This Week in Barrons: 3-8-2020:
When can I BTFD (Buy The F#$@#g Dip)?
Is this how the handshake era ends? Clearly, in the future (Star Trek, Star Wars, and SpaceBalls) – no one shakes hands. In fact, due to today’s video calls and active chat sessions the handshake at the end of a meeting has somewhat given way to the informal Vulcan salute or the simple smile and wave. I always wondered how the transition would be handled, and the coronavirus is as good an explanation as any.
Often when you change one element, there are 50 other ‘dominos’ right behind it ready to fall. Washington D.C. dislikes change, but knows that people vote with their pocketbooks; therefore, economically everything is on the table including: rate cuts, tax cuts, trade concessions, repos, QE8, free money, and unbelievable political rhetoric. If D.C. could ever work together to find a virus cure – it would be a miracle. Unfortunately, they have difficulty ordering a pizza. While our talking heads were busy screaming about the long lines at Costco, Suze Orman uttered the quote of the week: “Investors should rejoice about the sell-off, because fear and uncertainty lead to opportunity. They are 100% correlated.” The only issue is when will the buyers show up – other than our own government disguised as the Bank of Japan and the Swiss National Bank.
Per HL: “This is the first global crisis of the social media age.” What we’ve learned from social media is: a) news spreads quickly, b) fake news spreads even faster, and c) any debate on our health and well-being descends into a vicious my-team versus your-team battle. FDR said: “The only thing we have to fear – is fear itself.” And that was in an era when the only information came from a morning newspaper, edited and fact-checked by professionals, and written by journalists who weren’t motivated by likes, retweets, and pay-per-clicks.
So when can I BTFD? Well, we can’t trust the data out of China because they’re still panicking over losing control of global manufacturing. We know that at some point our FED is going to unleash holy heck on everything financial including buying individual stocks via hidden proxies. But the FED’s magic is completely dependent upon the coronavirus. If the virus continues to spread, and we continue to see school closures, business shut-downs, conference & travel cancellations – our FED’s abilities are slim and none. My advice is to use the spread of the virus as your indicator for BTFD. I think it will be at least another 2+ weeks before we can nibble on the long side again, but currently watch the miners, GDX, and GDXJ.
The Market: …
We proved on Friday that even a fake jobs report can’t save this market. Our government attempted to tell us that the U.S. created 273k jobs in February. Well, the birth/death model (fake jobs) was 143k of that number. So we really only created 130k jobs which was well below the estimates and leaning toward contraction. It seems that the virus continues to "Trump" any (fake) economic numbers.
We got a surprise rate cut this week to help deal with the coronavirus. It will be no surprise to anyone that interest rates are going to zero. The market is now pricing in a 100% probability of another 50 bps rate cut at the March 18th FED meeting … and a 33% probability of us getting rates to ZERO before year-end. I can only assume that all of the tariffs, trade wars, and isolationist policies are working as planned (wink-wink). While our fearless leaders were busy plotting our economic strategy, Exxon broke below its 2008 lows and is looking more like Enron than Exxon.
Just for grins, there is a chart of the bonds above. Bonds used to be something you put in the family safe to look at 50 years from now – not something that moves like Tesla or a pot stock. “Let’s buy and trade some bonds for growth,” has NEVER been said before. With bonds being traded for growth, it makes sense that the volatility index (VIX) is at 50 – 200% above its 50-day moving average. Those are 2008 financial crisis panic numbers. I think I’m going to put on my mask and go out panic room shopping. #ThanksTrump
Info Bits:
- 319 million people… work in the travel industry – creating $5.7T in revenue annually. The coronavirus is their worst crisis since 9/11. Their only revenue in March will be processing cancellations.
- "Corona is coming ashore”… was the ill-timed Corona Hard-Seltzer ad released last week by Corona Beer. You may want to re-think that tag line.
- Budweiser is losing ‘share of throat’: Anheuser Busch (the world's largest brewer) saw its profits plummet 75% last quarter. They’re losing market share to Boston Beer’s Truly and Mark Anthony’s White Claw – both too big to acquire.
- Robinhood… suffered a multi-day trading outage last week. They are offering subscribers 3 months of free trading, but that's insufficient to those who missed out on a rebounding stock market. One could say, you get what you pay for.
- Costco traded higher on panic buying… of Clorox and Lysol.
- Former GE CEO Jack Welch… passed. His effect on American capitalism was profound.
- Goldman Sachs’ chief economist Jan Hatzius said… “The coronavirus epidemic will cause global economies to shrink substantially.”
- #1 productivity rule when working from home… change out of your PJ’s.
- Anthony Levandowski … former head of Uber's self-driving technology filed for bankruptcy protection last week when a court ruled for Google and told Anthony to pay $179m for his theft of Waymo’s self-driving code set.
- Google has moved all job interviews… online for the foreseeable future.
- Microsoft is encouraging Seattle and Bay Area employees… to work from home for the next 2+ weeks to reduce their risk of catching the coronavirus.
- "No Time to Die" (the latest Bond film) … pushed its release to November.
- United Airlines is cutting domestic service… because ticket sales are eroding across all of their destination sites.
- The SXSW Conference was cancelled … but the Tokyo Olympics are still on – for now.
- Boeing, Boeing… gone: Boeing closed at its lowest level in 3 years. If you thought 4 years of backlogged orders couldn’t disappear overnight – think again.
- Rumor Mill: Mike Bloomberg didn't want to be President, but by running for President, he could spend $500m in attack ads against Trump and help turn the tide toward Biden. If nominated, Biden will choose either Hillary or Michelle Obama as VP. If he wins, he will step down within a year for health reasons.
Crypto Bytes:
- IBM’s cloud service is secure… enough to attract crypto custodians. Onchain Custodian’s hardware-based vault is hosted entirely on IBM’s public cloud.
- Who you gonna call… The Supreme Court of India has ruled in favor of crypto trading. The court overturned the RBI’s ban on domestic financial institutions providing banking services to crypto exchanges.
- EY, ConsenSys and Microsoft… are actively promoting a solution that uses the public Ethereum blockchain as a coordination & resource planning tool rather than just for large-scale financial transactions.
- A new Power Play: A New York power plant has been using some of its own electricity to mine bitcoin. Greenridge Generation, a natural gas power plant, said it has successfully installed 7,000 Bitcoin mining rigs that earn a daily average of $50,000 in BTC.
- BitGo is doing it again… by becoming a lender of bitcoin and other cryptocurrencies to big investors. They’ve already racked up about $150m in open loans for their new service.
- INX, the largest crypto-IPO… has entered the home stretch for its $130m initial public offering. The cryptocurrency and security token exchange startup is targeting an April IPO launch date.
- Jimmy Kimmel said: “So we learned how to pronounce ‘Buttigieg’ for nothing.”
Last Week:
Monday: Last week, the world was ending, and today it's raining silver dollars. The DOW is screaming higher by 5% (1294 points), and it’s gained back 1/3 of the 14% loss from its all-time high on February 12th.
Tuesday: Energy is the worst sector (off 23% YTD), but a close runner-up is the financial sector – off 12% YTD. The regional banks are down 15% in part by lower interest rates (i.e. banks make less money as interest rates decline). If today’s 50 basis point cut doesn’t cure the coronavirus, it’s definitely NOT curing the financial flu. The 10-Year Treasury yield made another record low today closing at 1.01%. We are in uncharted waters for our economy, and having our leadership make short-term / election-based decisions is not the solution.
Wednesday: Today’s the Biden Bounce – where volatility continued to the upside. We’ve now had 4 alternating days in a row with big moves in the S&Ps. Friday was down 1%, Monday up 5%, Tuesday down 3%, and today is up 4%. Furthermore, it was the third day in the last 5 with a plus or minus 4% move. Grab your Dramamine because the choppy waters will continue. Health Care stocks are leading the way today closing up 5.84% - their single biggest day in 12 years. This was a result of Joe Biden appearing more accommodating to our existing healthcare solutions. Despite today’s rip higher, the 10yr Treasury yield closed firmly below 1% - for the first time ever.
Thursday: Wall street is trying to tell us that all of this action is just temporary – I’m not convinced. No one has any natural immunity to the coronavirus; therefore, it's going to keep infecting people. Isolation is the only cure, but productivity will suffer. The big question: “What should I do with my 401k?” Before I answer, I constantly ask myself: (a) Will a FED rate cut fix this? (b) Is the 10-Year below 1% healthy? And (c) Is the coronavirus going away in a few months? Many 401k’s can only be adjusted quarterly. Because of that, I'd look for a substantial bounce before the end of March that would allow you to scale out of equities and into a money market fund – the closest thing to cash in a 401k. The other place I’m personally hiding is gold. If you haven’t heard of: HR 5404 – Google it. XLF (the Financial ETF) and KRE (the Regional Bank ETF) both closed below Friday’s lows. The 10-Year Treasury yield is now at 0.93%. Sequoia Capital (a major VC firm) just issued a memo to its portfolio companies referring to the economic slow-down caused by coronavirus as: The Black Swan of 2020.
Friday: As I listen to rosy-eyed CNBC, why doesn’t someone ask: “If things are so great, why did our FED do $107B in Repos on Wednesday, and another $72B in Repos on Thursday? If things are so great, why not stop the Repo's for a week and see how things go?” Unlike these TV experts, I don't believe we know the extent of what this virus is going to do. What happens when we get 1,000 new cases in NYC? What happens when everybody closes schools? Does everyone have the ability to stay home from work and sit with their kids? Some positive outcomes could be: (a) firms bringing their own manufacturing supply chains back to the US, (b) lower interest rates will boost housing and refi's, and (c) lower fuel costs will help the consumer. FYI: I’m still liking the miners, GDX and GDXJ. Oil futures dropped 9% today which was the commodity’s worst day since November 2014. Oil is now down 34% from its peak. And today we found out that OPEC failed to reach a production cut agreement – so everyone is going to produce until they drop – which will drive prices even lower (hurting our own shale-oil efforts). Also, look at gold (GLD) – because it has had its best week in 11 years.
Weed:
- In Michigan… a tight supply of wholesale recreational marijuana is leading to sharply higher prices as producers struggle to keep pace with growing demand.
- Canopy Growth… is gearing up to launch its BioSteel CBD sport drinks through a partnership with Vitamin Shoppe giving it the greatest visibility in the U.S.
- Green Growth Brands… (the owner of the largest chain of CBD retail kiosks in malls) is selling that business to focus on running its marijuana dispensaries.
- Mexican lawmakers… are a step closer to legalizing marijuana and hemp. Three separate Senate panels approved legislation that would legalize all forms of cannabis, and the bill is expected to pass.
- More investors and investment banks… have started seeking out cash-strapped marijuana companies with the aim of pumping money into them to provide a financial lifeline. Normally a sign that MJ legalization is eminent.
But, the big news this week is that the FDA (Food and Drug Administration) issued an update to Congress on the status of their rulemaking for CBD. While the process remains ongoing, the agency announced that it is actively exploring pathways to allow for the marketing of cannabidiol (CBD) as a dietary supplement and is developing enforcement discretion guidance. The report doesn’t offer much in the way of policy updates, but does appear to be showing the FDA listening to public opinion – providing a pathway for making CBD a dietary supplement. The commissioner said: “Given the widespread availability and interest in CBD, it would be a fool’s game to ban it.”
There are a number of questions that the FDA is considering:
- What happens if you use CBD daily for sustained periods of time?
- How do different methods of intake affect outcomes (e.g. oral vs vape)?
- What is the effect of CBD on the developing brain / unborn child?
While CBD is not currently allowed to be marketed as a dietary supplement, FDA wrote that it: “Has the authority to remove this exclusion through rulemaking. We recognize the high level of interest in dietary supplements as a potential pathway for products containing CBD, and we are actively evaluating potential rulemaking to allow CBD in dietary supplements.”
Next Week: Make market volatility your friend.
The markets are infected with an extreme case of volatility. Active investing is back, and suddenly investors will need to become comfortable with their own risk in order to survive. The gravity points on the SPX (2983, 2911, 2842, 2811, 2731, 2682, 2626, and 2575) give a huge leg-up on how to manage this market volatility.
- Watch the XLF? As the XLF broke under $26.50 – it took the S&Ps right down with it and opened a huge hole under it’s current position (about $25.50).
- Da BONDS! The graph above showing the U.S. Treasuries (/ZN) could easily be mistaken for Tesla. Interest rates are indeed crashing – refer to the TNX graph above. I’ve NEVER seen the bonds behave this way, and that’s not good.
- Get ready for BAILOUTS… for all the airlines and travel related companies. We haven’t seen sector devastation like this since 9/11. Do NOT short the airlines in this position, but instead prepare for the bounce.
- Get ready for CONSOLIDATION… in the Energy and Oil & Gas sectors. XOP is down 45% YTD – and reeks of needing mass consolidation. With OPEC not passing any production cuts, they’re telling the world that they will flood the world with oil Some estimates show oil falling from $45 per barrel to $17 per barrel, and pump prices moving into the cents per gallon. Maybe there’s a bounce to be traded here, but realize you’ll be catching a falling knife for some time to come.
o If you want to play the bounce, sell ‘naked puts’ and at least give yourself a better price on the trade.
- What’s left to short? Casino stocks are shortable. Governments won’t step in due to the moral hazard surrounding the space. There’s room to the downside – especially if they’re closed for any period of time. Don’t short them on Monday, because I’m seeing a bounce in the cards, and then a fade.
- Where’s the bottom? There’s something wrong with this picture? I’m slightly bothered by where the S&Ps happen to be right now.
o The VIX / VVIX… are high and could be bottoming, BUT the VVIX is @ 127 which tells me that professional traders are still buying volatility and there’s more pain to come
o More Bonds: Professional traders are diving into buying the bonds because they’re in a mad search for YIELD. Bonds are now algo driven – being traded like TSLA or AMD with much broader ramifications.
o The Volatility Futures… are more inverted than they were last week. This would point to further downside in the S&Ps.
o Gold… continues to drift higher. As long as it tracks higher – the ‘risk off’ trade is ON and there’s a reason to be nervous.
o The XLF: With the financials being under $26.50 (around $25.50), it opens the door to a move lower.
o Therefore… With the XLF pointing lower / Gold moving higher / the Volatility futures being inverted / Bonds screaming higher / and the VVIX moving higher – the markets are pointing us toward the downside.
- The FED – is intent on saving the world, but we’re at the inflection point we’ve been waiting on for YEARS! Nobody was surprised by the rate cut they did – we were just surprised by the timing. This marketplace is on the verge of turning their backs on the FED / Central Banksters. The evidence of that was when our own FED cut rates, and markets sold off anyway. The FED will begin QE and will begin to buy stocks – which will only cause more fear in the marketplace as we all realize that the FED is political and no longer has our backs.
Tips: Still liking the: ‘Bounce and Fade’ for this week as well.
Fair Warning: Last week’s expected move on the SPX was $182.29, and next week’s is = $161.94. I’m seeing a very mild contraction of volatility from last week, but still showing over a $300 (from top to bottom) move in the SPX predicted for the week. Expect another week of volatility – the 3rd in a row. WARNING: if the SPY cracks below 280 – expect program selling to start all the way down to the 230 level on the SPY.
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $1.17 / in @ $3.07),
- First Majestic Silver (AG = $7.92 / in @ 10.50),
- Canopy Growth Corp (CGC = $15.28 / in @ $22.17),
- DRD Gold (DRD = $7.40 / in @ $4.20),
- GBTC Bitcoin (GBTC = $10.58 / in @ $10.01),
- NVAX (NVAX = $12.48 / in @ $7.24),
- Pan American Silver (PAAS = $22.09 / in @ $18.00),
- Real Estate ETF (XLRE = $38.50 / in @ $39.05),
- Utility Index (XLU = $67.11 / in @ $67.10)
Crypto:
- Bitcoin (BTC = $8,450),
- Ethereum (ETH = $215),
- Bitcoin Cash (BCH = $295)
Thoughts: Apple = AAPL… For a trillion dollar company, AAPL sure is volatile. The past couple of weeks have given AAPL some of its biggest price swings in years. That’s a good thing for the active trader, but not so great for the investor who holds AAPL hoping to return to the days of the non-stop rally. It’s doubtful that the volatility will go away, but there might be a nice mix of up and down days coming up. That’s the nature of mean-reverting volatility. While AAPL’s price swings are still large, its implied volatility is also high. AAPL’s 76% IV rank means option premiums are high enough to create attractive short strategies. If you don’t want to guess AAPL’s direction, but think it might trade in a wide range for the next few weeks, the short iron condor that’s long the $250 Put, short the $255 Put, short the $325 Call and long the $330 Call in the April monthlies is a neutral strategy that collects a credit 1/3 the width of its strikes, and has a 71% 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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