This Week in Barrons: 1-27-2019:
Thoughts:
OK, so what am I missing? Our sun (in the sky) delivers us more energy in a day – than we use in a century. That’s a heck of a lot of wasted power. In a single hour, the amount of power from the sun that strikes the Earth is more than the entire world consumes in a year. 430 quintillion (that’s 430 with 18 zeroes after it) joules of energy from the sun hit the Earth every hour. So we don’t have an energy acquisition problem – we have an energy STORAGE problem. We are missing the ability to store energy safely. The advancements we’ve made in storage over the past 100 years have been impressive, but lithium batteries are 30 years old and safety is still a limiting factor.
Lithium batteries do not have to be punctured, or physically damaged to explode. Aggressively charging and discharging them can make that happen. As lithium ions move between the two electrodes (when a battery is charged and discharged), they sometimes struggle to make it all the way home. This struggle among ions can create a short-circuit and sometimes fires and explosions as demonstrated by Samsung via their Galaxy Note 7 product and the associated $3B recall. The problem is the electrolyte. If we had the right electrolyte, we could extract 10 times more power from the same exact battery. Unfortunately, the materials we've had so far – can’t do it.
However, Mike Zimmerman and Ionic Materials (https://ionicmaterials.com), think they have found the holy grail of battery technology. They have replaced the electrolytic liquid with a polymer. A polymer that is both non-flammable, and conducts ions at room temperature. They have created a conductive polymer modelled on the way electrons move through metals. It is the first such polymer of its kind. The material is flexible, low-cost, and stands up to abuse. In fact, Ionic Materials has punched, shot, and even cut pieces off of their polymer without them heating up or halting the flow of electrons.
This small company has attracted massive amounts of funding by all of the right people – and the auto industry (for one) thinks that this is the real deal. Can you imagine what a game changer this could be – if by using this proprietary polymer they can go ‘full-speed-ahead’ with lithium. Imagine:
- EVs with 1,000 mile ranges, and recharging in 5 minutes,
- Cell phones running for 8 days, and recharging in 30 seconds, and
- Laptops running for a week.
Now imagine them cheaper than current batteries, with 10 times the lifespan. Injecting solar power in that type of scenario is suddenly exciting again. Taking in energy through multiple panels, and storing it NOT just for days on end but rather weeks and months. To me, this battery is at the pinnacle of disruptive technology. If this turns out to be as real as it looks – then whomever said that all cars will be electric within 5 years – is absolutely correct. I’ll be watching Ionic Materials (https://ionicmaterials.com) and the space closely moving forward.
The Market:
When Warren Buffett predicts that the next 10 years will bring low single digit to negative returns – I listen. What that tells me is that nobody knows nuttin’, and investors are no better than the man-on-the-street at predicting the future. If that’s so, markets will become increasingly reactive (rather than proactive) to everyday events. If 2018 taught us anything, we can no longer be shocked:
- When film studios continue to spend time and money on audience research, but still have no idea if their latest creations will turn out to be hits or flops.
- When the world’s richest company (Apple) admits (as it did after Christmas) that it has no idea how many iPhones it will sell in China.
- When the smartest energy traders predict a global supply shortage and push prices up over $100 – only to have a global glut and cut prices to under $50.
- When the U.S. President doesn’t know if he hates or loves global trade.
- Or when stock markets predict a global economic boom and bond markets predict a recession, and then both think they’re wrong and reverse course – at the same time.
Last year, economic expectations were almost universally optimistic. Every region of the world was simultaneously booming for the first time since the 2008 financial crisis. Central bankers were confident that they could safely start to withdraw their extraordinary monetary stimulus, and stock-market investors were unanimously bullish. Yet 2018 turned into the worst year for investors since the financial crisis, forcing central bankers to begin backing away from their plans to normalize monetary policy, economists to downgrade their growth forecasts, and many businesses to prepare for a recession in either 2019 or 2020. What went wrong? Politics went wrong. It started with tariffs, moved through oil, interest rates and stimulus, and has now touched Brexit and the EU. Could it be that investors are so confused by political chaos that they have given up trying to anticipate what could happen in the markets? If so, then markets, instead of being predictive, become increasingly reactive. And in a world where nobody knows nuttin’, investors may be no better than Hollywood at predicting the future.
It is for this reason that I wrote the “Making Money in this Market with 83% Certainty” section below.
Info-Bits:
- The combined wealth of the 26 richest people: Now equals the combined wealth of the poorest half of the world (3.8B people).
- Fitbit tracked 6B nights of sleep: And found that if you go to bed at the same time each night – you will sleep better.
- "We’ve had an overwhelming response" said PA State Police Officers when they asked for volunteers to get drunk and help with officer training.
- “The next economic downturn is what scares me the most” said Bridgewater’s Ray Dalio. “Investors are increasingly concerned about a serious global economic slowdown, accompanied by souring business and consumer sentiment. Political issues are now very connected to our economic issues.”
- “We are in a worse place than we were a year ago” said a top fund manager in Davos. “It’s never good that since last year, the 2 largest markets in the world have increased tariffs on incoming goods and services.”
- The $110,000 Lincoln Continentals with suicide doors were sold out in less than 2 days.
- In 2018, China grew at the slowest pace since 1990.
- The EU is asking for a little privacy: Google is getting fined $57m by France for violating Europe’s new data-privacy rules by failing to fully disclose to users how their personal information is collected and what happens to it. They also did not get users' consent to show them personalized ads. Google will shrug this off since $57m is basically a parking ticket.
- Movie Magic: Netflix wants to join the Motion Picture Association of America as they are ramping up production of original content. They would be the first internet based service to join the association.
- Tax earnings above $10m at a 70% rate: proposed freshman Rep. Alexandria Ocasio-Cortez (AOC), D-N.Y. Guggenheim Partners believes that: “By the time we get to the presidential election, this idea is going to gain more traction.”
- "Tell us what they want, what they really, really want." Said an EU spokesperson channeling their inner ‘Spice Girls’ over UK’s Brexit Plan.
- “Would you like that delivered?”: Amazon is poaching shippers from FedEx and UPS by offering lower fees through Amazon Shipping.
- “GE could be worth $2 per share,” once it sells off its strong cash generating businesses – said Haskett’s John Inch in a note to investors.
- $8.3T of global debt has a Negative Yield: and that’s a 46% increase in 4 months – says Deutsche Bank.
- Verizon Media Group and the Huffington Post are laying off 7% of their staff.
- In 2018, U.S. Govt. debt hit a record $66T – 80% of global GDP Fitch Ratings said high debt levels will cause problems as financial conditions tighten.
- Project Loop: Procter & Gamble, Nestlé, and PepsiCo are partnering on a project where products (like detergents and shampoos) would all be sold in reusable packaging. After use, customers would put the empty containers in a Loop tote on their doorstep. The containers would be picked up by a delivery service, cleaned, refilled, and sent back out to consumers.
- Think your neighborhood is pricey? Somebody just paid $238m (highest price ever) for an apartment on New York's Central Park.
- What recession? Walmart wants to hire 900 truckers for $90,000 a year.
Crypto-Bytes:
- Bermuda to announce the launch of a crypto-friendly bank next week.
- IBM, Aetna, and PNCare exploring a medical data Blockchain for 100m health plans.
- Harvard and Levi Straussare collaborating on a Blockchain-based factory safety system.
- Former JP Morgan developers launch AWS Blockchain service to rival tech giants IBM and R3.
- Irish Governmentto hold a Blockchain hackathon for public services.
- Deloitte’s 2018 Global Blockchain Surveyindicates Blockchain Technology is “getting closer to its breakout moment.”
- Bank of England senior advisor said, “Cryptocurrencies are a threat but I'm not worried.”
- Coinbase UK Legal Counselsaid, “big developments are expected this year for Crypto-assets.”
- ACCIDENTAL AIRDROP South Korean crypto exchange Coinzest accidentally sent over $5m in Bitcoin to clients in an airdrop, and now they’d like their crypto back. Some traders instantly sold their newfound winnings – temporarily causing a Bitcoin ‘flash-crash’ on the exchange down to just $50.
- ETF PULLED The long-awaited Bitcoin ETF proposed by VanEck and SolidX was withdrawn this week by the CBOE BZX Exchange – due to the ongoing U.S. Government shutdown. The withdrawal is strictly temporary as the company intends to re-file in the not too distant future.
Last Week:
The good news is that according to a new Brookings Institute Report, robots aren’t replacing everyone, but (in the short-term) a quarter of all U.S. jobs will be severely disrupted as Ai accelerates the automation of existing work. The report says that roughly 36m Americans hold jobs with high exposure to automation. Among those most likely to be affected are cooks, waiters, short-haul truck drivers, and all clerical office workers. The timeline for those changes could be as little as a few years. It’s likely that automation will happen more swiftly during the next economic downturn as businesses are typically eager to implement cost-cutting technology when they lay off workers. FYI, economic studies have found that automating production may have contributed to the jobless recovery that followed the 2008 financial crisis. But don't worry, we're not necessarily headed toward "Ex Machina-2"because there will be benefits – right Alexa?
Making Money in this Market with 83% Certainty:
If markets are becoming increasingly reactive, then we should potentially move to a more protective methodology when it comes to investing. The following method makes you a small amount money – 83% of the time. I’ve chosen to use a cannabis company as an example … Canopy Growth (CGC).
Cannabis is a fairly choppy commodity as of late, and you can use its naturally volatile nature to your advantage. This strategy buys a ‘Butterfly Option’ for a credit – 8 to 9 days in advance of maturity. The rule-set is fairly straight-forward and is as follows:
1. Pick a stock that you like and that has weekly options: (CGC)
2. Choose the expiration day / week for that stock (8 to 9 days out): (Feb 1st)
3. Take your best guess at direction over that period: (Higher)
4. If it’s ‘Higher’ look at CALL options, if ‘Lower’ use PUT options (CALL)
5. Use your investing package to tell you the ‘Expected Move’ of that stock prior to the expiration date: ($4.50)
6. Add that ‘Expected Move’ amount to the current price to get your target strike price for the Butterfly Option = ($4.50 + $48.50): ($53.00)
1. Pick a stock that you like and that has weekly options: (CGC)
2. Choose the expiration day / week for that stock (8 to 9 days out): (Feb 1st)
3. Take your best guess at direction over that period: (Higher)
4. If it’s ‘Higher’ look at CALL options, if ‘Lower’ use PUT options (CALL)
5. Use your investing package to tell you the ‘Expected Move’ of that stock prior to the expiration date: ($4.50)
6. Add that ‘Expected Move’ amount to the current price to get your target strike price for the Butterfly Option = ($4.50 + $48.50): ($53.00)
7. The ‘DELTA’ of the chosen option should be in the mid to low 20’s (0.23)
8. For the lower ‘wing’ use 1 or 2 strikes lower ($53 – 1) ($52)
9. For the upper ‘wing’ use 2 to 4 strikes higher ($53 + 2) ($55)
10.Buy the -52 / +53 / -55, Feb 1st, Call Butterfly for a CREDIT ($0.05)
a. This means that they’re PAYING you to purchase the option
b. That means than if the stock (on Feb 1st) is lower than your strike zone (from $52 to $55) – you will still make money.
11. Congratulations: This investment will be profitable over the next week – 83% of the time.
12. If the stock is between $52 and $55 on January 31stor February 1st– sell the option for a large profit.
13. If the stock is below $52 on February 1st– then let the option expire and simply KEEP the credit that you were paid for buying the option.
14. You can write to me, or in future updates I will be glad to show you how to manage the 17% case when the stock moves over $55 before February 1st.
15. Continue this same philosophy with other stocks, and watch your portfolio grow.
Next Week:
Remember when Steve Mnuchin had to go meet with the ‘Plunge Patrol Team (PPT)’ several weeks ago? The market was falling, and then just like magic – it wasn’t falling any more. Coincidentally, it's been green for 5 weeks in a row now. The PPT was given instructions to make things look better in the market – and they're doing it. When you have the Central Banks and the PPT all working together – up is the only way it can go. I don't know how much fuel Mnuchin gave the plunge patrol guys, but it must have been substantial.
So, what happens now? Naturally I don't know, but from up here in the cheap seats, it appears to me like this market is running on hopium. They hopea China deal will be struck. They hopeinterest rates will remain low. They hopethat better earnings are coming. They hopethat the Government will remain open. That’s a lot of hope, and as far as solid economic indicators go – they look a bit hope-less. There's no question that if next week a deal is struck with China (that is good for both sides) – we’d put in a 1,000 point up day. But I don't think it would stick. The algo-bots would latch on to what they perceive to be good news and jam the markets higher – but there’s nothing to keep them there. China is desperate for growth. The CEOs in Davos spoke with more uncertainty and lack of clarity than I’ve seen in a long time (due to the slowing global landscape). Next week’s expected move in the S&P is $47, and I believe that is understated by a significant margin. Therefore, I am not a premium seller going into next week. I do however think that they're desperate to remain above their 50-day moving averages, and will try and defend them – especially with all of the big earnings coming out next week. So, I can see the upcoming week going either way. If they do push us higher, the next area of resistance for the DOW will be the 200-day moving average at 24,976. But I think that at some point they give it up, and down we go.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $6.71 / in @ $3.57) – & sell the covered write for $35/100,
- Canntrust Holdings (CNTTF = $6.87 / in @ $3.12),
- Canopy Growth Corp (CGC = $48.40 / in @ 22.17),
- HEXO (HEXO = $5.15 / in @ $5.12),
- NVAX (NVAX = $2.09 / in @ $2.19) – sell the covered write for $25/100 = 10% per month.
Crypto:
- Bitcoin (BTC = $3,520)
- Ethereum (ETH = 116.00)
- Bitcoin Cash (BCH = 120.00)
Options:
- Canopy (CGC = 48.40) Bull: Feb 1, Buy +52 / -53 / +55, Call B-Fly for $0.05 CR,
- Goldman (GS = 200.74) Bear: Feb 1, Buy +187.5 / -185 / -180 Put B-Fly for $0.08 CR,
- Microsoft (MSFT = 107.17) Bull: Feb 1, Buy +108 / -110 / +113, Call B-Fly for $0.04 CR,
- NBev (NBEV = 6.61) Bull: Feb 15, Buy +7 / -8 / +10, Call B-Fly for $0.05 CR,
- Pepsi (PEP = 109.35) Bear: Feb 1, Buy +107 / -106 / +104 Put B-Fly for $0.04 CR,
- Roku (ROKU = 43.69) Bull: Feb 1, Buy +47 / -48 / +50 Call B-Fly for $0.04 CR,
- S&P (SPY = 266.10) Bull: Jan 30, Buy +266 / -267.5 / +270, Call B-Fly for $0.06 CR,
- S&P (SPY = 266.10) Neutral: Mar 1, Sell (-1) +267 / (+2) 267 Call Backratio for $0.05CR,
o Sell (-1) 260 / (+3) 250 / (-1) 248 Put for RTS Spread for $1.69DB
o Sell (-1) 260 / (+3) 250 / (-1) 248 Put for RTS Spread for $1.69DB
- VIX (VIX = 17.42) Neutral: Mar 19, Buy +22 / -27 CDS for $0.60 DB, and
o Mar 19, Sell -16/+12.5 for $0.65CR (NET = $0.05CR)
o Mar 19, Sell -16/+12.5 for $0.65CR (NET = $0.05CR)
- XLU (XLU = $53.32) Bull: Feb 15, Buy +55 / -56, Call Debit Spread
- XLY (XLY = 107.03) Neutral: Feb 15, +100 / -102 / -111 / +113, I.C. for $0.56 CR
Thoughts:
- FB = $149.21: According to the Think Computer Corporation, 50% of all Facebook’s (FB) accounts are fake, and companies that are advertising on FB are being taken for a ride. They are paying to have their ads shown to 2B faces but only getting 1B. And FB’s algorithms can be gamed such that a company may never really know how many real people clicked on its ad, and left wondering why no one is buying its products. FB shrugged this off as yet another scandal. FB’s earnings are coming on Jan 30. If you think the fake accounts will eventually take a toll on FB, you might be bearish on the stock. The short call vertical that’s short the $150 CALL and long the $152.5 CALL in the March 1st weekly expiration with 33 days until expiration is a bearish strategy that collects a credit 1/2 the width of the strikes, has a 74% probability of making 50% of its max profit before expiration.
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
