This Week in Barrons: 11-8-2020:
Thoughts…
My finances under Biden will contain:
- A smaller take-home paycheck,
- A smaller 401k,
- A stock market that can (and will) move lower,
- Interest rates that can (and will) move higher,
- Marijuana (and other vices) will be federally legalized for tax purposes,
- Higher prices due to inflation,
- An electric car, and
- Companies will not hire the quality or quantity of individual(s) they did previously.
Who saw this coming? Millennials (born between 1981 and 1996) and Gen X’ers (born between 1965 and 1980) guessed right, and showed it by dramatically increasing their alcohol consumption. They increased their volume and lowered their unit price of what they bought. They bought more cases, and less singles. They ordered and received delivery online. Brands will begin to focus on at-home consumption occasions, where the target customer is enjoying low-key activities.
NEW purchase decisions hinge on matching DREAMS to a product’s story. Here are the questions that your end-users are really asking:
- What will my friends think?
- What will my boss think?
- What is everyone else doing?
- Will this make me look dumb?
- Will this raise my status?
- Will this help my family?
- Will I get blamed?
- Is there a shortcut?
- How will I feel if I miss out?
- Will it make my pain go away?
- And ONLY if there is more than one choice: “How much does it cost?”
The Market: Thoughts…
With Biden getting the nod, I believe:
1. COVID-19 and the impending stimulus packages will have a much greater market impact than anticipated.
2. Significant tax increases are looming on the horizon.
3. Higher volatility is coming – so either hold more cash or learn to play the VIX.
4. Inflation is a foregone conclusion.
5. Governments will need more money. If you can generate new tax revenue for governments, this is your time. Things that were ‘tough sells’ like mobile sports betting or recreational marijuana are going to be pushed through much faster.
Last week:
- The S&P and Nasdaq had their best week since early April – led by consumer staples and tech.
- Energy was the only sector to drop more than 2% with financials falling 1%.
- The October Jobs Report told us that the economy is recovering – slowly.
- Pot stocks grew as marijuana ripped higher.
- Bitcoin moved 13% higher last week finishing around $15,000.
InfoBits:
- Holiday spending is expected to slip: When asked how much money people will spend on Christmas gifts, respondents (on average) said $150 less than last year.
- It’s the back-up plan… that often makes the difference – especially in a global pandemic. Facebook is looking to start charging for WhatsApp Business. Twitter will begin testing a paid subscription service. Google will need to do something because Apple's building its own search engine.
- Darth Bezos rises: In 3 months, the Zon brought in $96.1B in sales, breaking its record high from the previous quarter. Profit tripled from the same quarter last year to $6.3B.
- The New Orders Index showed… record highs with backlog orders also gaining.
- The SEC adopted a new rule… that allows startups to raise up to $5m through online crowdfunding initiatives.
- NerdWallet, a San Francisco-based personal finance platform that’s raised over $100m, acquired Fundera, a New York-based online lending platform.
- Juul (the vaping startup)…. has seen its valuation drop to $10B from $38B back in December of 2018.
- Functional is the new fashionable... during COVID. Whatever's comfy for Zoom'ing and grabbing the mail wins. That's why Croc’s sales are up 48% this year – while total U.S. footwear sales are down 20%
- Clorox’s quarterly profit doubled…. and sales shot up 27% on demand for sexy products like disinfecting wipes and sanitizer.
- Tesla’s Autopilot was ranked a ‘distant second’… to GM’s Super Cruise system in Consumer Reports testing.
- Aluminum cans are ‘Sold Out’ for the next 2 years…. and the supply chain won’t catch up to demand until 2025-26.
- PayPal processed record payment amounts last quarter… and added 15m new accounts for a total of 361m.
- Walmart went back to humans… ending its shelf-scanning robot contract with Bossa Nova Robotics.
- California said ‘YES’ to Proposition 22… and as a result, Uber and Lyft drivers will not be classified as employees, but will get health insurance.
- It was a vote for ‘Big Weed’… as Arizona, New Jersey, Montana, and South Dakota voted to legalize recreational marijuana.
- 9% of U.S. businesses will lay off workers in Q4… because of the surging coronavirus pandemic. Similar proportions will also restrict hiring and defer pay increases or bonuses.
- California said ‘YES’ to Proposition 24… which expands CA’s privacy laws and reduces the amount of data that big tech is allowed to collect on people.
- ByteDance, the China-based company behind TikTok… is set to raise $2B at a $180B valuation – right before it IPO’s its international businesses.
- Airbnb plans to make its IPO registration public next week… putting it on course for a NYSE debut in December.
- Petco is exploring an IPO… that would value the company at $6B.
- Peloton’s quarterly sales more than tripled…. because Equinox is still closed and Hayden & Buffy still need their 6 am spin.
- Aphria (pot producer) is buying beer brewer…. SweetWater for $300M.
- Spotify may produce a subscription podcast service.
- Netflix is testing a TV channel.
Crypto-Bytes:
- Bitcoin crossed $15,000… for the first time since January 2018. The crypto-currency is now up over 108% YTD with little sign of slowing. It’s being buoyed by an imminent sense of monetary stimulus. Investors continue to believe that our FED will keep printing money at a pace that favors Bitcoin’s finite supply.
- Square had a monster quarter… when it generated $1.63B in Bitcoin revenue and $32m in Bitcoin gross profit during Q3 of 2020. That was an 11X revenue increase over their own Q2 results. Square’s Dorsey said: “We believe bitcoin will be the native currency of the internet, and help people thrive around the world and the economy.”
Last Week:
Monday: If you're the Swiss National Bank and you have over $130B worth of U.S. stocks – when you see a weak market do you (a) take the hit OR (b) print another $5B and go buy futures and the FAANMGs to get things rolling again? You know the answer. BUT, we could see a rug pull of epic proportions if they think this turns into a legal battle. The market gapped higher and with gaps higher like this – I tend to sit on my hands and wait for the dust to settle. I'm sitting tight, and not going long or short.
Tuesday: The DOW is set up to open higher by another 400 points. One theory is that with a Biden win, the floodgates to massive stimulus will open and therefore enrich the markets. Both sides are dug in like ticks, and tempers are starting to flare. The markets are decidedly higher but for all I know there will be riots and chaos in the streets. There’s NEVER been an election day market like this. The market should dislike uncertainty, but it’s gained 1,000 points in two days. What a very strange world.
Wednesday: This market is on fire. The DOW is up 600, NASDAQ up 430, and the S&P up 100. What on earth can we buy in here? We've been up huge for 3 days in a row. I'm only going to nibble around the edges. I'll try CWH if it can break thru $30.15. Little CBAT has reversed, and is looking like it might run a bit. A move over $3 will bring me in. ARKK is the "Innovation" ETF. It has reversed a downtrend and the technicals look interesting for a run over $98.34.
Thursday: It's all about the gap – there’s no way to anticipate it. In this market, if you’re not holding overnight for the big morning gap higher, then you're not making money. And the next day is the very same thing. We gapped open huge today, like we did yesterday and the day before. The biggest decision in markets like these is: "Do I take the chance and buy the close, hoping for the gap?" And that's all you have is hope, because there's NO way to know if they're going to gap us higher or lower the next day. I don’t like it, but I’d try AAPL over $119.64. FYI, Powell is talking and he hasn’t said anything other than continuing to be accommodative and print, print, print.
Friday: The jobs number just hit and they say we created 630,000 jobs last month. That's less than September’s, but not horrible. I could see taking ADSK over its high of $259.10. They have earnings in a couple weeks, and the technicals have turned.
Marijuana…
Voters in New Jersey, Arizona, Mississippi, Montana, and South Dakota legalized marijuana for adult use last week, and those markets alone could generate over $2.5B over the next several years. They represented the 12th through 16th states in the country to legalize recreational marijuana use. This capped a 100% marijuana win rate for state legalization ballot measures in the 2020 election.
Beyond its borders, New Jersey is being looked at as the first potential domino to fall in the tristate area. By beating New York and Pennsylvania to the punch, the Garden State could reap an out-of-state windfall from residents in NYC and Philadelphia. N.Y. Governor Andrew Cuomo reiterated the draw of cannabis tax revenue, especially now that Covid-19 has pressured NY's coffers. Pennsylvania Governor Tom Wolf of Pennsylvania has also begun speaking out in support of the issue.
Factually:
- New Jersey (given its history) could move at the same rate as Nevada: 8 months of planning until a July 1st, 2021 kick-off of adult use cannabis.
- Arizona should commercialize adult use cannabis by Jan. 1, 2022. Arizona will be a lower per capita contributor to sales, given its proximity to California.
- Montana and South Dakota will move to implement around the Jan. 1, 2022.
- The Total Addressable Market (TAM) expanded by over $3B with these statewide additions.
Next Week: “You gotta Shake, Rattle ‘n Roll-over?”
Upside Volatility – “Hey mom – we’re back.”
- A 160 point SPX Expected Move was turned into 240 points, and brought us right back to the 3,500 level – where we were 3 weeks ago.
Will volatility stay down – not in your lifetime…
- 2 recent breeches of the Expected Move (EM) have occurred in the past 2 weeks of trading. That means that the marketplace is doing a horrible job of ‘handicapping risk’. Using history as our guide, large breeches of the EM tend to lead to more significant and more frequent breeches going forward. But, there isn’t necessarily directional bias associated with it.
- The volatility futures are beginning to raise their voices. It seems that January carries more volatility risk – potentially due to COVID and our election challenges. The volatility futures are slightly inverted, which is never good.
- Bonds are scary because they also breeched their EM, and did it on extremely high volume. That signals institutional traders moving around some big dollars.
- Putting all of this together, it tells me to: “stay on your game.” Do not fall asleep at the wheel because this market volatility is not over. I think the falling dollar is ‘fear trade’ – a ‘flight to quality’ which falls in line to what the bonds are telling us. ‘Something dangerous this way comes.’
FED & Jobs Numbers = same old / same old. Chairperson Powell asked Congress once again to pass a fiscal stimulus package, and we know where that goes.
How Wild was the Week?
- EEM (emerging markets): The U.S. had an election and the emerging markets (EEM) exploded higher to the upside this past week. Why – because they are predominately China focused and our markets are encouraging us to make ‘peace’ not ‘war’ with China.
- QQQ (tech): The Nasdaq had a stellar week and returned to the 295 level (very similar to the SPX). What is interesting in the QQQ, is that this past week – they experienced a 2-sigma move higher. They started the week at $269, ended it at $295, and were only expecting a $14 move. So, if you thought that things were really moving to the upside in a hurry in tech-land – you were right.
- XLF (financials): The XLF also returned to where it was a couple weeks ago – around $25.
- IWM (small cap index): The IWM is at a rather critical juncture – almost breaking out to all-time highs.
TRADE IDEA (MSFT, IWM, QQQ AND EEM):
- I’m buying Iron Condors out into December and January. I believe that there is much more volatility to come, BUT currently the IV percentages are depressed giving us reduced option premium pricing. I bought Iron Condors in: Microsoft (MSFT), IWM, QQQ and EEM. Nobody knows which direction the markets will move – simply that they will move beyond their respective expected moves and this trade allows you to take advantage of that with very low risk.
SPX Expected Move for next week = $91.54: Are you kidding?
- Last week the markets predicted an expected move (higher or lower) in the SPX of $158.40. We received an ‘actual move’ in the SPX of almost $240. And now you’re telling me that next week we will only see a $91.54 move? If you believe that, I have a bridge in Florida that I’ll be glad to sell you. There is no way that I’m selling options premium next week.
Tips:
Personally: Per HL:
- I dislike high taxes, but America offers me choices.
- I think China cheats.
- I think we need an actual plan to deal with COVID.
- I think there are too many guns.
- I think the bankers back in 2009 should have done perp walks. (I can’t seem to put that behind me even in 2020).
- I think the Mexico Wall is dumb and luckily Trump was in charge of it.
- I think politicians need some experience (Trump proved that), but I also think 30 years of experience is too much.
- I think healthcare can absolutely be fixed, and I think Americans need to lose some weight and get healthier.
- I’m all for trying to get along and being nice, but standing up to bullies here and abroad is also high on my list.
- I think the market continues to rise, maybe to all-time highs, until something big happens in the investigations. Then things could get rocky for a while. I’m leaning long, with a finger near the sell button because it’s my only choice.
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $5.94 / in @ $4.60 = up 29%),
- Canopy Growth Corp (CGC = $23.50 / in @ $22.17 = up 6%),
- CTI BioPharma (CTIC = $3.26 / in @ $3),
o Constantly selling Dec. $3 covered calls…
- EXK Gold (EXK = $4.16 / in @ $1.53 = up 172%),
o Looking into selling Dec. $5 covered calls
- GBTC Bitcoin (GBTC = $17.54 / in @ $9.41 = up 86%),
- Hecla Mining (HL = $5.59 / in @ $2.36 = up 100%),
- KL Gold (KL = $48.64 / in @ 26.85 = up 82%),
- New Gold (NGD = $1.97 / in @ $0.82 = up 168%),
o Looking into selling Dec. $2 covered calls
- Pan American Silver (PAAS = $36.93 / in @ $13.07 = up 182%),
o Looking into selling Dec. $40 covered calls
- Hyliion (HYLN = $22.58 / in @ $0.32 = 6,956%).
Crypto:
- Bitcoin (BTC = $15,500),
- Ethereum (ETH = $440),
- Bitcoin Cash (BCH = $255)
Thoughts: Despite Tesla’s slowdown in sales over the summer, TSLA managed a profit in its earnings last month, making it five profitable quarters in a row. Of course, a good chunk of its profits came from selling electric vehicle credits to other companies so they could satisfy regulations. TSLA has been rallying in November along with the broader market, and TSLA is getting orders for its Cybertruck. That revenue could help push TSLA higher, particularly if the market continues to rally. Debit spreads are more attractively priced for defined-risk trades. If you are bullish on TSLA, the long call vertical that’s long the $435 Call and short the $440 Call in the Dec expiration is a bullish strategy that has a 63% 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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