This Week in Barrons: 11-10-2019:
Thoughts:
Original ideas often aren’t as original as they may seem. More often, innovation happens when we apply existing ideas to new situations. To paraphrase a quote by Arthur Shopenhauer: “The goal is to discover what nobody has thought about, but what everyone has seen.” Hence the picture above – outlining a new ‘spin’ on the traditional lemonade stand concept. The key is often to translate ideas across fields, so you can identify patterns that others have missed. As Herb Simon once said: “A wealth of information only creates a poverty of attention.”
Unlike academics who write papers based upon silos of information, it’s often the entrepreneur that discovers the mis-match. In fact, according to a recent paper by NYU Professor Deepak Hedge: “The number one predictor of someone becoming an entrepreneur is a mis-match in job vs actual skill level.” This means that people whose actual abilities exceed their job’s requirements are more likely to become entrepreneurs. That explains why immigrants became entrepreneurs. They have less credibility in their regular jobs, so they branch out on their own. Professor Hedge high-lights his top 5 entrepreneurial traits as: (1) capability, (2) pride, (3) over-confidence, (4) high self-esteem, and (5) an increased likelihood that the person has done illicit activities.
For me, the interesting part of this new research was that it focuses on the ‘soft skills’ necessary to succeed as an entrepreneur. For years the entrepreneurial bandwagon has always proclaimed: “Build it and they will come. If you can build a better mousetrap – the world will beat a path to your door.” Unfortunately, all that guarantees is that the world will get to grade your idea. The following list of ‘soft skills’ will help to make it a successful venture:
- Learn to control the Narrative: Construct your own digital, networking vehicle so you can share your work and thoughts at a moment’s notice.
- Become a Connector: Never say ‘No’ to a relationship. Having said that, I rarely go to networking events. To me that feels like sitting on my dad’s shoulders at a parade. The best networking happens indirectly – potentially by opening doors for others. That’s when value will flow back to you.
- Stay Healthy: Eat healthy food, get enough sleep, and break a sweat every day. People are drawn to people who are energetic and engaged.
- When they Zig – you Zag: Learn to do the opposite. Learn to diversify ideas and people across industries, disciplines, and places.
- Avoid Assholes (especially boring ones): Try and stay away from people that simply make you angry and aren’t interesting to listen to.
- Swim with the Current: So many entrepreneurs think that their ‘idea’ will revive a struggling industry – when in fact it just doesn’t work that way. It’s so much easier to allow a rising tide to lift all boats.
- Build Ambient Relationships: Staying in touch with people shouldn’t be about being loud and aggressive – but rather subtle and regular.
- Go First: It helps to be the lead dog. The upside is limitless, and the downside is just a sprinkle of embarrassment.
- Know your Ask. Over 80% of sales people NEVER ask for the sale. Marc Andreessen says: "The world is a very malleable place. If you know what you want – go for it. The world will often reconfigure itself around you quicker and easier than you would have thought." Weirdly, big goals are often easier to achieve than small ones – because they energize everybody. Finally, make it easy for people to help you.
- Say Thank You: Amazon has set the retail bar so high – the best anyone else can do is to be mentioned in the same sentence. Customers in every industry now expect generous return policies and fast response times. According to HBR, "Firms that contact a lead in the first hour of their outreach were ‘60 times more likely’ to close the deal than firms that waited 24+ hours.”
Per SG: Schools train people to ‘maintain’ by establishing policies, procedures, roles and responsibilities. A few people avoid these lessons and become: instigators, disruptors, and ‘entrepreneurs’. They’re unsure what’s going to work, and yet are hooked on moving forward. It’s possible to move from ‘maintainer’ to ‘entrepreneur’, but it’s incredibly difficult. And I don’t know that you can ever go back. So choose wisely.
The Market:
Thanks to SF: Wednesday's productivity report (falling 0.3%) is the latest sign that low U.S. unemployment may be indicating a sick, rather than a healthy economy.
- What's happening: As uncertainty rises, companies that have the capacity to invest in new equipment, technology or factories are holding off and hiring workers to pick up the extra slack instead.
- Why is that bad: The increase in hiring is less about expansion or optimism than the fact that workers are a cheaper investment, and one that is easier to reverse should the economy go south. "If the economy improves, you’ve got more workers. If we have a recession, then you have the flexibility of deciding whether to lay off some workers. In either case, you’re treating workers like inventory," said Bernard Baumohl, chief global economist at The Economic Outlook Group.
- By the numbers: This story of hiring as uncertainty insurance is born out in the data. U.S. real output per hour, seen as the standard measure of worker productivity, fell by 0.3% in the 3rd quarter – marking it the first quarterly decline in almost four years. Similarly, the latest GDP report showed business investment declining for the second straight quarter – falling by 3%.
- Why does it matter: Productivity is the secret sauce to economic growth, and the U.S. has had underwhelming productivity growth for the last 15 years – a full 1% below the pace in the previous 15 years.
- Threat level: A basic way to measure productivity is, "Are you giving workers more tools?" said David Kelly, chief global strategist at JPMorgan Asset Management. "In the last 2 quarters, we're actually increasing the number of workers and decreasing the number of tools we give. That doesn't bode well."
- Yes, but: Kelly remains bullish on a positive outcome to the trade war and other uncertainties, but says: "If freedom’s just another word for nothing left to lose, then productivity is just another word for having no one left to hire."
Info Bits:
- Facebook: The Justice Department’s top antitrust enforcer warned Facebook on Friday that amassing vast quantities of consumer data could create competition concerns in the eyes of federal regulators.
- Ghost Locomotion… is a two-year-old company that's developing a kit that will allow privately owned passenger vehicles to drive autonomously on highways for under $7k. Due for release in 2020 – here’s the link: https://techcrunch.com/2019/11/07/ghost-wants-to-retrofit-your-car-so-it-can-drive-itself-on-highways-by-2020/
- iPhone who? Apple is becoming a wearables company. iPhone sales have been slipping for a full year now, but Apple wearables (featuring AirPods and Apple Watches) have surged over 50% for the 2nd straight quarter.
- Your promiscuous ordering... is a problem for GrubHub. GrubHub’s CEO is angry at his customer’s disloyalty, and surprised that they’re simply ordering dinner on whatever delivery app is the cheapest at the moment. Just another angry CEO because shareholders want to see a profit – who knew?
- Do you REALLY want fries with that? McDonald’s CEO Steve Easterbrook was fired for having a consensual romantic relationship with an employee. For $15m a year, you’d think he could find the right place to dip his French fry?
- Come back when you lose $1 Trillion: Oh, did Uber lose another $1B? Are you even surprised? Their stock lockup period expired this week with a yawn, because 90% of the outstanding pre-IPO holdings are underwater (ouch).
- You gotta luv WeWork: They prepared for a blockbuster IPO by building out dozens of new offices and supplying them with over 100,000 desks. Now, they’re having trouble filling the offices – poor WeWork.
- 4-Day work weeks w/ 5-Day paychecks: In August, Microsoft Japan tested a program where it closed its offices on Fridays and gave employees three-day weekends. Some meetings were also cut down to 30 minutes. The result: productivity jumped by 40%. All part of that work-life balance.
- You’re Approved… said the U.S. Government to the merger between T-Mobile and Sprint. As the nation's 3rd and 4th largest wireless carriers, T-Mobile and Sprint have led the charge in ending early termination fees and re-introducing unlimited data plans.
- 3rd Qtr. Industrial Productivity FELL by 0.3%: Experts were looking for a 1% increase. This is not a good economic sign.
- “If you can’t DO – teach!” Per MJP, Carnegie Mellon thinks that: “We need a more comprehensive, targeted and thoughtful way of regulating our agricultural pollution.” Huh? When CMU was asked at their pressor whether any of them had farming experience – no one stepped forward. When asked how this would impact a farmer’s costs and livelihood – no one (again) ventured a peep.
- Robin Hood takes from the rich: Due to a glitch, users of Robinhood were able to borrow more money on margin than they ever should have been able to. For example, one user was able to take a $1m position funded by a $4,000 deposit. So much for the Sheriff of Nottingham policing the forest!
- Times they are a changin’… Last quarter, 8 of the top 10 beverage market share gainers were new innovations. And all of the top losers were iconic beers such as: Bud Light, Bud, Coors Light, Miller Lite, Corona, Busch, Corona Light, Heineken, and PBR.
Crypto-Bytes:
- Remember when U wanted to be astronaut? Now, 86% of young Americans aspire to be influencers. At last week’s NYT DealBook conference, when highlighting the future of leadership and entrepreneurship, we found that kids most looked up to (wait for it): The Kardashians.
- Fake News, Fake Meat, and Fake Bubble? In 2017 - the Year of the Coin, a University of Texas professor is alleging that Bitcoin’s climb to $20k wasn’t due to people buying, but rather our government manipulating the price of Tether.
- R U minting from the Cloud? Microsoft’s new Azure Tokens platform allows businesses to build tokens in the cloud as easily as plugging in a printer.
- R U on the list? The number of addresses holding more than 1,000 Bitcoin has grown by 30% in the past 12 months – reflecting an influx of high-net-worth investors.
- R U paying by crypto? The amount of cryptocurrency sent to 16 payment providers rose by 65% from Jan. to July – suggesting a lot more trust in crypto.
- R U a Crypto Advisor? Ukraine’s Ministry of Digital Transformation has signed a MOU with Binance (crypto-exchange) to prepare new rules for cryptocurrencies as well as to digitize their own country’s finances.
- Bitcoin is on the move: More users are turning to Square’s Cash App as a gateway to bitcoin investing. In the 3rd Quarter, Square processed $148m in Bitcoin. “That’s the 1st time bitcoin buyers have doubled,” said Frank Dorsey.
- R U looking for work? Those seeking employment in the blockchain and cryptocurrency industry have reason to be positive. The number of sector-specific employment ads in shares per million rose by 26% Year-over-Year.
Last Week: Day by day summary…
- Monday: Markets continue to ride the momentum train and a friendly FED. IBM’s stochastics are about to cross, their MACD is about to go positive, and it's been consolidating at the $135 level for several days now. IBM over $137.30 and I’m in. Most of this market’s gains come from gap ups at the open. It’s pretty rare for this market to organically move higher during the course of a session. So, you almost have to buy things at the close, regardless of the price, hoping the next morning it moves higher. That is NOT normal market activity, but rather what you see in a manipulated and corrupt market.
- Tuesday: What do we do on a pause day? Lately, every time the S&P gets 100 points above its 50-day simple moving average – it tends to fade. Gold and silver are fading. You can blame it on the Fed printing billions every night and flooding the REPO market with it. There’s also volatility going on within the currency markets. There’s a mis-match in the emerging currency markets with the Venezuelan Bolivar rising. Fair warning: gold and silver often don't do well when the equity markets are thriving. I think with FOMO and MOMO working – this market’s moving higher into yearend. The FED money needs a home.
- Thursday: At 2 am Chinese officials said that they have agreed with the U.S. to roll back tariffs on each other’s goods. But was that the news that got the market excited or the NY FED injecting $80.14B in overnight REPO money into the system? The China news was the catalyst, and the REPO money the fuel. Cisco (CSCO) could have been bought at the open, but since I don't do that, I’m going to wait until it clears $49. Other than CSCO, Microsoft (MSFT) over $145 looks good, along with TEVA over $9.10. Virtually everything else is too extended for my taste.
- Friday: I don’t think that this market run is over. Sure, it's rising because of the Billions the FED is pushing into the banks, but the bottom line is: "Up is Up." We need another catalyst. The market is so expensive right now that the big guys can fall a lot in a single day if/when things get ugly. The one thing that's bugging me is that a lot of stocks have chart gaps BELOW their current prices, and gaps tend to be filled. MSFT has traded sideways for 9 sessions, and I think that if the market is going higher, then MSFT will go with it. I’m in for MSFT over $145. There’s also an interesting ‘flag’ set up on BXP. If this resolves to the upside, it could be a really nice long side trade. I’m in over $138.45. Also, take a peek at HLIT. It looks like it could break out and run if it gets over $8.10.
Weed:
- Michigan is taking recreational marijuana applications: Marijuana Business Daily projects that Michigan’s adult-use market will reach $1.7B in annual sales within 2 years.
- Marijuana still has a shot… that the Senate will vote on the SAFE Banking Act before year-end, despite the impeachment proceedings creating a legislative slowdown. The legislation passed the House with strong bipartisan support.
- Canopy Growth & Drake (the rapper)… announced a partnership. CGC told Drake that they will show him how to smoke weed, if he can help them sell it.
- A $45m medical cannabis complex… is on the drawing board in Pontiac, Michigan. The facility, which would include a cannabis cultivation and processing facility, is being proposed by Pharmaco and Rubicon Capital.
- Beverage Veterans join CBD brand Ojai Energetics: Upstart CBD brand Ojai Energetics has added two beverage industry veterans to its management team, with former Coke executive Tom Hicks coming on as COO and Jim Tonkin joining the company’s advisory board. Hicks served as president of Naked Juice through its sale to PepsiCo in 2007, then as senior VP of sales and operations at Monster Energy Corp. prior to Coke’s major investment in 2015.
- Mexico has until April 30 to legalize cannabis… says their Supreme Court. They gave it another 6 months to approve legislation that legalizes all forms of cannabis – creating the world’s largest adult-use market.
- A 2nd Non-Alcoholic Cannabis Beer… is being released by Arvada (Ceria Brewing). It features 10 mg. of both THC and CBD for a stronger / balanced effect. It launches in Colorado and Cali dispensaries with single cans costing $8.
- Cannabis capital investment… is up 40% in 2019 – hitting a high of $10.4B.
- 723 banks and credit unions… serve the marijuana industry. That’s a 48.7% jump over 2018. Everyone is waiting to see what happens when the Senate passes the SAFE Banking Act.
- Super C-stores get 25 Times the traffic… as recreational marijuana stores.
- $647… is the average annual spend of a cannabis user.
- Top 5 reasons patients use cannabis: 63% = Pain, 13% = Anxiety, 9% = Sleep, 5% = Depression, and 2% = PTSD.
Next Week: Lean long, use small positions, and pray.
Who buys anything at all time highs? Answer: trading firms, big banks, and fund managers that have a lot of catching-up to do before year-end. The trading firms and big banks are doing it to hedge their risk and make money on the bid-ask spread. The fund managers are buying the popular names in panic and in search of ‘alpha’. Everyone on the planet knows that we’re setting ourselves up for an explosive (3-Sigma move) higher or lower. Why – because bubbles always end the same way. Currently, nobody cares about earnings – it’s all about our FED’s overnight REPO activity. Looking at the graph above, the year-over-year the top performers have been technology and utilities, and the bottom performers have been energy and retail (no surprise there). The bonds are beginning to get ‘rocked’ as 10-year rates approach 2%. As rates move over 2%, watch the interest sensitive stocks such as the home builders (XHB) and utilities (XLU) begin to experience a correction. As I look at the chart, it’s hard for me to believe that the S&P is up 25% YTD with slowing growth, a yield curve inversion, trade wars, and lower earnings per share. But as long as our FED keeps dolling out money – nobody cares.
It makes me sick to my stomach that fundamentals are out the window, and we’re probably going to rally into the New Year. We've got the momentum, the Fed rate cuts, earnings are out of the way, and seasonally we are in the most positive part of the year. Even as I dislike the idea, we're probably going higher through February. With that, the biggest and most widely held tech stocks will probably lead the way, even if they had horrible earnings or guidance. Watch: AAPL, AMZN, INTC and CSCO.
A couple quick thoughts for next week:
- XLV (Healthcare) – to me, the upside looks limited – I like bearish positions,
- XHB (Homebuilders) and XLU (Utilities) – are ripe for a push lower, and
- AMZN (Amazon) – looks positioned for a push higher into the holidays.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $3.81 / in @ $3.07)
- First Majestic Silver (AG = $9.80 / in @ 10.50)
- Canopy Growth Corp (CGC = $21.46 / in @ $22.17),
- DRD Gold (DGD = $4.34 / in @ $4.20),
- GBTC Bitcoin (GBTC = $10.88 / in @ $10.01),
- Pan American Silver (PAAS = $17.54 / in @ 18.00)
Crypto:
- Bitcoin (BTC = $9,100)
- Ethereum (ETH = $190)
- Bitcoin Cash (BCH = $295)
Options:
- RIOT ($1.52):
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:
- Would you like some fries with that black swan? Shake Shack (SHAK) dropped the equivalent of 5.8 standard deviations last week because earnings weren’t quite as tasty as their hamburgers. On the other hand, every SHAK that I’ve ever seen is always busy, and their fries are a great treat after a trip to the cardiologist. Even better, Wall Street analysts are hating SHAK. That, combined with the lower price, is why a contrarian trader might consider a bullish trade on SHAK. SHAK’s implied volatility drop suggests long debit spreads are the trade of choice. If you are bullish on SHAK, the long call vertical that’s long the $66 Call and short the $68 Call in the Dec monthly expiration is a bullish strategy that has a 60% 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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R.F. Culbertson
Until next week – be safe.
R.F. Culbertson
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