock.com blockchain lobbyist named Ms. Kristin Smith. The group is going to specifically focus on tax law, and on how KYC/AML rules relate to crypto exchanges and startups.
- The Internet taught us That in many cases, you need to bet on the JOCKEY rather than the HORSE. The blockchain team from the Royal Bank of Scotland (RBS) has quit to form Chorum – a ConsenSys-like venture studio that will build on top of R3’s Corda platform. “The blockchain space has outgrown and outpaced the incumbents including RBS”,said Richard Crook – who formerly headed the bank’s blockchain work. “We wanted to be part of this wave of disruption.”
- Saving Bitcoin for your kids: There’s a platform called Open Savings Institute that allows users to tuck away Bitcoin or Bitcoin Cash into a time-locked address – effectively creating a digital currency trust fund. So if you want to set aside funds for your (future) kid’s 18th birthday – then crypto trusts could be an option. A few other potential applications come to mind: (a) Scholarship funds, (b) Welfare checks, (c) Disaster relief, and (d) Treasury management.
Cannabis / Weed: If you’re in our ‘Cannabis / Weed’ recommendations below – then you are not worried and very happy by last week’s actions.
Next Week – all eyes on the FED:
Lately we are seeing wild sector rotation: from tech to financials, and finally into Boeing. As a direct result of this wild rotation, many ‘buy-n-hold’ portfolios are under performing for the year. Even stranger, over the past 25 weeks, the options market has been incredibly efficient, and has remained within its ‘expected move’ for 22 of those 25 weeks. Statistically an ‘expected move’ is equivalent to 1 standard-deviation. It is designed to cover 68% of the instances. When it covers 88% of the instances (22 of 25), that often: (a) signals a lot of one-sided trades, and/or (b) a warning sign for things to come. Now, coincidentally most of the new money coming into the market is as a result of stock buy-backs – which confirms the one-sided trade portion of the above. And next week has the potential to trigger some increased volatility because: (a) it’s the end of the quarter, (b) Wednesday is an FOMC interest rate decision, and (c) the GDP and durable goods data will be released at the end of the week.
Factually, interest rates for the 10-year Treasury (TNX) are currently sitting at 3%, and haven’t been above that since April of 2011. The 10-year is the global gauge for virtually all home mortgage rate adjustments and calculations. If on Wednesday our FED is interpreted as being ‘hawkish’, the 10-year will pop higher and trigger a further slowing in the housing market. With a ‘hawkish’ FED, the 2-year Treasury rate would also pop higher – potentially giving us an inverted yield curve. So for next week, watch the FOMC rate increase and pressor accompanying the decision. If their statement and accompanying dialogue come across as being ‘hawkish’, then I think we have our excitement and our trigger for a market pull-back.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora(ACBFF = $9.22 / in @ $3.57),
- Amarin(AMRN = $2.97 / in @ $2.90),
- Canntrust Holdings(CNTTF = $9.77 / in @ $3.12),
- Canopy Growth Corp(CGC = $49,00 / in @ 22.17),
- Ceco Environmental(CECE = $8.10 / in @ $6.95),
- Correvio Pharma(CORV = $4.02 / in @ $4.79),
- Cytokinetics(CYTK = $8.50 / in @ $7.25), and
- Geron Pharma(GERN = $5.47 / in @ $3.75),
Thoughts – ONLY if our FED is ‘hawkish’ triggering Interest Rate FEARS:
- Retail ETF(XRT): In a rising interest rate environment without wage increases, consumer spending will be directly impacted to the downside. BEARISH: Buy November XRT Puts.
- Boeing (BA): Boeing is a proxy for the DOW, and given its all-time-high position it’s a natural to SHORT. BEARISH: Buy November BA Puts.
- Home Depot(HD): Home Depot would actually be better SHORT than the XRT in terms of risk vs reward. BEARISH: Buy November HD Puts.
- Ford(F): With a potential rotation OUT of high-beta tech and into Ford and other fiscally responsible companies. BULLISH: Sell October Ford Put-Credit Spreads.
- Silver(SLV): We are down at decade lows for silver. BULLISH: Buy longer dated Calls on SLV.
Crypto:
- Bitcoin(BTC = $6,700) – “$10,000 by EOY is a no-brainer” M. Novograntz.
- Ripple (XRP) vs the Cleveland Browns:
Thanks to KG – I don’t know which is worse: loving the Cleveland Browns – a team that just won their first game since 2016, or watching Ripple (XRP) jet higher by over 100% inside of a week and NOT being in it. I'm voting for the second one. Another ‘Alt Season’ is beginning to take shape inside of the broader crypto markets, and to quote Bob Duvall: “I love the smell of napalm in the morning.” The XRP breakout started to unfold on Thursday as the total crypto market cap broke above $200B and continued to climb another 10% by EOD. This left Ethereum (ETH) and XRP in basically a ‘dead-heat’ for #2 in the crypto space coming into the weekend. Yes – there was a ‘flippening’ and yes there was a ‘back-flippening’ as well. XRP’s explosion was concurrent with: (a) a number of banking partnerships being announced, (b) the rumored general release of their xRapid product-line, and (c) their upcoming Swell Conference in San Francisco where former President Clinton will serve as the keynote speaker. Let it be said that: "The world is very efficient. People who succeed are the ones who are irrationally passionate, and not doing it for the money. You must be patient, and that’s the problem. Because it takes 10 years to build a business, raise a child, and nurture a career. Most crypto-companies were started within the last 1-3 years so there’s 7 years left on the calendar. It pays to wait.”
- Mike Novagranz: After a single day in the green, with many cryptos pushing monthly highs, the ‘band-wagon gurus’ naturally came out of the woodwork claiming that crypto is on the verge of its next exponential growth cycle. Included in that group is Mike Novagranz – CEO of Galaxy Digital. Mike (in a tweet) had previously ‘called the bottom’ during the last ICO sell-off. Mike believes that institutions are still “slowly getting ready to be in the crypto space” – which has long been touted as the catalyst required to push Bitcoin past its $20k previous all-time high. Mike added: “I think that in 3 to 6 months, there will be an all clear sign for people and big institutions – pension funds – to start investing in crypto.” Mike highlighted that there are still key levels like: $6,800, $8,800 and $10,000 that need to be breached before we can move out of this bear market. He believes that BTC will likely outperform the altcoins for the time being, as institutions are still enamored with bitcoin as the easiest crypto-asset to scale into. Finally, he stated that it’s almost impossible for BTC to NOT surpass $8,800 and $10,000 by the end of the year. So, “Hold on to your hats, as cryptocurrencies (specifically Bitcoin) might just be warming up before the next big game.”
Options:
- Apple(AAPL): Oct 5, -220 / +217.5 Put Credit Spread,
- Russell Small(IWM): Nov 16, +170 / -175 Call Debit Spread,
- Planet Fitness(PLNT): Oct 19, +50 Call and +52.50 Call,
- Roku(ROKU): Oct 19, -70 / +65 Put Credit Spread.
Thoughts:
- Netflix(NFLX): Although I didn’t watch the Emmys, I read that Netflix (NFLX) tied HBO in the number of Emmys won. So you really can throw money at talent and generate decent content. For me, NFLX is interesting because it has a 69% IV rank – mainly due to upcoming earnings on Oct 16th. NFLX is roughly in the middle of its $100 point range since its last earnings announcement back in July. If you wish to take advantage of NFLX’s high IV by selling some premium, the Iron Condor that’s long the 305 PUT and short the 310 PUT – short the 410 CALL and long the 415 CALL in the Nov 2ndexpiration is a neutral strategy that has a credit of one-third the width of the strikes and a 72% 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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