This Week in Barrons: 9-13-2020:
“It will never be enough … for me.”
When I write about making a difference, being creative, or leading – it naturally flows into how to manage being scared. How do we compartmentalize our fears when doing things that really matter? Successful teachers do it through caring. Teaching memorization techniques is easy, but fostering engagement and opening closed doors often requires a deeper level of commitment and trust.
There’s a lyric from the song “Never Enough” [ from “The Greatest Showman” https://www.youtube.com/watch?v=kUkRoIMyqFo ]: “You set off a dream in me, gettin’ louder now – can you hear it echoing.” Children over 5 have the capacity for self-directed, understanding-based learning. All educators agree that understanding is what is required to turn our educational system around; however, it requires curiosity, creativity, and dreaming – which are impossible to measure on a standardized test.
It’s not the hard-working, well-meaning teacher that we need to fix, but rather our educational system that rewards short-term memory success over problem-solving. Would it surprise you to know that the 80/20 rule once again held-true when schools, teachers, and parents were asked: “What percentage of the school experience is spent on testing, test prep, homework, memorization, and conforming to social norms – versus inventing, creating, doing it without a manual, and finding a new solution to a difficult problem?”
We have evolved into a society that spends a fortune on football and almost nothing on computer and/or creative writing hackathons. The massive shift to remote learning opens the door to slip in the kind of challenging, problem-solving curriculum that we need. There’s a reason why the U.S. for the past 20 years has steadily fallen in global educational rankings. Let me know when the highest paid person on a college campus is a College Professor and not the Head Football Coach. Tell me when our full-time students eat the same food as our athletes. And notify me when the best facilities are the lecture halls and classrooms rather than the stadiums and weight rooms. Until that time, as the song says: “These hands could hold the world, but it will never be enough … for me.” https://www.youtube.com/watch?v=kUkRoIMyqFo
The Market: ”Apple was trending … until it wasn’t.”
Week 37 wasn’t friendly to the Top 25 in the S&P 500, as only 4 of them closed higher. In the Nasdaq, only 3 of the Top 25 names closed in the green. That’s 2 red weeks in a row for the Nasdaq, and its worst week since March. Tesla and Lululemon proved that stocks can drop more than 10% in a week. Carparts.com also lost 10% on the week – on top of the 30% haircut that it took the week before. Apple was trending until it wasn’t. The tech giant pulled back from highs as it fell 7.5% last week. But Apple wasn’t alone as: Amazon -6%, Facebook -6%, Google -4% and Netflix -7%.
To make matters worse, this week, the U.S. showed its debts to the world. U.S. debt has been growing for decades, but it skyrocketed from April through June – and just last week U.S. debt reached its highest level relative to the size of the economy since WWII. Next year, our debt is projected to exceed our GDP for the first time since 1946. That means our debt will be larger than all of our goods and services that we produce as a country == Incredible!
Last year, U.S. GDP shrank at a record rate as consumer spending and manufacturing declined. All the while, government spending spiked an extra $3T on COVID-related programs = ($1.2K stimulus checks, enhanced unemployment, and loans to businesses). Government revenues fell as corporate profits disappeared and millions lost their jobs – resulting in less payroll and income taxes.
The issue is that more government spending and less government income will result in an even larger deficit. Our 2020 $3.3T deficit is more than TRIPLE 2019’s and the largest mismatch in income vs spending on record. There is no doubt that we will be forced to cut healthcare, education, and defense spending – all the while raising taxes.
InfoBits:
- 1st time in Gallup Poll History… farming and agriculture are the preferred choices in business going forward. Meanwhile, the Federal Government, big Pharma, Sports and Advertising yielded the "worst rated" distinction.
- Unicorns stampede the exits… as $224B worth of VC-backed companies head for the public markets in the coming months.
- We can’t put that genie back in the bottle… as remote work has been the status quo in the tech world for months now. Clearly geography will have a smaller role in determining a startup’s chance of success going forward.
- Nikola and GM formed a partnership… and the stocks jumped 41% and 8% respectively. For $2B, Nikola told GM that it could help them develop and manufacture new models, and provide them with electric batteries and fuel cells.
- Tesla is now down 34% from its highest close… but still up almost 300% YTD. It closed right at its 50-day moving average on Friday = exciting.
- Gary Cohn’s new SPAC raised $720m… which is 20% more than originally planned. It will start trading on the NYSE on Wednesday.
- New York City restaurants will be allowed to reopen… to indoor dining at 25% capacity beginning Sept. 30
- Palantir insiders are accelerating their stock sales… and a new valuation has them at $10.5B down from the $20.4B valuation in 2015.
- LVMH canceled its $16B wedding with Tiffany… due to Tiffany’s battered post-COVID sales figures that are down over 45%. I’m guessing, “In sickness and in health” just ain’t panning out.
- The next generation runs on Google… as Chromebooks made up almost 10% of all computers shipped globally last quarter.
- AstraZeneca paused its COVID vaccine trial… because of a spinal cord issue in a volunteer.
- Jane Fraser will be the next CEO of Citigroup… making her the first woman to lead a major U.S. financial institution.
- Adults who tested positive for COVID were TWICE as likely… to have dined at a restaurant in the days before becoming ill.
- Robots won't take away our jobs… they will make our work safer and more efficient. That sounds like something a robot would say.
- Opendoor is thinking of going public… via SPAC with Social Capital Hedosophia Holdings. Opendoor is a company that helps people buy and sell homes with the “push of a button”.
- J.P. Morgan Chase is telling execs… that they and their teams must return to the office by Sept. 21. I guess that’s how traders tell each other: the party’s over?
- Simon Property Group + Brookfield (another mall owner)… are buying J.C. Penney out of bankruptcy for a cool $1.75B.
Crypto-Bytes:
- AWS is calling… as Tech Mahindra announced it will offer blockchain solutions built to global customer specifications using Amazon Web Services (AWS) over the next 12 months.
- Euro CBDC… ECB President Christine Lagarde said Europe has fallen behind in the digital currency (CBDC) race. The lack of payment integration in Europe indicated that foreign providers have taken the lead.
- Square, the bitcoin-friendly payments company… is building an alliance to pool crypto patents and preserve the industry’s open-source spirit. Square believes that patents hamstring innovation and stifle crypto adoption.
Last Week:
Monday: I thought we had some more downside fade coming, and so far so good there. The miners should be on fire considering our FED’s actions, but Wall Street hates gold and the suppliers – so the naked shorts are running wild. The 50-day on the NASDAQ is 10,885. Friday it fell to 10,875, bounced, and this morning it fell back to 10,875. So, the techs started the day in a funk – down 500 points. If we put in a close higher than we closed Friday, I'd have to guess that the selling is over and they're willing to take us back up. But the DOW is still down 300, it seems that to me that there's simply no buyers. At this juncture, I’m NOT buying the dip (BTFD), but rather selling the rally (STFR).
Tuesday: After a hefty sell off yesterday, the indexes kept plunging in the afterhours. Then (like magic) "IT" happened. The ‘red’ vanished and the futures became green. At the close yesterday the S&P ended about 25 points above its 50-day moving average, and the NASDAQ closed about 30 points below its 50-day. In tech land, we just had the fastest 10% correction ever. Maybe that's all we get and it's back to moving higher? Last night, AstraZeneca’s COVID vaccine Phase 3 study was put on hold. One of the trial patients had "adverse" effects. Then what followed was interesting: “AstraZeneca has been granted protection from future product liability claims related to its COVID-19 vaccine.”
Wednesday: Did anything change? Three days ago, the indicators suggested an extremely overbought condition, but we have worked off 10% in 3 days – and now they figure that it’s time to buy. While I would love to ride these FAANMG names higher, you have to be careful. I'm going to play cautiously in here until the market proves to me that it can sustain itself. CWH looks buyable on a move over $34.50, and AAPL looks good over $118.00. But today’s move is all about the close. If we peel off a few hundred points heading into the close, today meant nothing. But if we are still up 500+, I guess we're back to "stocks only go up" again.
Thursday: I wasn't thrilled with the close yesterday as we ended the day over 250 points off the day’s high. Overnight the futures had the DOW up 100, but all that dissolved and we've been red this morning. Yesterday I took on some AAPL and sold half of it for a quick buck. I also took on CWH, as I like the company and the look of the chart. I’m sitting tight in here as I believe this market wants to go lower, but of course Wall Street and all the Feds want it higher. The techs are holding up the best, but AAPL is still lower, and MSFT is red (and under its 50-day). My guess is that we're going to see some volatile spikes, but remain "pink" at best. I'm still NOT buying this dip.
Friday: 9-11-2001 -- No one can forget it. In my opinion, the running commentary from the "late" Mark Haines was the best live coverage of such an event. For hours, time stopped. Traffic stopped in cities as people got out of cars and watched TV's in storefronts. I (along with 10’s of thousands) lost people they knew. So why are the futures green? There's a lot of newbies playing roulette in the market lately. Many of them looked at yesterday’s open and jumped in big, figuring that the selling was over. Then they got fleeced later in the day. So, they might be wary about hopping in this morning on another green open. That's my theory anyway. I think we open green, dip maybe slightly red, and then power back up for a green close.
Marijuana:
- The MORE Act… will be voted on by the U.S. Congress in September.
- The sale of cannabis-infused edibles… was approved by FL regulators.
- Cigarette volumes declined 2.1% YoY… for the 4th week ending: 8/22/20.
- The FDA will publicly list e-cigarette mfrs… who filed a PMTA application.
- California has banned flavored tobacco products… that include menthol.
- JUUL will focus its operations on the U.S., Canada and the U.K…. with a significantly reduced headcount.
- Truss (TAP + HEXO) introduced 5 new cannabis-infused beverages:
o Truss Beverage Co. was formed in 2018 as a joint venture between Molson Coors and Canadian cannabis producer Hexo. With five brands and distribution throughout Canada, Truss sees an opportunity to shape perception of the beverage category moving forward.
o Truss’s new brands include Veryvell, House of Terpenes, Little Victory, Mollo, and MXG.
o Veryvell joins Strawberry Hibiscus and Sicilian Lemon to form a 15 mg of CBD and 0.5 mg of THC in a 355-ml. bottle.
o Lemon Black iced tea is slightly stronger at 2.5 mg of each cannabinoid.
o Little Victory is launching with four bubbly varieties: Dry Grapefruit, Dry Lemon, Sparkling Blood Orange, and Sparkling Dark Cherry, all at 2.5 mg of CBD and THC.
o House of Terpenes will launch with two sparkling tonics in Limonene and Myrcene varieties – named for the terpenes they contain. Each is at 5 mg of CBD and THC and suggested to be served over ice.
o Mollo, meanwhile, is billed as crisp and hoppy, available in 2.5 mg and 5 mg formats.
o MXG is Truss’s high-octane option. In Tropical Fruit and Mango Pineapple flavors, it clocks in at 10 mg of THC per can, the maximum allowed under Canadian regulations.
Next Week: Volatility Lower – Market Lower. Houston – we have a problem.
- Volatility is lower but the markets are also moving lower… and on a lot of levels that doesn’t make sense and smells like trouble. The S&Ps were rockin’ last week as we moved 107 points lower. We had 4 trading days of downright ‘sketchy’ asset movement where we had thousands of 6 to 10 point moves inside of a minute. When we start getting back-to-back chop like we’re seeing now – it tells me that there’s a much larger move in play that is just waiting to show itself. But having volatility lower and the markets lower (which is normally an inverse relationship) – is rare and often a foreshadowing of things to come.
- The Volume is dropping as stocks sell-off. It’s not only the volatility that is coming down, but also the volume is coming off on absolutely key stocks. This is a warning shot. On Tesla, Apple, Amazon and Facebook, we are seeing severe price action (from $500 to $340 in a week for TSLA) on declining volume AND declining volatility. This is NOT making me feel warm ‘n fuzzy.
- Volatility tells us that the real selling has not kicked in yet. I will ask you to: NOT BUY these market dips, but rather SELL into any rally.
- Do NOT Buy the Market Dips. You need to look no further than Apple. Apple fell over 20% last week from $140 to $110 on declining volatility and volume. That very same scenario exists with Facebook, Amazon, Google and Microsoft. If retail traders are driving this, then the real selling has NOT started. Volatility must increase in order for sell-side activity to be finished.
- All of a sudden, nobody cares. Thus far, the retail trader has not dumped their shares. I know this because if retail clients were dumping, the volumes would be through the roof – and that’s not the case. Also, when markets are declining, market makers need to ‘sell into the selling’ in order to neutralize their deltas, and again nobody is seeing that kind of volume – yet! No one is feeling the fear.
- Everybody is trying to handicap the election… and I’ll be the first to ask you to put that aside. We’re in the middle of a correction right now where the fear has yet to hit – and that’s how we know that we’re still in the middle of a correction and NOT at the end of one. I think that this marketplace gets incrementally more dangerous.
- Opportunity #1 = XLU = (Utilities ETF) carries 6 times the interest rate as the 10-year note, and it’s ‘steady as she goes Captain’. The Pros are just sitting on their hands. The XLU is NOT moving, but it’s implied volatility is in the low to mid 20’s. The trade is not quite there yet – but I’m looking to potentially buy a risk-twist-call spread depending upon market activity.
- Opportunity #2 = HYG = (Junk Bond Index) which is currently doing absolutely nothing. We know historically that when markets get choppy – the HYG goes heavily to the downside. I anticipate if the SPY continues to move to the downside – it will yank the HYG down with it. The trade in the HYG involves a risk-twist-spread on the December PUT side of things. Why December? December volatility is rock bottom (around 18%), and you can’t find those low numbers virtually in any other product. So buy the HYG because it’s cheaper and hedges your portfolio as this market drops.
- The S&Ps (SPX) hit the expected move last week – which is incredible when you think of being able to predict within a couple points – where a $3,340 product is going to end a 4-day stretch. We started the week at $3,430 level and ended the week at $3,340 just as predicted. Last week we moved over $107 and bounced back slightly on Friday. For next week, they’re predicting a $99.75 expected move in the SPX, and that’s in a 5-day week with a FED announcement. Under these circumstances I am a buyer of option premium especially in the VIX.
Tips:
This coming week, try and resist buying the dip. Markets are excellent at drawing more and more of your capital into bad positions. Don’t do it. If you need to do it, then use spreads in order to define your risk. Keep your hands and feet inside the vehicle at all times, because this looks like the beginning of Mr. Toad’s Wild Ride.
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $6.02 / in @ $4.60 = up 31%),
o Looking into selling Oct. $7 covered calls
- Canopy Growth Corp (CGC = $16.17 / in @ $22.17 = down 24%),
- CTI BioPharma (CTIC = $1.04 / in @ $1 = up 4% ),
o Looking into selling Oct. $2 covered calls
- EXK Gold (EXK = $4.06 / in @ $1.53 = up 167%),
o Looking into selling Oct. $5 covered calls
- GBTC Bitcoin (GBTC = $11.22 / in @ $9.41 = up 28%),
- Hecla Mining (HL = $5.45 / in @ $2.36 = up 136%),
o Looking into selling Oct. $7 covered calls
- KL Gold (KL = $52.50 / in @ 26.85 = up 93%),
- MUX Mining (MUX = $1.26 / in @ $1.14 = up 11%),
- New Gold (NGD = $1.78 / in @ $0.82 = up 122%),
o Looking into selling Oct. $2 covered calls
- Pan American Silver (PAAS = $34.47 / in @ $13.07 = up 164%),
o Looking into selling Oct. covered calls
- Tortoise Acquisition Corp (SHLL = $47.78 / in @ $0.32 = 15,634%).
Crypto:
- Bitcoin (BTC = $10,550),
- Ethereum (ETH = $385),
- Bitcoin Cash (BCH = $230)
Thoughts:
#1 Buy longer dated call options on the VIX.
#2 Look at a ‘Risk-Twist-Spread’ out in December on the HYG – to the downside.
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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