This Week in Barrons: 5-3-2020:
“We live in a world with a million ‘cheap seats’.” … Brene Brown
“We live in a world with a million cheap seats. 99.9% of which are occupied by people who will NEVER dare to step into the arena or put themselves in Harm’s Way. In order to survive, we need to change that.” … Ms. Brene Brown. I was fortunate to be in a virtual audience with Ms. Brene Brown this past week, and I hope I captured a snippet of her thinking below. https://www.ted.com/talks/brene_brown_the_power_of_vulnerability?language=en
LEADERSHIP: People always say that in times of crisis – real leaders step to the forefront. Unfortunately, that’s not true. When we’re scared and in crisis-mode – our neurological first reaction is to put on our armor, batten down the hatches, and begin to play defense = self-protect. History has shown that ‘no armor’, better information, and increased transparency are the success criteria for virtually every crisis, and most leaders do not come equipped with that skillset. In a crisis, successful leaders put themselves in ‘learning-mode’ and commit to ‘getting it right’ rather than playing the ‘blame-n-shame’ game. If you’re in a leadership position and feel like you’re getting the s!@t beat out of you right now – welcome to the arena. My advice is to stay the course and remove your ‘armor’ – because self-preservation only moves you further away from your goal.
GRATITUDE: Many people spend their lives chasing extraordinary moments – when (in fact) they should be noticing the ‘ordinary ones’. As we put in place a ‘new normal’, remember the times we’re living through right now. There is so much to be thankful for. Our minds (like any muscle) require daily exercise, and that includes the ‘gratitude’ muscle. Being thankful is NOT an attitude or a choice – but rather a practice. Practicing being gracious and giving thanks will (in fact) change your life. Factually, exercising the gratitude muscle improves memory and lessens burn-out.
YOUNG LEADERS: The good news is that our young leaders will have to strip off less noise and layers than the older generation. Uncertainty, risk, and emotion all lead to vulnerability – which is a required trait among all successful leaders. There is NO single example of courage that didn’t involve uncertainty, risk or emotional exposure. Therefore, there is no courage without vulnerability. Young leaders need to “stay in the game and not tap out.” They need to better understand courage and failure, and learn how to better evaluate which risks are worth taking.
EMPATHY: Proceeding with empathy, requires us to be extremely explicit and detailed. In times of crisis, you NEVER make a promise that you can’t keep. And if you do say you’re sorry – try and fix what went wrong. This is not the time for participation trophies, but for having the hard conversations. Empathy requires us to shift into a ‘get it done now’ mode.
ARE WE IN A CRISIS? No. Right now we are in a marathon. To use a soccer analogy, right now we are gathering information, settling the ball, reading the field, and deciding on the play. We know that when the water recedes and we begin to get a handle on all of the damage that: (a) there will be far more trauma than what we estimated, and (b) we are able to handle more than we thought. BUT, (b) does not cancel out (a). Our bodies are going want to self-protect, but we must chose transparency, vulnerability, kindness and empathy to get us through these times.
WILL PEOPLE COME DOWN FROM THE CHEAP SEATS? No. Unfortunately, muscle memory is also made from bad behavior and sloppy shooting. We need to practice before a crisis not during one. The good news is that leadership is: observable, teachable, and measurable. The real key is when the water recedes and we see the mess – we need to have decided what type of person we are and where we are positioned “For the credit belongs to the person who’s in the arena… who at best knows the triumph of high achievement, and at worst fails while daring greatly.” … Theodore Roosevelt.
The Market…
What were they thinking? With theaters closing across the nation to curb the spread of coronavirus, Universal Pictures chose to release some of their hottest films to video on demand (VOD) – including Trolls World Tour. In fact, this week Universal put out a statement boasting about how much money they made (over $100m) from bypassing cinemas. AMC Entertainment quickly released a statement strongly criticizing Universal Pictures for the release, and announced that it would no longer be screening any upcoming releases by Universal. Really AMC? So you don’t want to show: Fast & Furious 9, No Time to Die, and Jurassic Park Dominion. AMC, you need Universal’s box office draws more than Universal needs your screens.
How about dem numbers? Our FED succeeded in pushing $2.5T into the markets over the past several weeks, and enlarging their balance sheet to over $12T. After the FED poured ‘gabillions’ of dollars into the market, the S&P retraced exactly 61.8% of its downside move on Wednesday. Under Fibonacci theory – this is where markets run out of gas and head back down, and that’s exactly what we did on Thursday and Friday. Do we retest the previous market lows? That’s up to the FED. It's hard to deal with a market that should be thousands of points lower, but defies gravity because our FED is buying up the nation.
New #1: We have a new #1 stock and it’s Newmont Mining which is 40.4% higher YTD. It’s hard to remember a year when a gold/silver miner was the top performer in the S&P. NEM stole the #1 ranking from Regeneron Pharma after some disappointing drug trial data, but is still up 40% YTD.
InfoBits:
- $3.7 Trillion… is how much the government expects to add to the national debt this year. The previous record deficit was $1.5T in 2010.
- $21.7 Trillion… is the size of the entire (shrinking) U.S. Gross Domestic Product. $25T is the size of our (increasing) National Debt.
- Diamond Offshore Drilling… is the 1st oil company to file for bankruptcy protection.
- Uber plans on laying off another 20%… of its workforce.
- Southwest Airlines… posted its first operating loss in 11 years.
- Jobless rates could hit 20%…. the highest since the Great Depression.
- Elon Musk condemned lockdowns as anti-democratic: “This is not freedom. Give people back their goddamn freedom.” Musk is eager to get his companies and their factories back up and running..
- The Zuck is concerned about easing lockdown measures… because his company Facebook is benefiting greatly from the global lockdown.
- SoftBank is forecasting… a record annual operating loss of $12.6B.
- Lyft is laying off 22% of its workforce: It’s also slashing pay for top execs, board members, and those employees who are staying on.
- Juul Labs is cutting 30% of its staff… as it grapples with falling e-cigarette market share and regulatory crackdowns.
- TikTok has surpassed 2B downloads… and is the first app after Facebook’s apps to break past the 2B downloads figure since January 1, 2014.
- Apple and Google released their exposure notification API… that will create new contact tracing and notification apps on behalf of public health agencies. 60% of Americans refuse to use the system because of privacy concerns.
- 1st Qtr. GDP declined by 4.8%... the biggest drop since the Great Recession. Overall consumption was down 7%.
- Consumer Confidence tumbled to 86.9 from 118.8… and the Richmond FED Report crashed to its lowest level ever.
- 91% of Americans are concerned about their jobs… vs only 71% are worried about their health / contracting the virus.
- 85% of Americans miss frequenting bars and restaurants… 82% miss shopping, and only 52% miss sporting events.
- Consumers are Saving not Spending… consumer spending dropped 7.5% in March (5X the biggest month-to-month decline during the Great Recession) – and savings as a portion of income rose to 13% to a 39 year high.
- 3.8 million people … filed for 1st time unemployment benefits last week – bringing the 6-week total to 30.3 million.
- The FDA today issued an emergency approval… for the antiviral drug Remdesivir as a treatment for patients with Covid-19.
- Elon Musk tweeted that his company’s stock price was too high… sending shares into a free fall and possibly violating his SEC agreement.
Crypto-Bytes:
- Grayscale has purchased nearly half… of the ETH mined in 2020.
- Oil trading below $0… reminded everyone that commodity prices have no floor.
- Bitcoin has posted 7 consecutive daily gains… something that hasn't happened since the price shot up to last year's high of $13,000 in July.
- Bitcoin (BTC) rallied 23% last week… and is now up 21% for the year.
- Bitcoin's third halving is less than 2 weeks away… and has led to a surge in interest and speculation surrounding. Many traders think that the ‘halving event’ will be negligible compared with central bank monetary policies as well as the everyday trading levels on exchanges.
- 11 members of Congress suggested that blockchain… and other distributed technologies could boost liquidity and help distribute federal stimuli during the COVID-19 crisis.
- Andreessen Horowitz has raised $515m… for its second crypto fund. The firm launched an initial $300m crypto-focused fund in 2018.
Last Week:
Monday: Diamond Offshore Drilling (DO) filed for bankruptcy. They operate 15 drilling rigs including 11 semi-submersible platforms and 4 drilling ships. The Saudi / Russia war against US oil is real, and there's going to be more damage coming. The Bank of Japan expanded their stimulus programs, scrapped their limitation on buying government bonds, and ramped up their purchases of corporate debt. Last week, despite the market holding up relatively well, $7B was pulled from stock funds and $126B went into money markets. I like AKTS over $8.75, TGT over $111.20, and HAIN over $28. Tomorrow is the first day of a two-day FED meeting. The 1st meeting day is usually green, and the 2nd day can go either way.
Tuesday: Rumor has it that Mnuchin said that there will be no bailouts for the airlines or oil companies. After that we found out that Consumer Confidence tumbled to 86.9 from 118.8, and the Richmond FED Report crashed to its lowest level ever, but we’re still GREEN - amazing. Earnings mean nothing this quarter and maybe for the full year.
Wednesday: GILD is saying that there is positive data from their latest vaccine trial. Everyone is hoping for a vaccine, but I am not drinking the Kool-Aid. This is the same drug that the Chinese study said "flopped". The first look at 1st Qtr. GDP came in down 4.8%, and consumption was down 7%. Right now, the FED’s balance sheet is on schedule to rise to $12T by next year. Today will be the 6th day in a row where the S&P gaps up over 0.5%. Since 1982, that has only happened once, and that ‘once’ would be TODAY. By the way, yesterday's 5th consecutive gap up of 0.5%, was also a FIRST. I’m looking at grabbing some SLB over 18, and some PTEN over 3.35.
Thursday: The initial jobless claims came in at a staggering 3.8m. Is today a pause day? It will be interesting to see just how low they'll let it go, given we were up so many days in a row. We might need a couple red days to work off the froth. I’m watching: WBT over 5.35, MFC over 13.16, USFD over 22.20, EBIX over 21.85, and MKC over 158.64. March saw the biggest monthly decline ever for the S&P 500, and April is up 12.7% - the best month since January 1987.
Friday: After losing almost 300 DOW points yesterday, today’s DOW is indicated to open down 450. AMZN said yesterday that it’s costing them billions to deal with the coronavirus, and they are down 150 points before the open. You could also blame the market on Trump's mention that he might hike tariffs on China, blaming them for the virus. In normal times, the last day of a month and the first couple of a new month are generally pretty good – as many insurance companies and pension plans add to their positions. Seeing this much red on the Day 1 is a bit odd. Lucky we’re running on FED funds, otherwise we'd be down 12K points.
Weed:
Next Week: Are the Sellers Back?
- The sellers are back, but for different reasons. It’s important to slow down and take careful steps in this chaos. There is no need to run directly into this burning fire. Our FED just finished a $2.5T ‘shock and awe’ campaign that has left all traders weak in the knees. Give this marketplace a little bit of time to come to you. This week we saw oil rebound quite substantially (from $12 to $20/barrel) but the sector itself (XLE and XOP) is getting hammered. We also saw the financials down. I would urge you NOT to BTFD. This is NOT a ‘Vee’ recovery because all we did was retrace exactly to the appropriate Finocchi level. The market will continue to fade at least down to its 50-day and potentially down to retest its previous March lows. Let it come to you.
- Study your Gravity Points: The SPX gravity points are: 2411, 2438, 2466, 2575, 2626, 2682, 2731, 2811, 2842, 2911, and 2983. These are the locations where major trading firms are carrying big risk. Notice the action around 2842 and once we broke thru how quickly we arrived at 2811. Statistically those are the daily anomalies that are working in this marketplace.
- All Central Bankers are NOT created equal. All Central Bankers are NOT all reading from the same playbook – and that could be very dangerous going forward. The ECB’s Christine Lagarde had comments this week that struck fear in the heart of Europeans and directly opposed what we’re hearing from our FED’s Jerome Powell.
- What if our FED’s ‘shock and awe’ fails? Although the rally higher has been FED-fueled, a lot of retail clients were also bottom fishing and there were some stock buybacks. The recovery was at 1/3 the volume of the selloff – so let’s be honest, 3 TIMES as many people wanted out as got back in. Nobody except our FED knows what direction this market is going to move. Currently we are at a dangerous point, so please use ‘defined risk strategies’ so that you are protected to the downside. Remember, ‘shock and awe’ failed in Japan. The people just stopped believing in their own government.
- The data is brutally horrible. 30+m jobs lost and counting. Our country’s GDP is a NEGATIVE almost 5%. This coming Friday we will get an ugly Jobs Report.
- SECTORS: Oil is up and Energy is down: The marketplace is extremely highly correlated, but it’s important to back the sectors that are moving faster and farther than others. Oil itself had a large bid to the upside from $12 to $20 this week, but as oil was ripping higher – the oil services sector went in the tank. Should you get long the XLE and XOP – absolutely not. With the bankruptcy of DO and others this weekend, be patient before getting involved. In fact, I will get re-involved with the XLE when it retests its $22.88 level. That philosophy will be true almost across the board – fyi.
- SECTORS: Is it Tech’s time to collapse? The monsters of tech: FB, AAPL, AMZN, MSFT, GOOGL & NFLX are up 5% on a YTD basis. If the entire market is going to selloff – it’s going to be on the back of technology. I am short: MSFT, INTC and FB, but make no mistake a safer way to play this could be via the IWM. Every time technology sells off – the same caps (IWM) get crucified.
- SECTORS: Short CAT and HD: I’m looking for CAT to retest its $87.50 March low, and as for Home Depot (HD) – I always like shorting the best house in a bad neighborhood. HD is flat on the year and a good case (fundamentally) could be made for HD. However, the home builders sector (XHB) has fallen like a rock (down -22%) – with individual home builders going even lower. Therefore, I like to sell the best house (HD) in a very bad neighborhood (XHB). I’m looking for HD to retest its March low of $140 (down from $218 currently).
- SECTORS: Short Consumer Staples (XLP): Toilet paper and other cleaning products are being restocked as we speak – so the bloom is off the rose here.
- Overall… allow the market to come to you. 2 days of selling means absolutely nothing in the grand scheme of things. Wait until you can feel the fear! I still like: BTC, GOLD, SILVER and the miners … just sayin’
Tips:
Easy come - easy go. We gained a thousand DOW points between last Friday and this Wednesday – then in 2 days we basically gave it all back. Both the S&P and the DOW are above their 50-day moving averages which is still bullish. On Friday's big plunge, the 10-Year Treasury didn't do anything stupid – so no one panicked there. For the most part, all we did was tread water this week. My feeling is that we fade some more, and test those 50-day moving averages. If they hold, then the FED will probably push us back up again; otherwise we could see considerable downside and a retest of the March lows. The reality is that over 90% of the stocks are much higher than their sales and profits warrant. I understand using our FED as a backstop, but buying Bitcoin, Gold, Silver and the miners is a much easier option. Again, just sayin’.
HODL’s:
- First Majestic Silver (AG = $8.32 / in @ 9.15),
- Yamaha Gold (AUY = $4.87 / in @ $4.60),
- Canopy Growth Corp (CGC = $17.00 / in @ $22.17),
- Camping World (CWH = $8.23 / in @ $6.55),
- DRD Gold (DRD = $9.50 / in @ $3.82),
- GBTC Bitcoin (GBTC = $9.47 / in @ $9.41),
- GOLD (GOLD = $26.97 / in @ 27.20),
- Hecla Mining (HL = $2.70 / in @ $2.36),
- KL Gold (KL = $41.88 / in @ 26.85),
- New Gold (NGD = $0.83 / in @ $0.82),
- NVAX (NVAX = $17.33 / in @ $7.24),
- Pan American Silver (PAAS = $21.90 / in @ $13.07),
- Utility Index (XLU = $55.88 / in @ $61.03)
- SPY = in the July 2020 Strangle = $160 Put / $305 Call … closed the Call side – it doubled – left with the PUT side.
Crypto:
- Bitcoin (BTC = $9,100),
- Ethereum (ETH = $215),
- Bitcoin Cash (BCH = $260)
Thoughts:
NetFlix (NFLX = $415.27) One of the side effects of this quarantine must be the weakening of America’s collective muscles. Not the whole innovation, hard work, determination muscles, but real muscles that get us off our butts to go beyond the refrigerator. Thus far, a lot of that ‘butt time’ has been spent watching NFLX – that seems to have all the best shows these days. It’s also one of the handful of stocks pulling the big equity indices higher. If you are bullish on NFLX, the long call vertical that’s long the 410 call and short the 420 call in the June monthly expiration is a bullish strategy that has a 65% 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
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