This Week in Barrons: 5-26-2019:
Thoughts:
What has happened to us? Have we lost all ability to ‘grow a pair’? Thanks MJP.
In the 70's and 80's, we had the ability to laugh at ourselves. We had thicker skins, and didn't become outraged by every single make-believe insult. Remember when:
- People weren't so offended by something as simple as a speech they didn't agree with.
- People either walked out, turned it off, or didn’t attend in the first place.
- People may not have liked it, may have argued against it, but never played the: “I’m offended so I’m going to sue you” game.
- We knew right from wrong?
- It felt good to bring stereotypes to the screen, and let humor expose them. Not to be offensive, but rather introspective so we could discover and correct our flaws.
The TV shows of the 70's and 80’s would be banned in today’s marketplace. Movies like Blazing Saddles, would never had been made. Archie Bunker’s All in the Family, put racism and bigotry in our face as something pathetic that we all could collectively laugh at. But then participation trophies and political correctness spread like a California wildfire. Soon it wasn’t just being able to talk without offending someone – we had to learn the right adjectives, identifiers, and descriptions. Now, we have succeeded in stopping people from talking at social gatherings, because they’re worried about what they say may offend someone. Today you need to know over 20 different genders. In NYC, you can be fined up to $250,000 if you incorrectly identify an employee using the wrong gender pronoun. Yes that’s right – the wrong ‘he or she’ can land you in court or worse – jail. From there it’s a short step to ‘Hate Speech.’ Who decides if something is ‘Hate Speech’?
Q: "Should hate speech be banned?"
A: "Yes, there's no room for hate speech in this day and age. By the way what time is Game of Thrones on?”
Q: "What's so bad about hate speech?"
A: "It's hurtful, it leads to violence, and should be illegal. What time did you say Game of Thrones was on?"
Q: “So we need to ban everything that’s hurtful?”
A: “Absolutely, if a group gets offended by someone's speech – just ban it. Are you going to answer me about Game of Thrones?”
Should hate speech be banned? I keep coming up with the same answer: NO. When you ban speech just because it ‘offends’ SOME people, you have done nothing but give the ultimate power and protection to THOSE people. They become untouchable. They can do virtually anything under the guise of: “We’re just responding to the hate speech that’s out there. They hate us because we’re _________.” Who decides whether it’s: (a) ‘hate speech’, (b) a ‘point-of-view’, or (c) just an opinion that you don’t like? If you're a snowflake and don't like conservative viewpoints at your college – then don't attend the talk. The problem with ‘banning’ free speech – is that it feeds the monster of global control that would like nothing better than to have all ‘free speech’ be moderated. And that won’t hit home, until they ban YOUR free speech. We can certainly build a ‘social credit system’ similar to what China has created. Just don’t be offended when you’re not allowed to board an airplane or a train because your student debt is too high.
Although the government may impose greater punishments on crimes motivated by hate, the law is very clear. The U.S. Supreme Court in June of 2017 ruled that any group has the constitutional right to demonstrate and express their hateful message. ”Speech that demeans on the basis of race, ethnicity, gender, religion, age, disability, or any other similar ground is hateful; but the proudest boast of our free speech jurisprudence is that we protect the freedom to express 'the thought that we hate,'" said the Supreme Court. And history shows that punishing hate speech risks creating martyrs and rallying support.
The reason for going off on this tangent today is Facebook. Facebook is the single largest social media platform in the world. Billions of people rely on it. Facebook would like to control what you can see and hear on their platform. On May 10thMark Zuckerberg (CEO of Facebook) said: “My company will work with governments to determine what content is acceptable on social-media networks. There needs to be a process to determine what is unacceptable and what mustn’t be on these networks.” Of course the scary part here is who is doing the controlling. When Governments control what you can or cannot talk about – we have lost the most important freedom of all. To quote AB: “I see the light at the end of the tunnel, and it is dark.” I really HATE what is going to happen to my freedom of speech. How do we fix it? The fix is NOT by allowing Facebook to control what you say, see, hear and believe. But I guess if Facebook stole the world’s privacy without a revolt – they may be well on their way to stealing our freedom of speech as well.
InfoBits:
- Who's feeling the heat? Huawei, becauseGoogle just suspended business with the Chinese tech giant. Huawei smartphones run on the Android operating system and have had access to Google's Play Store and Gmail. On Monday, Google told Huawei: “We’re shutting you down.”
- Who’s NOT feeling the heat? Huawei. It seems less than 24 hours afterward:
o Google: Huawei – we’re shutting you down.
o Huawei: Google – That’s ok, we’ve been building our own mobile OS for 6 years. We’re ready for this.
Suddenly, Google re-instated Huawei’s rights to use the Android OS, and is acting like nothing happened. I guess the thought of losing access to the entire Chinese market was enough to bring Google back in line. Ya think?
- Lost Productivity: That Game of Thrones finale cost the U.S. economy $3.3B in lost productivity (e-mails, discussions, etc.). To put that in perspective, the Super Bowl costs us $4.4B, and holiday shopping destroys $35.4B.
- Trade, Trade, Go away: Companies hurting due to the trade war include:
o John Deere = China's not buying as many U.S. soybeans, and the Chinese steel that makes the tractors: “Run like a deer”– now costs more.
o Caterpillar = China is the biggest construction nation in the world, and now that’s gone.
o Tesla = China is almost their #1 market for Tesla automobiles.
- To Improve Thinking on Your Feet - practice:
o Playing more thinking games,
o Reading and requesting more information,
o Watching press conferences for inspiration – there no do-overs,
o Becoming accountable for your actions, and
o Constantly summarizing the key points of every discussion.
- Hey, don’t let the door hit you in the… Ford announced this week that it’s laying off 10% of its salaried workforce (starting with 900 jobs last week) – in hopes of boosting profitability. The cuts will save Ford about $600m a year. The company is spending billions to change the way it does business, hoping to increase its sales overseas and to focus on electric and autonomous driving tech.
- Going Under: Tesla fell under $200 this past week for the first time since 2015. Remember when Apple tried to buy Tesla at $240/share with the condition that Elon Musk had to step away from the company? Wondering if Tesla investors are having 2ndthoughts? Morgan Stanley cut its worst case estimate to $10 per Tesla share while Citi said that its bear case stopped at $36 per share. Both maintained a sell / high-risk rating as concerns remain surrounding demand for their cars.
- Facebook: will continue to block the sale of marijuana on its platform. It currently bans any mention of pot despite the fact that it is legal for recreational use in Canada and some states. Facebook does allow content pushing products derived from cannabidiol – CBD.
- The Chicago Fed National Activity Index: plunged to 3-year Lows.
- To Veg or Not to Veg: McDonalds (MCD) is noticeably missing from the list of fast food companies who are adopting plant-based food products (veggie-burgers). As MCD restructures their offerings (ridding themselves of specialty products in favor of improving quality for their traditional lineup) it appears that a vegan McDouble is not right around the corner.
- “I Wanna Dance with Some-body” The ‘body’ part could be over-rated. New music from the late Whitney Houston is said to be coming out soon along with a proposed hologram concert tour for the legendary singer.
Crypto-Bytes:
- Bitcoin’s repeated failures to pass $8,300 raise the risk of a price pullback. Bitcoin’s Elliott Wave Crypto analyst warns of danger signals ahead.
- Barry Silbert (CEO of Digital Currency Group) says Bitcoin could perform ‘really, really well’ in a financial apocalypse.
- Winklevoss says sitting on the sidelines is crazier than investing in Bitcoin.
- Circle Layoffs: Crypto startup Circle has laid off about 10% of its staff. The company – which owns trading platform Poloniex, equity crowdfunding site SeedInvest, runs the USDC stablecoin in partnership with Coinbase, and has very close ties with Goldman Sachs – is looking to cut costs.
- U Up? “Hey, stranger.” “I miss you.” “It’s been a while.” “How’ve you been?” The Zuck is now seeking reconciliation with the Winkelvoss twins. The two groups are back in the news after reports show that FB is getting into the crypto game. The Zuck would like WhatsApp users to be able to send payments to one another using a crypto token designed for and by FB. The Winkelvoss twins are one of the leading experts in the crypto space, so despite their awkward history, the move by FB to seek the Winkelvoss’s council appears prudent. How’s that line go: “He who laughs last…”
- Sticking with Facebook: Social media giant Facebook is set to roll out its own cryptocurrency, dubbed ‘GlobalCoin’ by Q1 2020. The cryptocurrency-based payment system is slated for launch in a dozen countries with trials expected by the end of this year. If FB can pull off being (a) the communication ‘monitor’ and (b) the ‘banker’ for the un-banked and the thinly-banked populations of the world – to quote Terry Bradshaw: “Gonna be mighty tough to beat – mighty tough.”
Last Week:
The Chinesemedia started airing propaganda suggesting that not only was the U.S. wrong in placing tariffs on the Chinese, but the U.S. is also the enemy of the people. This is concerning because there are hundreds of U.S. companies in China. Will those companies be boycotted? It's possible. Combine that withtech leaders such as Xilinx, Qualcomm, Broadcom, Intel, etc. having announced that they are no longer going to do business with Huawei – you’re throwing gasoline onto a fire.
David Tepper fired a warning shot heard ‘round the world – that the rest of us have been yelling about for years: “What we’re living through right now – is not investing – it’s gambling – and it’s no longer enjoyable.” David announced that he (one of the greatest hedge fund managers of all time) is seriously thinking about calling it quits and turning his fund into a family office because of all of the false and nonsensical information that is being ‘tweeted’ from the highest office in the land.
It was made public that Elon Musk'scompensation package from Tesla was valued at $2.3B. That was the largest compensation package ever contracted with an individual. Tesla structured the pay package so that the company would have to reach significant milestones under his leadership for him to receive those rewards. Musk owns about a fifth of Tesla, so he'd be raking in money if the company did well even without an incentive package.
We saw how badlythis market wants to go down. It's old, tired, and has no legs underneath it. It needs some rest, relaxation, and rehabilitation. But the economy is now so intertwined with the market (via derivatives, cross-collaterals, etc.) that if the market was to roll over – the economy would go right along with it. So they keep it up, but for how much longer? Just long enough to find / manufacture a boogeyman on which to blame the fall. An ugly war out of Iran, or the failure of a major bank (such as Deutsche Bank) – would give the FED a backdoor out of their predicament. The markets could plunge and they would not be the ‘fall guy’.
The S&P lost its 50-day moving average 8 full sessions ago, and can't seem to reclaim it. The DOW lost its 50-day, 12 sessions ago and is struggling. In the distance I can hear the wingbeats of black swans. If we reclaim those 50-day moving averages, they'll try and gun us for new highs. But first things first, we need to regain the 50-day moving averages before any reconstruction can even begin to happen.
Weed:
We’re finally seeing some very interesting results out of Canada concerning the consumption correlation between Cannabis, CBD and other beverages – specifically beer.
1. People consuming CBD related beverages have almost doubled in 2019 from 25% of the population in 2018 to 48% in 2019.
2. 44% of all consumers are showing a strong interest in CBD related drinks, and that number grew to 60% among Gen Z and millennials.
3. Increased CBD usage is directly correlated to a decrease in beer consumption.
4. Surveys suggest that CBD users are daily consumers of the product – with an average of 2 to 3 doses per day, and 20 to 25mg of CBD per dose.
Canadian beer sales dropped by 6.8% in March of 2019. Analysts at Cowen say: "We believe that beer faces their biggest headwind during the transition to legal CBD." As CBD becomes increasingly normalized, big-name food brands are getting in on the act. A number of big name alcohol brands have already announced partnerships with various growers to develop new CBD / THC infused drinks. Most recently, Canada's oldest independent brewer Moosehead announced plans to develop a CBD / THC -based beverage that would hit the market later this year. Diageo has also expressed interest in producing CBD / THC beverages. Diageo produces both Smirnoff and Baileys – the world's best-selling vodka and liqueur respectively.
Meanwhile, soft-drink makers have also expressed interest in the CBD / THC market. Pepsi's CFO Hugh Johnston said in an interview that developing CBD / THC based beverages is definitely on the table for the company. With Pepsi's biggest rival Coca-Cola stating that they will not be moving forward with any hybrid drinks, Pepsi may be in the driver’s seat for those discussions. Oreo-maker Mondelez’s CEO Dirk Van de Put said that they are getting ready to make snacks infused with CBD. Back in April Carl's Jr. became the first national fast food chain to put CBD burgers on the menu. With CBD taking over the wellness world, the writing is on the wall for the food and beverage business.
A recent study has offered new data on how CBD could help to curb the international opioid crisis. Results of a study published last week in the American Journal of Psychiatry suggest that CBD helps to dampen signals in the body that trigger cravings and anxiety in former opioid abusers. That comes in addition to lowering patients' heart rates and levels of stress hormones. Conducted at Mount Sinai hospital in New York, researchers found that patients who were given CBD exhibited lowered feelings of anxiety or craving when exposed to certain psychological cues, such as videos of drug paraphernalia. Tests also showed 2 to 3 TIMES lowered levels of stress hormones, and participants' heart rates. Some of these effects were evident in patients up to a week after their final dose of CBD. Opioid abuse is a significant global public health problem. Of the more than one million people suffering from opiate dependency, less than a quarter of such individuals receive treatment. This is a BIG DEAL. On average, about 130 Americans die from an opioid overdose every day. CBD is more widely available than other drugs doctors have tried, and it’s NOT addictive. So if CBD continues to help people ‘kick’ opioid addiction – that would be huge indeed.
Next Week:
As you can see from the above 2 graphs, we are right on the verge of things gettin’ real ugly again. Bonds continue to break-out to the upside – pushing the 10-year interest rate down to 2.3%. On the equity side, we’re almost into the ‘volatility box’ – an area where the S&P is below 2,800 (SPY < 280). And the most popular ETFs are suddenly the ‘duck ‘n cover’ ones: XLU (utilities), XLRE (real estate), and the XLP (consumer staples). For next week, watch the 2,800 on the SPX and the 280 level on the SPY. If the market goes below those levels – this has the ability to become Mr. Toad’s Wild ride in a hurry. If you’re looking for a defensive place to hide, look at buying the July monthly $63 Put in the XLP. If the S&P tanks, the XLP will go down with it and your Puts will naturally increase in value. If the S&P rises, the XLP will (in my opinion) remain fairly flat due to the high volatility associated with this current market.
Make no mistake, when CNBC says: “The recent data has a whiff of recession in it.” It means that we’re really close to the edge. The S&P is still 50 points below it’s 50-day moving average, and the DOW has been saved twice in the past two weeks from losing its 200-day moving average. If it wasn't for buy backs and low interest rates, we would be in for quite the ‘sled ride’ lower. This time, I don’t think that buybacks are going to be enough to save this market. If China or the U.S. refuse to blink, then I think things spiral out of control and nobody will be able to prop us up. At that point, that CNBC “whiff of recession”will turn into a downright stench.
This week has the ability to be a downside week. If the DOW loses its 200-day, I think that it drags the S&P down with it – and at some point we see S&P at 2,750. I had hopes that the energy sector was going to hold firm given we were butting heads with Iran, but I was wrong. After some brief upside, the oil sector has faded along with the price of oil. I still believe that at the first true rifle shot, oil spikes to $90 instead of $60/barrel – but I’m still awaiting that occurrence. It's a great time to be cautious. Being in cash and in observation mode is not a bad place to be. It's choppy out there, and if you're not nimble – you can get whacked. Please be safe and enjoy the Memorial Day weekend with friends and family.
Tips:
Top Equity Recommendations:
HODL’s: (Hold On for Dear Life)
- Aurora (ACB = $8.31 / in @ $3.07),
- Canntrust Holdings (CTST = $5.72 / in @ $3.12),
- Canopy Growth Corp (CGC = $44.42 / in @ $22.17),
- HEXO (HEXO = $6.76 / in @ $6.37),
Crypto:
- Bitcoin (BTC = $8,000)
- Ethereum (ETH = $250)
- Bitcoin Cash (BCH = $400)
Options:
- RIOT (3.86):
o Buy Jan 17, Sell $3 Call / Sell $3 Put / Buy $4 Call for $1.85 CR
o Buy Jan 17, Sell $2 Call / Sell $2 Put / Buy $3 Call for $1.45 CR
o (can only lose money if RIOT falls below $1).
Thoughts:
- Home Depot (HD): As we enter into the prime season for home improvement, Lowes dropped the equivalent of 6 standard deviations last week. Home Depot fared much better. Apparently duct tape and screen doors at the orange place are better than those at the blue place. HD has dropped over 8% in the last month. If you were thinking that HD might rally in the summer months, their 21% implied volatility rank suggests debit spreads for a speculative strategy. If you are bullish on HD, the long call vertical that’s long the $190 Call and short the $195 Call in the July monthly expiration is a bullish strategy that has a 65% probability of making 50% of its max profit before expiration.
- Dow Jones Industrial Average (DIA): Sure, the DIA is up over 9% for the year, but the whole China thing, the collapse in the 10-year yield, and the lowest PMI in 10 years are signaling a slower economy. Even short interest in SPY shares is the highest in 4 years. That should be making the market nervous. If you are bearish on DIA, the long put vertical that’s short the $254 Put and long the $256 Put in the July weekly expiration with 40 days until expiration is a bearish strategy with a 63% probability of making 50% of its max profit before expiration is your way to go.
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
