This Week in Barrons: 3-29-2020:
Discuss with civility and grace…
Through the years, many people have been generous to me. Doctors took the time to understand my various pains. Friends seemed to appear just in the nick of time. The most important gifts that I’ve received have involved time, effort and caring. Money isn’t solving the world’s current #1 issue: COVID-19. In today’s world of disconnection and fear, our responses need to be cloaked in generosity and understanding. In fact, the solution may require just showing up and communicating.
When previous national disasters hit – we were drawn together out of a sense of community and sharing. But this time it’s different. We are told NOT to come together, and to remain isolated. And from the fears associated with job loss and catching the disease – there’s no real hope to grab onto. Changes will start to happen quickly and abruptly. Businesses that survive are going to question why they need big offices with large rents. People will begin to wash their hands more frequently, and consume more natural virus killers such as: vitamin D3, vitamin C, melatonin and olive leaf. But our main issue is going to be how we communicate while living in a ‘solitary confinement’ type of environment.
The issue with online communication is that it’s too easy to steal the attention. It’s easy to interrupt hundreds of people, costs you very little, but inconveniences everyone else a lot. It’s akin to standing up in the audience of a Broadway play and starting to sell insurance. You wouldn’t do that in real life – so don’t do it with your keyboard. Be nice, and ask for permission. You can create rich and layered experiences online using dialogue, but you need to be patient. Online allows more than one person to ‘talk’ at the same time. In the real world, we tend to take turns. In the real world, we have our most meaningful conversations ‘off the record’ because our words disappear right after we say them. Unfortunately, talking anonymously online isn’t really possible. When you’re physical disconnected, try to be more careful and non-barbaric. Make the effort to try to transform your communication into something more civil and generous.
The event we are all experiencing is by definition – a random outlier. A random outlier / black swan event defies predictability. There are no experts in random outlier events. We are not witnessing a learning experience. There are no repeatable lessons other than continued civility, grace and active discussion with those around you – especially the ones you care for.
The Market: … If I die – do I still get my government check?
Over a month ago, I said that we’d see our government: buy stocks, buy corporate bonds, and potentially put the market on pause as was done after 9/11. For the life of me, I can’t figure out why our markets have remained open if our government is at all concerned about its citizens retirement accounts, 401K’s, and IRA’s. If they were really worried about the ‘average Joe’, wouldn’t they just put a place-holder on the market, and shut it down until it seemed like the coast was clear? Is it really possible that those low volume up days we’ve been getting for years have been mom ‘n pop buying, and those big down days were ‘the boyz’ selling short? Is it possible our government didn’t shut down the markets because the Goldmans and JPMs of the world were net short until last week’s uptick? Think about it, there was no counter-trend rally to sell into for the past 7 weeks – only one-day wonders. Historically, that’s almost impossible. This market seems too choreographed. It’s almost like they’re crashing the market on purpose. Don't get me wrong, the market never deserved to be where it was, but letting it crash because the big banks are shorting it seems a bit criminal to me. If I’m right, that means we’ve got a lot lower to go.
Info Bits: 2 Trillion? 6 Trillion? It's all Chuck-E-Cheese tokens to me:
- In this corner, Dr. Anthony Fauci: This administration has barred Dr. Fauci, the director of the National Institute of Allergy and Infectious Diseases, from speaking publicly about the coronavirus without approval – says Fauci. The move appears aimed at preventing the kind of conflicting statements that have plagued this administration’s virus response team. Dr. Fauci: you can’t fix stupid.
- 3.3m signed up for unemployment last week: The previous record was 695,000, in 1982. Many part-time and low-wage workers don’t even qualify to sign-up. Estimates are for 14m people to be unemployed by this summer. Welcome to a long, hot summer.
- The IMF sees a coronavirus recession in 2020… but a recovery in 2021.
- Cord-Cutting… is increasing as one of the last reasons to keep paying $100 / mo. for cable was live sports. Oh well, there’s your sign.
- Online grocery: By March 13th, 1/3 of all U.S. shoppers had purchased groceries online – an increase of 50% from the week before.
- SoftBank is planning to sell up to $41B in assets to shore up its balance sheet. Selling into a market downturn, and acknowledging a need for cash – are 2 major signs of weakness SoftBank.
- Who’s Firing: The restaurant industry (15.6m), the hospitality industry (4m), and the airline industry (750,000).
- Who’s Pivoting: American Apparel, and Hanes are making face masks, while GM, Ford, and Tesla are producing ventilators
- Who’s Hiring: Dollar General (50,000), Papa John’s (20,000), CVS Health (50,000), Walmart (150,000), Albertsons (30,000), Amazon (100,00), Kroger, Trader Joe's, and Instacart (300,000).
- Up 1000%... is how much ammunition sales in Colorado have risen over the past month. People are stockpiling guns, ammo and toilet paper.
- Compass… a real-estate brokerage startup has seen an over 60% decline in real estate showings, and is planning on a 6-month, 50% decline in revenue.
- GAP pulled their full year forecast… and said it would draw down its entire $500m line-of-credit.
- The Cheesecake Factory has laid-off… 41,000 hourly restaurant employees, stopped paying their rent, and cut pay for all corporate employees by 10 to 20%.
- Toyota Motor is seeking a… $9.2B line-of-credit from its bankers.
- Hertz is in talks… to raise cash. None of the above even remotely sound like an economy that’s on sound footing.
- U.S. consumer sentiment fell to a 3-year low… March’s decline was the fourth-largest in almost 50 years.
- Negative Interest Rates are here… as the 1 and 3-month T-Bills dipped below zero this past week as our FED & investors showed a flight to quality.
Crypto Bytes:
- As the COVID-19 pandemic disrupts the global economy… the U.S. actually thought about using a “digital dollar” to provide direct cash payments to American families. Catherine Coley, CEO of Binance wrote: “In the interest of speed and safety, why not send the stimulus in the form of stablecoins as a means to verify the transfer of assets?”
- Fighting the coronavirus pandemic is like fighting a war… and one of the casualties may be the U.S. dollar’s long-standing dominance as the global reserve currency. To combat record levels of unemployment, countries are preparing stimulus packages that will stretch already heavily indebted governments. Thus far, inflation is muted in the U.S., despite the FED’s pledge to provide unlimited liquidity to the financial system. In time, this will drive asset prices higher. What the world looks like after these economic machinations is up for debate. If the dollar loses dominance, that doesn’t mean bitcoin will take its place. Gold and oil are safe harbor assets along with Bitcoin. “Bitcoin was supposed to be the digital gold,” said Michael Sung, “but its privileged status as a flight to safety is now in question.”
Last Week:
Monday: Our FED unveiled a major expansion of its market supports, and said it will buy unlimited amounts of Treasuries and mortgage securities. This is money printing on a scale the world has never seen. To quote Peter Schiff : “Long-term Treasury yields are falling despite the Fed's stated policy to destroy their value with massive inflation – because no private investor will own any into maturity.“ The Fed is about to buy the entire Treasury bond market. We are now a banana republic - WITHOUT THE BANANAS! By point of comparison, the FED will buy more government-backed debt this WEEK than it did during the entire 8 month QE from November 2010 to June 2011. To quote Kashkari: “The FED has gone all in, and we can create unlimited digital money.” It will certainly be interesting to see if all this QE actually halts the market slide. Just to level-set here, our FED “borrows” that money from the taxpayers – you and me. At these levels, I’m liking: H, XOM, GS, USO, XLE, and CVX.
Tuesday: Yesterday I took some GS @ $135. Why? Because there's no way they let the biggest bankster NOT get something out of this bailout. This morning GS gapped up $10 a share – so I sold it at the open. Today all of the sectors are in the green – with the recent laggards leading the way higher. Energy was up more than 16%, while financials and industrials were both up more than 12%. Bear market rallies are always the fiercest rallies, so nobody can accurately determine what today means. We still haven't had more than one up day in a row since Feb. 12th – so tomorrow’s action is big.
Wednesday: The virus is still spreading and killing, and the shut downs continue to roll out. Will the bailout bill be enough to halt the slide? Most think not. I will be doing some selling today – since this is the first time in 7 weeks that we've had consecutive up days. Never in the history of the markets, have we given the FED the power to conjure up all the money it wants, buy anything it wants, in an economy facing crippling issues from broken supply chains to citizen shut-in's. I don’t know who wins – but this virus ain’t over. Oh, and for the first time since February 12th, the S&P has closed higher two sessions in a row. One big caveat, we gave it up into the close and the Nasdaq finished lower on the day. Boeing closed up 24% and accounted for more than ⅓ of the 2.39% increase in the Dow. I guess we know what stock our FED is buying. We’ve gone from Trillion-dollar market caps to Trillion-dollar bailouts in one freakin’ month.
Thursday: News flash, there were 3.3m new jobless claims filed last week. That's the biggest surge in history – yet the futures are rising on the news. We’re putting in a green morning because of 3 factors: (a) Quarter-end rebalancing: due to the market’s 30% haircut causing fund managers to buy/sell more stocks to keep their ratios intact. (b) FOMO: the fear of missing out on calling “the bottom”. (c) And then we have unlimited FED money manipulating the market. The total market is valued at about $34T, so it’s hard to think that the FEDs can buy it all, but they certainly have leverage. They could just buy the most heavily weighted stocks in the indexes, and move things around that way. But I think that there’s more money to be made on the short side – because of the lack of commerce.
Friday: Yesterday the bulls were screaming that the bear is dead, and a new bull market is upon us. Really? With a nation on lockdown, no commerce, and with no end in sight? Because the quarter has 2 trading days remaining, we may see the market fade today, and then bounce Monday and Tuesday in some bizarre form of window dressing for month/quarter-end. Until we see our coronavirus cases go down instead of up, we have a heck-of-a headwind in front of us. My opinion is that this market is heading lower after we get past the first few days of the new month.
The S&P 500 closed 10% higher on the week, but today we gave up the majority of yesterday’s gains. The market was especially weak late in the day, giving up 3% in the final 30 minutes. Is it still a new bull market after today’s selling – because this week sure felt like a bear market rally. The $2T stimulus package was signed today and there was a modest sell the news vibe. Energy was the weakest sector down almost 7% on the day but it still gained 22% on the week.
Weed:
- Most Chicago dispensaries have temporarily closed… with some claiming that it was impossible to serve the public while maintaining the levels of hygiene and distance necessary to prevent transmission.
- Nevada has closed all cannabis storefronts… shifting all operations to delivery.
- MJ stocks have been ripping your frontal cortex off… since states like: California, Colorado, andOregon declared cannabis “essential businesses”.
- Mexico’s MJ legalization could be ‘quite significant’ for the US: Mexico is poised to become the world’s most-populous country with legal marijuana and hemp next month – and Mexico is setting nationwide regulations to cover all forms of cannabis irrespective of the THC content. Some of Mexico’s largest retail chains are interested in carrying CBD beverages and topicals.
Next Week: Is it all Sunshine and Rainbows from here?
Did we put in ‘THE’ bottom? We put in ‘A’ bottom. Volatility is certainly here for the foreseeable future and that normally means more pops and drops. Both the volatility and the bonds are telling us that we are far from seeing sell-side activity come to a close. Why? Due to (among other things) a general lack of clarity surrounding the economy moving forward. The 3-day bull-trap was fund rebalancing, a technical correction, and FOMO on the part of hopeful bulls. This bear is not over, despite our FED pimping trillions in "whatever it takes" money.
We have a bail-out bill with absolutely zero clarity of what’s going on beneath the surface or what this economy will look like on the other-side. We are moving into areas of bail-outs – without seeing or knowing what the damage will ultimately be. This leads me to believe that we are going to see more sell-side activity going forward, simply due to the uncertainty. Industries will be completely destroyed, and we are going to see bankruptcies because companies are currently bleeding cash. NY and Chicago are effectively shut down, and they are the financial hubs of the world. Volatility is everywhere, and the marketplace is still doing a horrific job of pricing future risk. This allows me to say – we are far from over. We’re looking at poor earnings, a bond market signaling trouble, people shut-in, commerce shut-down, and somehow I'm supposed to believe we saw ‘THE’ bottom. Nope, we saw an oversold, rebalancing, technical bounce that people would like to trade because it offers hopium. But as you see by the above chart, a general lack of liquidity (on even Walmart) is not a good sign.
- We had a “rip your face off rally” = check. Rip your face off rallies are hallmarks of volatility and of bear markets. These happen in order to give ‘long only’ traders hope. All I heard was that this rally was one of the greatest since: The Great Depression of the 1930’s = ouch.
- A Jobs Report is coming next Friday. I’m guessing that some of the data will be either hidden from us or intentionally mis-written. This follows the lack of forward clarity. I think the odds are 50/50 that the FED does NOT release the employment data because it would scare J.Q. Public. This intentional lack of clarity will perpetuate more volatility. The damage that is being done with everything being closed – will not be fully recognized for at least 6 to 9 months.
- The FED goes ‘all in’ and spends $500B in one WEEK. As the chart shows, the Bond market exploded higher starting in Mid-February. You expect me to believe that after a week of virtual whip-saw volatility – the bond market remained virtually FLAT on the week? It’s acting as if it’s being manipulated. In fact, our FED bought so much last week that they actually drove yields negative on the 1 and 3-month offerings.
- US Debt goes negative! We now have negative interest rates in the U.S. on short-duration instruments. This correlates to the bond market being dead.
- Bonds are barely trading and trading barely. The volume in the Bond pits is barely 10% of what it was a week ago. This is exactly the path the Bank of Japan took when it caused the Japanese bond market to seize-up. The issue is – nobody is willing to step in on the other side of the trade from the government. Obviously, anybody who can print as much money as they want at any time is your partner NOT you competition. The issue here is that people trust the bond market. With our FED destroying it, financials will take the brunt of that hit.
- The VIX and VVIX are screaming sustained volatility / insanity. The VIX is behaving exactly like back in 2008. The VVIX (the volatility of the volatility index) has sustained itself above 150 for weeks now. This is when being above the 110 level causes one to say: “Danger Will Robinson – Danger.” Professional traders continue to buy volatility – so they’re seeing increased downside risk.
- Liquidity and Volume are drying up = Fragile market. Did we see the bottom in the SPX down at 2174? We will at minimum need to test that level. Last Thursday’s move higher came on significantly less volume than average. When you’re in the middle of a crash and rally situation with less than average volume - this tells me that something is broken. (a) The VVIX points to something being wrong. (b) The lack of liquidity points to something being wrong. And (c) the options volume and super-wide bid-ask spreads point to something being wrong.
I would advise anyone ONLY to trade the majors: AAPL / AMZN / MSFT / SPY / DIA / QQQ / IWM – anywhere there is massive liquidity is where the market making firms are concentrating their efforts. This does not bode well for a sell-off because no one will be on the ‘bid’ side of the trade. I’m thinking that the FED will wait for summer to initiate their stock buying positions.
- Onto the SPX: Last week’s expected move was 228 points. With all of the volatility and manipulation that’s going on, we were within 6 points of making it inside the expected move. That means that 10 out of the last 11 weeks we have seen moves OUTSIDE the expected move; therefore, a continuation of an inefficient market. Next week’s expected move is 205 points. We just moved ‘outside’ the expected move for 10 out of the last 11 weeks, and our experts are predicting a contraction in volatility. Somebody must know something we don’t.
- Fade the Bounces:
o In Microsoft (MSFT), buy the April monthly, In/Out Put spread = Buy the $152.50 Put and Sell the $150 Put. Basically you Buy the ‘in the money’ Put, and Sell the slightly ‘out of the money’ Put – believing that the stock will finish below the ‘out of the money’ Put.
o In Boeing (BA), fade it. BA just went from $89 to $185 in a week = Buy the $165 Put and Sell the $160 Put in the April monthlies.
o For Google (GOOG), think about the advertising market, and the amount of money that is currently being CUT from advertising budgets because NOBODY is buying anything. For March your ad spends were already committed, but I’m seeing a severe pullback in advertising spends for April and the months going forward. Corporations are practicing: CUT when you CAN – NOT when you HAVE TO.
o The SHORTS are coming for tech – specifically: MSFT & GOOG.
This will NOT be sunshine and rainbows going forward. There is zero clarity for jobs, cash-flows, earnings, and our underlying economy. Our $2T bailout is a tourniquet on a limb that is To-Be-Determined – and that’s no way to treat a patient.
Tips:
Sell Premium to get long stocks: is a trick professional traders use. Say you would like to be long the energy stocks that are in the XLE (the energy ETF). Instead of just buying the XLE, you could sell a Put option a lot lower than where the XLE currently trades. If the XLE bounces you win, get paid, and can use those proceeds to buy the XLE. If the XLE falls through your Put, you will then take possession of the stock at the strike price – MINUS what you were paid on the sale of the option (aka – a much cheaper price due to the high marketplace volatility).
Bottom line, no one knows what's going to happen over the next several weeks because nothing like this has ever happened before. Not the: pandemic panic, our FED going ballistic, shutting down every country’s economy, our 3-month T-bill going negative – none of it. To beat the dead horse, I'd buy gold and prescious metal mining stocks like KL and PAAS. Other than that, I'm more inclined to lean short here. It's an insane time folks, try your best to stay safe, both health wise and market wise.
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $1.03 / in @ $3.07),
- First Majestic Silver (AG = $6.82 / in @ 10.50),
- Canopy Growth Corp (CGC = $14.59 / in @ $22.17),
- DRD Gold (DRD = $4.91 / in @ $4.20),
- GBTC Bitcoin (GBTC = $7.30 / in @ $10.01),
- KL Gold (KL = $31.99 / in @ 28.50),
- NVAX (NVAX = $13.05 / in @ $7.24),
- Pan American Silver (PAAS = $15.41 / in @ $18.00),
- Real Estate ETF (XLRE = $31.21 / in @ $39.05),
- Utility Index (XLU = $55.68 / in @ $67.10)
- SPY = sold and re-bought the July 2020 Strangle = $160 Put / $305 Call
Crypto:
- Bitcoin (BTC = $6,150),
- Ethereum (ETH = $130),
- Bitcoin Cash (BCH = $215)
Thoughts:
ENERGY = XOP There are fewer cars on the road, and air travel is down 90%. That has helped push the price of gasoline futures to their lowest level in over 20 years a couple days ago. XOP (the ETF that holds oil and gas exploration and production stocks) is also near its lowest price. Given markets are forward looking, it would seem that the economic slowdown from the coronavirus is already priced in, and as progress is made to contain it and get the economy rolling again, we might be seeing the bottom in energy. Even if we don’t, the single-digit price of XOP means there’s not a whole lot of downside risk. Plus, the implied volatility is still high enough in XOP to reward contrarian bulls. If you are bullish on XOP, the Short $6 Put in the April monthly expiration is a bullish strategy that has an 85% probability of 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
