This Week in Barrons: 12-1-2019:
“Let’s get ready to Rumble!!!” … Jim McMahon – WWF
Saying Thanks…
When the going gets tough, is your first instinct to ‘Double-Down’ on your efforts to make it work and make it right – or to allow things to get worse, be moved ‘off-your-plate’, and therefore you’re given a graceful exit? Fair warning, if you’re in the business of allowing things to get worse and walking away – maybe you shouldn’t trust yourself to make them better in the first place. After all, making things better is fraught with risk. ‘Doubling-down’ on any system, place, relationship, project – is a commitment that puts even more of you on the hook. That person in front of you becomes more real, the problem becomes more urgent, and suddenly you are forced to answer the question: “Is this really worth it?” On Thanksgiving, I’m forever grateful for those of you that do everything in your power to continue to make things better. Thank you.
The first rule of entrepreneurship involves finding those immediate team members that will run toward the problem rather than away from it. Those team members that want to put more bait on the hook – in order to catch an even bigger fish. Winning teams know that their best chance of influencing the outcome – comes from mindfully influencing the questions that are asked of them. Winning teams create conditions that will lead to their desired outcome. Their only shot is to go all in, and be ok with what happens next.
Hence, when entrepreneurial participation trophies appeared, all it did was drive the winning teams toward a different pond – where the stakes were higher and there was no ‘Entrepreneurial Welfare’. Recent studies show that there are fewer entrepreneurs committed to the success of their Alma Mater than ever before. Why? Because those same Alma Mater’s dodged ‘Doubling-Down’ and chose ‘Entrepreneurial Welfare’ instead. Nobody wins by learning how to create a company that’s ‘Just OK’. I never met an entrepreneur who was proud of their ‘Just OK’ product / service. Winners believe in what they’re doing. Without that belief, no marquis customer is going to waste their time with a solution that’s: ‘Just OK’.
‘Entrepreneurial Welfare’ is a double-edged sword by design. People are nudged into starting new companies because the gov’t is paying the start-up costs and providing the first 3 to 6 months’ worth of labor. This gets politicians crowing about the increased number of small business starts, but unfortunately the survival rate for those same businesses continues to decline. We’re slowing finding out that giving somebody a participation trophy does not inject them with that ‘Doubling-Down’ attitude required to win in small business. In fact, giving people anything – works in direct contrast to a winning attitude.
On this Thanksgiving Holiday, I would (again) like to thank those entrepreneurs who ‘Double-Down’ when times get tough. Thank those entrepreneurs who continually ignore ‘E-Welfare’ and produce a product that’s close to perfection instead of being ‘Just OK’. Yes, there are easier ways to ‘make-a-buck’, and the scars you get running toward a problem – never go away. Wear those scars proudly – because in entrepreneurship – that’s how you pick the winners out of a crowd.
The Market: 17 weeks in a row of market efficiency. Also 17 weeks of FED REPO / non-QE. Coincidence?
When Raphael Zammit (Head of the Transportation Design program at the College of Creative Studies in Detroit) first saw Tesla’s new Cybertruck he said: “Oh my goodness, what did Tesla just do? They just broke every rule of truck design. At first I assumed it was a vehicle built to haul dead bodies in a post-apocalyptic video game.”
With the Cybertruck (CYBRTRCK), it doesn’t look like it has all of the necessary elements to make it road-ready. The model we saw didn’t have side mirrors. The illumination strip (the pseudo-headlights) would not be street legal. The truck lacks a visible “crumple zone,” designed to collapse and absorb the force in a forward collision. CYBRTRCK feels more like an interesting concept car than a realistic truck. However, it’s the first concept car that has a “BUY IT NOW’ button next to it on the website.
Zammit’s horror turned into admiration when he heard the $39,900 price for the base model, and $49,900 for the dual-motor all-wheel-drive version with a 300-plus mile range. “By being philosophically pure and functional, Tesla has completely eliminated a very large part of what is the traditional automotive assembly,” he said. “The company cut down on expensive tooling costs by keeping elements of the car flat, straight, and a little weird looking. This could be one of the most brilliant moves in automotive history.”
Elon Musk was inspired by the movie Blade Runner, which is about lab-grown humanoids created to be slaves. The typical CYBRTRCK buyer is not your traditional Ford F-150 buyer. But if you’re worried that it won’t sell – having over 200,000 pre-orders should ease your mind.
Info Bits:
- Schwab is buying T.D. Ameritrade… in an all stock deal worth $26B.
- Show me ‘da bling: After weeks of flirting, LVMH reached a deal to acquire Tiffany for over $16B. It’s the largest luxury acquisition ever. LVMH owns Bulgari, Dior, Dom Perignon, and other ultra-luxury everything’s.
- Shipping nirvana: Target showed a 31% rise in online sales last quarter, and 80% of that growth was from same-day delivery orders. Target’s same-day delivery actually CUT their shipping costs by 90% because they ship from the closest Target store (miles away), not a fulfillment center (time zones away).
- RoboCop and a steak knife had a baby... and called it CYBRTRCK.
- Frozen 2… set a record for the largest grossing opening for an animated film.
- Fall of the ‘House of Uber’: Uber was again stripped of its London license by Transport for London (TfL) due to a: “Pattern of failures from Uber that placed passenger safety and security at risk.” Uber vowed to appeal.
- Reunited once again: eBay is selling StubHub to Viagogo for $4.05B. Eric Baker founded Viagogo (the buyer) and also co-founded StubHub. Imagine that!
- Impossible Foods wants mo’ money: The maker of the plant-based Impossible Burger is talking to investors about new funding that would raise its valuation to be more in line with its public rival: Beyond Meat @ $4.8B.
- You want a piece of me… Ford is coming after Tesla and wants an “apples to apples” showdown between its F-150 and Tesla's Cybertruck. Dumb move Ford.
- Uber is selling / giving-away… its India food delivery business ($500m) for a piece of the India-based Zomato that is raising its own $600m funding round.
- Small stocks, Big Dreams: The Russell 2000 is making 52-week highs for the first time since August of last year. Welcome to the party.
- How will corporations EVER repay their debts? Dallas FED Pres. Robert Kaplan is worried about ballooning levels of corporate debt and what would happen if there was a sudden deterioration in credit quality. The answer is easy. They can’t repay them now, and they won’t be able to repay them then – either.
- We’re moving backwards: China’s economy slowed for the 7th straight month.
- Thomas Bowers died: He was the Deutsche Bank exec. who signed off on loans to President Trump. He died last week in an apparent suicide.
- Americans weigh more this decade… but fewer want to lose weight.
- Just one more star: An increase of 1 star in a rating on Amazon correlates with a 26% increase in sales.
Crypto-Bytes:
- HODL ON – I’m Comin’ … That's the message from many bullish crypto-experts to anyone spooked by Bitcoin's brutal sell-off. Bitcoin tumbled 12% in the last week or so – likely due to a lack of positive catalysts and China's latest crackdown on digital asset trading. It briefly dipped below the psychological level of $7,000 and is trading around $7,600. There are at least 3 reasons to think that this may be just a hiccup for bitcoin.
o (1) On the demand side, institutional trading platforms like Bakkt and Fidelity are starting to see an uptake in buy orders.
o (2) Square is also showing rising retail bitcoin purchases.
o (3) The expected halving of mining rewards next year bodes well on the supply side since it will reduce the amount of new bitcoin regularly injected into the market.
- Bakkt to Business… After a disappointing start, the Bakkt futures market has started to ramp up – hitting all-time-highs on Nov. 22, with 2,728 contracts traded. That was a 68% increase from the prior day with open interest being up 29% on the day. Bakkt’s role has been to increase confidence and trust within the crypto-community by offering more sophisticated trading instruments such as futures contracts that can be utilized to hedge against risk.
- High Fidelity… Fidelity Investments launched their vehicle earlier this year – providing a safer custody option for those larger funds seeking to enter crypto without having to rely on exchanges for storage.
- Squaring off… Another encouraging sign for the bulls is the fact that first-time buyers of bitcoin through Square's Cash app have doubled, with the company's bitcoin revenue climbing 244% year-over-year. Admittedly, Square only started offering bitcoin purchases in November 2017 (near the peak of the last bull market), so that triple-digit growth is from a small base.
- The Fundamentals are different… surrounding the key metrics about the Bitcoin asset itself. The hash rate, a measure of how much computing power is being devoted to the bitcoin network, has tripled since the previous all-time price high of $20,000 in December 2017. There’s a theory out there that institutions are selling to force weaker hands to capitulate, so the larger funds can accumulate BTC at lower prices ahead of the halving expected in May 2020.
Last Week:
- Monday: All-time highs again. One might think the economy is booming, rates are normalizing, and profits are soaring. Ooops, none of that is true. According to the FED, corporate profits peaked in 2014. Here we are 5 years later and multiple thousands of market points higher. How can that be? I think it’s because our FED has injected $3T year-to-date into the non-QE / REPO market. In terms of individual stocks: SQ didn't make my $69.20 buy-in Friday – let’s see what it does today. ACAD is trying to break out of its 8 session consolidation. So I’m in over $48.24. DIS has formed a pennant, and it will resolve itself up or down in the next few sessions – over $149.45 I’m in. TRUE has caught the attention of traders, and it looks to want to move higher – over $5.11 is good. And CLF has moved up out of months of trading sideways – over $8.15 please.
- Tuesday: With 95% of companies reporting, S&P 500 GAAP earnings are down 6% over the past year - that's the largest decline since Q4 2015. Is that the kind of performance that brings markets to all-time highs? Nope – it’s brought to you by our worldwide network of Central banks. This morning's green market is actually because US and Chinese delegates held a phone call about trade, and the call appears to have made some headway. Right now, the biggest issue is bravado. The Chinese don't want to look weak, and Trump can't back down. Evidently on this call, China conceded that they need to work on IP protections. Conceding on IP, means that on December 15th, we probably will not hike tariffs. So, we're in a form of melt-up mode here, that could end tomorrow or run through February. With the hope of a deal – the market rises. Without it – it falls.
- Wednesday: We received some "interesting" economic reports this morning. We expected durable goods orders to come in at -0.1 – instead (without transports and defense) it hit +0.1. We also received a Q3 GDP revision from 1.9 to 2.1%. It’s interesting because 2 weeks ago the Atlanta FED lowered its GDP estimate to 0.9%. I’m watching if LB gets over $19.50, XLF over $30.20, and Citi over $76.15
- Friday: On Wednesday evening, Trump signed the: "We stand with Hong Kong" bill. Everyone expected China to lash out with all manner of retaliation, but they didn’t. Now today is "Black Friday" and the people are indeed shopping. Reports of web sites crashing at Costco and other places started popping up yesterday. I still think that Citi wants to run, and I’d try it over $76.30. The XLF is probably going to go if it can get over $30.25. And LB is right at its resistance level – and should run if over $19.50.
Weed:
- Those darn CBD testers: Leafly tested 47 CBD products and the results were not particularly flattering with only 50% of products having CBD levels within 20% of their advertised concentrations. In fact, over 10% of the products had no CBD at all, and 15% of the products had greater than 20% higher amounts of CBD than advertised. Fair warning: FDA regulation could be more restrictive than many are expecting.
- Alcohol had better worry: In legal adult-use states, 67% of consumers either approve of and/or consume cannabis. That is more than the percentage that consume alcohol.
- Annual legal spending on cannabis reached $10B in 2018, and is forecast to grow to over $13B this year.
- New Jersey will put marijuana legalization… on its ballot next year.
- 64% of consumers in adult-legal states purchase cannabis from recreational dispensaries, 33% from a friend or family member, and 26% via a medical dispensary.
- 71% of consumers in adult-use states and 37% in medical states describe cannabis consumption as recreational or social.
- Cali, Colorado, Oklahoma and Oregon make up 80% … of the total active retail licenses nationally. This is an indicator that the industry is frustratingly navigating regulatory roadblocks.
- Biden reverses his claim that marijuana is 'a gateway drug' Former Vice President Joe Biden backed off his previous statement that cannabis is a ‘gateway drug’ while also insisting he hadn’t even made such a claim.
- CannTrust’s shares will be delisted… by the Toronto Stock Exchange if they are unable to file relevant financial statements by March 25, 2020. They will need to produce: Audited financial statements for 2018, and interim financial statements for Q1, Q2 and Q3 of 2019. CannTrust said it anticipates filing those disclosures before the March 25, 2020 deadline
- Cresco Labs said that it will NOT buy VidaCann… becoming the latest U.S. marijuana M&A deal to unravel and highlighting the steps companies are taking to navigate a rocky business environment.
Next Week:
- We are in the midst of a “positive gamma grind higher in the S&Ps.”
- The S&P Expected move:
o We have spent the last 17 weeks moving higher without a major breech of the expected move. During those 17 weeks, there were no extreme correlation readings, but consistent rotation of capital between sectors.
o We are seeing a bottoming pattern in the volatility index – signally a potential downturn. With this downturn, we will see a more positively correlated market.
o The non-QE / Repo injections by the FED also started 17 weeks ago. Is this a coincidence – I think not.
o The longer we remain efficient and moving tightly within the expected moves – the more dangerous this market becomes.
- The number of short volatility traders in this market place is overwhelming. If / when this market starts to fall, those same traders are going to have to cover (buy volatility), which will only amplify the short side of this market.
- We’re creating a Merry-Go-Round of Horrors:
o Our FED: “This FED doesn’t have anybody’s back.”
o The Chinese Trade War: “The market place has priced in FAR too many good attributes surrounding a Phase 1 deal.”
o The bad global Economic Data – will force us back into an interest rate dilemma. The emerging markets are beginning to buy our bonds, which will force our interest rates to come down from 1.77% to around 1.6%. This will re-ignite yield curve inversion fears, and recession fears.
o TLT trade:
§ In the TLT: Buy the January 3rd - $139.50 Call and sell the $141.50 Call.
§ Also look at those same $2 spread possibilities in the Jan. 17 and February 21st series. Nice looking risk vs reward.
- Look for markets to confirm their downside, and we should see them re-correlate once they exit this constant grind higher in the SPX.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $2.50 / in @ $3.07)
- First Majestic Silver (AG = $10.76 / in @ 10.50)
- Canopy Growth Corp (CGC = $18.59 / in @ $22.17),
- DRD Gold (DGD = $4.09 / in @ $4.20),
- GBTC Bitcoin (GBTC = $9.57 / in @ $10.01),
- Microsoft (MSFT = $151.38 / in @ $145),
- Pan American Silver (PAAS = $19.25 / in @ 18.00),
- True Car (TRUE = $5.25 / in @ $5.11)
Crypto:
- Bitcoin (BTC = $7,800)
- Ethereum (ETH = $155)
- Bitcoin Cash (BCH = $225)
Options:
- RIOT ($1.39):
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:
Amazon (AMZN = $1,800 ) Expectations for Black Friday seem to have pushed AMZN up the equivalent of 1.9 standard deviations over the past week. That has broken AMZN out of its August through November range. When you figure that sales have been going on for the past week, and will continue for the next month – what’s one Friday worth? If you think the rally in AMZN is overdone, then a long vertical, bearish strategy should be used due to its relatively low implied volatility. I’m liking the long Put vertical that’s short the $1815 Put and long the $1820 Put in the Jan monthly expiration. It’s a bearish strategy that has a 66% probability of making 50% of its max profit before expiring.
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
