This Week in Barrons: 10-20-2019:
This artificially intelligent robotic hand – flawlessly solves Rubik’s Cube.
Thoughts:
The good news about the artificially intelligent robotic hand (pictured above) is that it can solve Rubik’s Cube flawlessly. In fact, the technology has caused Ai researchers to believe that machines can be trained to perform more complex tasks. The bad news is that the hand drops the cube 8 out of 10 times – and can’t locate it to finish the task. Hey, the hand was designed to solve Rubik’s Cube – NOT locate and retrieve a cube on the floor. So the phrase: “That’s not a bug – That’s a feature” – has me scratching my head lately because often I don’t know the difference between the two.
The definition of ‘feature’ and ‘bug’ have changed over the years – often to fit the particular instance. To paraphrase SG: If we get what we expect – then it’s a ‘feature’ right? Meaning:
- A ‘feature’ of an express delivery service is that your customers are in a hurry.
- Health food restaurants should always ‘feature’ their ingredients.
- Crisis management outfits should ‘feature’ their 24 – 7 - 365 abilities.
- And if you’re treating people with mental illness, their ‘feature-set’ will most likely not include patience and long-term thinking.
Our FED (for example) is behaving very much like the robotic hand. Their ‘features’ extend only to 1 or maybe 2 tasks – the rest are ‘bugs’. They can only adjust interest rates and loosely control the money supply. I assume they’re keeping interest rates low so we can afford the interest payments on our national debt. And I have to assume that they have ‘silently’ decided to start QE4 over the past month because they wanted to steepen the yield curve. Or maybe they’re doing it because (thus far) relentless credit expansion has delayed a recession. Either way, that is their complete ‘feature set.’
Unfortunately, everyone over the age of 40 has seen this movie before. As we quietly take out our Polaroids and remember ‘Rock-n-Roll’ – we know the ending. Stock commissions (for example) didn’t go away because financial services firms were feeling generous. Nah - they’re still the same greedy bastards they always were. Fees went away because nobody trades stocks anymore. They were a bug nobody was using. Trading stocks used to be synonymous with investing and wealth creation. If you loved a company, a product, an idea or a vision – you could invest post IPO and potentially be rewarded. Warren Buffett being the textbook example. Today, venture capital and private equity snap up all the pre-public opportunities and individual investors are left with expensive, fully priced IPOs resulting in marginal investments at best.
In the future, the feature set associated with an investment advisor is going to stress timing and strategy. It will stress being highly leveraged, and actively traded. It’s going to be evaluated based upon short term execution of: options, futures, market inefficiencies, and digital / spot currencies. Giving me something for ‘free’ will be more an indictment of what it’s worth than anything else. In fact, most of the time ‘free s**t’ is just what the name implies. ‘Free s**t’ rarely includes new ‘features’, but has normally included ‘bugs’ that nobody else wants. When things are changing this quickly, the good guys figure out how to exploit the new ‘features’ before everyone else, and drop them as soon as they become ‘bugs’.
The Market: Market manipulations continue to bother me along with other investors.
One of my pet peeves is that way too often, people shame the very people that are trying to get better. Scolding a person for buying a Prius and not an EV misses the real issue – the owner of the 1998 Chevy Suburban. “Don’t let perfect, stand in the way of good.” We have a tendency to rank our elected officials on who is the most perfect on the issues we care about – rather than who is actually getting s**t done. The people that are paying attention are the ones who are trying. Shaming those who are trying because they’re not perfect is a terrific way to discourage them from trying. Focus on trying to change the status quo – because that’s where you’ll find those who are not even paying attention – let alone trying.
The market (for example) is half the time not even paying attention. Market sentiment is as bad as last December. Something behind the scenes is allowing companies to make all-time-highs, because we are seeing the largest rush to safety since the Lehman collapse. Some indicators that I watch:
- China Trade Deal: Nobody has a clue. Big money continues to price-in a broader deal, but if that were the case – sentiment would be much better.
- Interest Rates: remain incredibly low.
- Brexit: could still have an 11th hour solution.
- Housing Starts: last month was a disaster.
- Initial Jobless Claims: are moving in the wrong direction as they rose by 4K.
- The Philly Fed: came in worse than estimates.
- Treasury Buys: our FED bought $60B.
- Repo Buys: our FED averaged $70B per DAY for the past 3 weeks. The last QE3 program only injected $60B per MONTH – so doing $70B per DAY will definitely move markets. And you better believe that a large percentage of that $70B per day found its way into the equity markets.
- Retail Sales: fell for the first time in 7 months, raising fears that a slowdown in the American manufacturing sector could be starting to influence the consumer. Households slashed spending on housing, online purchases, and autos. Auto sales fell almost 1% in September – the most in 8 months.
These days, it’s NO fun being a finance junkie. Stocks go up on bad news, and for the wrong reasons. We live in an economy full of distortions caused by interventions of varying magnitudes that will only get worse. In fact, when things don’t make sense – I always revert to my 3 stand-by investments: gold, silver and Bitcoin. I have difficulty making sense of manipulations. It bothers me that we’re watching the birth of a new ‘consumption’ asset class, and soon wealth taxes and negative interest rates will be upon us. Whenever the market reacts differently than the data – I get scared.
Info Bits:
- Odds of a Recession are 27%: between now and the end of 2020. The odds are rising, are higher than a year ago, but lower than before the last recession.
- WeWork’s On Sale: 83% off – any takers? SoftBank’s rescue plan for WeWork will slash the company’s value down to below $8B – from $47B just 3 months ago. WeWork is begging SoftBank and JPMorgan for money before it runs out of cash as early as November. SoftBank estimates WeWork needs at least $3B to operate through next year, and the company is eliminating thousands of jobs. Personally, I’m struggling with why it is worth saving?
- Facebook’s ads in 2020: could be worse than 2016. Zuck decided that political ads won't be subject to fact-checks (like other FB ads). People should decide for themselves. So: (a) President Trump pushed a Facebook ad to air false campaign statements. (b) Then Elizabeth Warren pushed a FB ad falsely claiming that Zuck endorsed Trump for president. Both ads were approved and aired showing (I guess) that ‘money talks and ____ walks’.
- “The smell of profitability…” Uber’s trying – as it laid off 350 more people.
- “Those were the days…” Remember, when Amazon went public in 1997 (selling books) with $16m in revenue and a market cap of $438m.
- 4-Year College Enrollment is down (again): and they’re blaming it on the 2002 birth rate (per MJP). After all, it couldn’t be the $250,000 price tag – nah.
- 350,000 students and teachers: are on strike and walking the streets of Chicago as classes were cancelled in the country's 3rd largest school district. The educators want combat pay, smaller class sizes, and more support staff – because it seems discipline has gone ‘out-the-window’.
- Oh how the mighty have fallen! Beyond Meat is down 50% from its all-time-high.
- Having trouble finding a charging station? Even though Ford won’t release its first EV until next year, Amazon and Ford just announced the nation’s largest network of charging stations.
- “Good news for Deutsche Bank (DB)”: I can’t remember the last time I uttered those 5 words together. But this week DB announced that it had successfully tokenized (via blockchain) a portion of its bank bonds. DB is now ready to put their traditional bonds on the blockchain – saving significant time and money. This concept is a 1st in the marketplace, and was made possible by partnerships with: dBonds, Queen Street Finance, and EOS.
- “Where you at?” The Sprint and T-Mobile merger has been approved by the FED for world domination. Post-merger, their competition is Verizon and AT&T. I’m wondering if SideKick will be making a comeback?
- 50,000 GM workers are still takin’ a break: remaining on the picket lines for at least another week. Their tentative deal would give workers higher pay, longer health insurance coverage, and an easier path for temps to obtain permanent status. It won’t save the Lordstown, Ohio plant, or 2 U.S. transmission plants.
- “Takin’ things slow…” as China announced their slowest economic growth in 30 years.
- “I’ll stick to traveling by train” Imagine overhearing a pilot say, “I suck at flying, but this 737 Max was especially egregious. I basically lied to the regulators.” Those are the words of Mark Forkner (former chief technical pilot for the 737 Max) when referring to Boeing’s 737 Max flight responses. Their text messages were finally released to the FAA showing the flight system as being extremely difficult to control, and how they (due to pressure) went along with it anyway. Boeing CEO, Dennis Muilenburg will appear in front of Congress later this month.
Crypto-Bytes:
- Grayscale up over $400m in Q3 inflows: driven by hedge funds.
- Aliant to compensate employees: in Bitcoin.
- “It’s OK to pay in Bitcoin…” In what looks to be a 1st for a sovereign nation, Bermuda will allow its 60,000 residents to use cryptocurrency for tax payments.
- “Show Libra a little Love…” Terry Gou (Foxconn founder) wants Taiwan to welcome the Facebook Libra cryptocurrency project. Gou also suggested the island could connect Libra (if and when it launches) with the digital currency being developed by the People’s Bank of China.
- “On Broadway…” Beginning next year, the biggest theatre operator on Broadway, will use IBM’s blockchain to prevent ticketing fraud.
- Nouriel Roubini concedes: “Bitcoin maybe a partial ‘Store of Value.’”
- “The fat lady’s warming up…” Bank of America (the 2nd largest bank in the U.S.) is quietly testing Ripple’s distributed ledger technology.
- Whoa, a FED cryptocurrency? Federal regulators worry that the dollar’s status as the world’s reserve currency could be at risk; therefore, FED officials are talking openly about the potential issuance of a digital currency.
- “Look ma – no humans – no fees…” Fetch is a blockchain protocol that recently conducted the first complete commodities trade – front to back.
- “Get ‘em while they’re hot…” The18 millionth Bitcoin will be mined this weekend – only 3m left.
- “I can feel a soft bottom…” Bitcoin's slow descent toward support near $7,750 continues with the daily and weekly charts indicating bearish conditions. That said, the cryptocurrency may be in the final stages of a recent bearish period – using the impending 50- and 200-day ‘death cross’ as a guide.
- “Don’t you fear … Libra is here.” RBC Capital issued a report on Tuesday arguing China's state-backed stablecoin may become the ‘de facto global cryptocurrency standard’. “If U.S. regulators ultimately dismiss Libra and decide not to draft regulation to encourage crypto innovation in the U.S., China’s central bank digital currency may be strategically positioned to become the de facto global digital currency in emerging economies."
Last Week: We’ll either breakup or breakdown – and I’m betting on down.
Last week we really discovered that QE4 was upon us. The FEDs were injecting $70B DAILY in overnight Repos – when we previously only did $60B in a MONTH. The FEDs say it's not QE, but of course it is QE – and it's big. That's a heck of a lot of money to inject into a monetary system. Factually:
- The China deal isn’t worth much, other than ending the escalation.
- The IMF downgraded global growth and U.S. growth specifically.
- Our FED has gone “liquidity crazy" with Repo QE. A significant percentage of that money is going straight into the stock market.
One day last week the FEDs announced they had pushed out $90B in Repo to the banks for reserve requirements. Another day there was $75B injected into the system. In just two sessions, they've injected $165B dollars into the banking system. THAT (and that alone) is why we're almost back to the all-time highs. NOT earnings. NOT growth. Corporate stock buy backs, FED rate cuts, and good old FED QE are once again responsible for all of the asset price increases. But this time around QE means Repo lending, and the FED buying T-bills. So, I fully expect us to visit the all-time-highs. We could have some trouble getting through resistance, but when we do succeed, it's blue sky ahead and a FED that's ‘hell bent’ on printing us into oblivion.
Weed: Next stop – CBD and THC in most beverages … mark my words.
- AB and Tilray announced: a nonalcoholic, CBD-infused drink – hitting the shelves in Canada as soon as December. The joint venture is called ‘The Fluent Beverage Co.’ Jorn Socquet, a 14-year A-B InBev veteran who most recently held the position of global vice president of marketing strategy, is the JV’s CEO. Their research will focus on both THC (the ingredient that gets users high) and CBD (the non-intoxicating ingredient). They’re working on a way to keep both sets of active ingredients stable and potent over the lifecycle of the product. THC is proving to be more of a stability challenge than previously anticipated.
- Molson Coors and HEXO: announced the planned launch of their own line of nonalcoholic, cannabis-infused beverages. The new beverage, Flow Glow will be a natural spring water with whole grape extract, organic blue agave and natural ingredients and flavors: containing 10mg of CBD. 80% of their upcoming beverages will include CBD, THC or a mix of both. CEO Brett Vye says that these products will "offer new and existing consumers the opportunity to begin exploring the wonders of cannabis in a way that's right for them personally."
Molson Coors estimates the cannabis beverage market in Canada to be worth between $1.5B and $3B.
- Constellation Brands and Canopy Growth: announced their elevation of Constellation CFO David Klein to Chairman of the Board. Canopy Growth is hoping to make beverages a major part of their portfolio. “We’re taking a bolder stance on beverages, with the belief that we can execute them better than what we’ve seen previously in other markets,” says Canopy’s Jordan Sinclair. “We’ve seen drinks make up about 2% of market demand, but we think we can do a lot better than that.” Sinclair also said that Canopy’s overall approach is not to create alcohol analogs. Instead, the company hopes to pioneer new beverage categories native to cannabis. “If we succeed here, this is going to be like Red Bull – where there wasn’t anything like it before, and now it’s ubiquitous.”
- Maine is next-up to: accept adult use applications by the end of 2019 – with sales to begin in March 2020.
- New Mexico pushing to legalize recreational use marijuana: using the proceeds to provide low-interest loans to small cannabis businesses and eliminate taxes on medical cannabis completely.
- Chicago says YES: to allow some adult-use cannabis sales downtown.
- Colorado’s Los Suenos Farms lose millions: due to an early freeze – causing a supply chain disruption. They are the largest marijuana grower in Colorado and their crop losses are expected to send ripples through the state’s cannabis supply chain. It will result in reducing the supply of marijuana available to retailers and processors – translating into higher wholesale cannabis prices.
- Convenience retailers are feeling good: due to rising sales and brand innovation. When surveyed, 20,000 U.S. convenience stores were “very upbeat thanks to disruptive innovation in energy drinks, malt beverages, and hard seltzers.” Total beverage sales were up 5.2% during Q3. Bang’s new product Birthday Cake won praise as 33% of respondents named it as the non-alcoholic brand doing the best job with innovation in Q3.
- CannTrust will destroy $77m worth of weed to regain regulatory approval: The firm lost its licenses to produce and sell cannabis after Health Canada found that multiple facilities weren’t compliant with national growth regulations. The destruction process will let the company "free up much needed capacity" to store produced cannabis and return to compliant operations. In July, the company fired CEO Peter Aceto and forced its president, Eric Paul, to resign amid an investigation into unlawful growing practices.
- On a buying spree: Multistate operator iAnthus Capital Holdings has acquired licenses through the acquisition of companies in several states including: Maryland, Nevada, New York and Massachusetts. The company also has several cultivation licenses in Arizona that are not attached to real estate. “We just had a meeting to begin the planning process as to what we might do as the state moves toward full rec,” CEO Ford said, referring to the possibility of adult-use legalization.
- Northeast governors meet to create regional adult-use cannabis plan: Governors from New York, New Jersey, Pennsylvania and Connecticut co-hosted a cannabis summit with legislative leaders and policymakers in an unprecedented move to coordinate recreational marijuana legalization efforts. The four governors: Andrew Cuomo of New York, Phil Murphy of New Jersey, Tom Wolf of Pennsylvania, and Ned Lamont of Connecticut – have come around in recent months to support and embrace, adult-use cannabis legalization. The talks come at a time when roughly two-thirds of the public now support legalization. The driving force for states is to create additional tax revenue and spur new economic development – and each state is wary of losing out on those opportunities to their neighbors. Noah Potter, a cannabis attorney at Hoban Law Group, had two quick takeaways from the summit: (a) the governors want to coordinate tax policy to avoid people crossing state lines. It seems residents in New York are already frequently going to Massachusetts to buy cannabis products. And (b) the Northeast corridor could legalize as a bloc in 2020.
- Another Canna-Boom: The Canadian cannabis industry seems to change constantly. In December, retailers will be allowed to sell new cannabis products including: edibles, vaporizers and beverages. This second wave of legalization will prove challenging to store owners with one remarking: “We’re going to have to evolve on a weekly basis.” The introduction of these new products is estimated to add $2.7B to the cannabis market. Factually, a year after legalization: cannabis stocks have dropped, retail prices are double the illicit market, legal sales are below expectations, and most companies are losing money because they can’t get out of their own way.
Next Week:
With all of the global growth concerns hitting the market, this marketplace is not reacting normally. We’re either waiting for the next shoe to drop or for the FED to inject so much cash that we go ‘off to the races.’
- We have: China lowering their GDP estimates to the lowest level in 30 years, the IMF singling out the U.S. as slowing, retail sales going lower, really poor housing data, tech companies being sold off – the only bright spot are financials and I can’t tell you why other than the ‘Plunge Patrol Team’ making sure this economy doesn’t come off the rails.
- There are a tremendous number of quantitative traders in this market place – trading in and around every stock’s expected move, and that is forcing a correlation breakdown. Meaning we now have the number of advancing stocks being about the same as declining stocks – which normally leads to a range-bound atmosphere and a contraction in volatility.
- The list of ‘accidents waiting to happen’ is growing: Johnson & Johnson, Boeing, Netflix, Roku, Facebook, Macys, GAP, Nordstrom, etc.
- If any of the big tech names (Microsoft, Apple, Amazon, Google, etc.) miss earnings – the entire sector could collapse – taking the S&Ps down with it.
- The only retail names of interest are Lulu-Lemon and Nike.
I’m looking for the S&Ps (SPX) to move down to 2,950 (it’s expected move) this week – especially without any financial earnings, China developments, or political maneuvers to prop it up. The wildcard is the FED and the REPO marketplace – which is anybody’s ballgame about now. Please trade small and fast.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $3.68 / in @ $3.07)
- First Majestic Silver (AG = $10.24 / in @ 10.50)
- Canopy Growth Corp (CGC = $20.21 / in @ $22.17),
- DRD Gold (DGD = $4.74 / in @ $4.20),
- GBTC Bitcoin (GBTC = $8.72 / in @ $10.01),
- Pan American Silver (PAAS = $16.40 / in @ 18.00)
Crypto:
- Bitcoin (BTC = $8,000)
- Ethereum (ETH = $170)
- Bitcoin Cash (BCH = $220)
Options:
- RIOT ($1.71):
o Bot Jan 17, Sold $3 Call / Sold $3 Put / Bot $4 Call for $1.85 CR
o Bot Jan 17, Sold $2 Call / Sold $2 Put / Bot $3 Call for $1.45 CR
o (can only lose money if RIOT falls below $0.70).
Thoughts:
- XOP = $20.56 With renewed excitement in the Middle East and a weaker dollar, crude oil (/CL) has stopped dropping, and has been in a tight range for the past couple of weeks. The price of gasoline is also off its lows and has rallied for the past week. So, what’s with XOP – the ETF that tracks the oil and refining stocks? If energy is stronger and stocks are stronger, why is XOP, which is a combination of the two, still hovering just above its 52-week lows? Rather than figuring out which of its component stocks is holding it down, a contrarian trader might just want to step in and consider a bullish strategy in XOP. If you are bullish, the short 19.5 put in the Nov monthly expiration is a bullish strategy that has an 88% probability of making 50% of its max profit before expiring worthless.
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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