This Week in Barrons: January 31st, 2021
Background: In what is shaping up to be the biggest trade of the century, a ‘loosely organized group of retail traders’ put the squeeze on short-selling hedge funds this past week. It started with GameStop (GME), but quickly spread to other company stocks with less than ideal prospects like Kodak and AMC. The ‘Reddit-organized mob’ moved markets, and in many ways did to hedge funds what hedge funds have been doing to the retail trader for 2 decades. On Thursday a near-revolution formed after several popular retail trading apps placed limits on stock buying (Robinhood being the focus and the one planning on IPO’ing in 2021). Robinhood was seemingly helping out the short-sellers, hedge funds, and ‘The Man’. Class action law suits were filed, and both the U.S. House Financial Services Committee and the Senate Banking Committee announced hearings.
Robinhood then proclaimed that their trading pause was misunderstood and in fact: “based upon technical and operational considerations. It seems that the financial system’s physical and digital plumbing has capacity limits” said Vladimir Tenev (CEO).
a. The good news is: cryptocurrency company FTX has already listed a #WallStreetBets (WSB) index, that will be mirrored on Blockfolio, and starting Monday allow you to invest in everything that #WallStreetBets is favoriting.
b. Then a report surfaced that it was Robinhood’s Vlad receiving calls from Sequoia Capital and The White House that pressured him into suspending trading on GME, etc. The thread went on to say: “the rich have one set of rules and the rest of us get screwed over – left to bail them out and pick up their trillion-dollar tax break tab.”
c. Which triggered a “that’s not fair” response from many, including politicians from Senator Ted Cruz to Rep. Alexandria Ocasio-Cortez condemning Robinhood for not abiding by their mission statement which reads in part: "We believe that everyone should have access to the financial markets."
Wall Street was angry. Many hedge funds (Melvin Capital for one) that had shorted GME were forced to buy it back – losing billions of dollars. With Robinhood stopping trading, the irony of their name was not lost on anyone. At the very heart of the matter, lies a question for the SEC: ‘How are Melvin Capital and others allowed to short 146% of GameStop – aka short more stock than what is available to sell?” The practice is called ‘naked shorting’, andhas been illegal for years – but the SEC has looked the other way on entities like GME along with many gold and silver miners.
It touched raw emotion. In an open letter to Melvin Capital: “You stand for everything that I hate. Your firm makes money by exploitation and manipulation. Your existence reminds me of the 2008 hardship you caused and were never punished for. Your blatant disregard for the law (naked shorting) and your obscene after-hours market manipulation - shows that you haven't learned a single thing since 2008. Why would you? You were bailed out and rewarded as my parents and their friends suffered bankruptcy and kicked them out of their homes. This is personal for me and millions of others. I dumped my entire savings into GameStop and I’m holding. This is much bigger than ‘Occupy Wall Street’. This time there are millions of us, and we’re going to hit you where it hurts – in the pocketbook and in the ballot box. Because politicians may not like losing donations, but they hate losing their jobs.”
The Market:
Is that it? Not quite. CNBC’s Scott Wapner interviewed noted financier Chamath Palihapitiya amid rumors of collusion and political grandstanding. The interview went ‘off-the-rails’, went viral, and then was mysteriously taken down. If you missed it – try one of these two places – it’s the best 30 minutes on CNBC I’ve seen in a long time: https://vimeo.com/506585767 OR https://youtu.be/ZO6oHXWACDo. Chamath raised the issue of how Melvin Capital was allowed (by our own SEC) to short 146% of GME’s stock. That’s more stock than even exists within the company. And if the SEC is policing Melvin Capital breaking that law where ELSE are they looking the other way? Chamath sees push-back against the establishment:
1. After reading the #WallStreetBets posts, he is convinced that the analysis produced on the forum is as good as what is produced inside most of the hedge funds. This is NOT an uninformed mob that is storming the castle.
2. In 2008, Wall Street took an enormous risk, BUT left the ‘retail investor’ holding the bag / losses. Many members of #WallStreetBets saw their parents lose their homes and their jobs. They have always wondered why those that took the risk: (a) were never put in jail, (b) were bailed out / rewarded, and (c) never returned to help the families that they so easily destroyed.
3. It’s the bravery of these members that instead of having secret ‘idea dinners’ or ‘quietly whispered conversations’ amongst friends colluding in the Hamptons, #WallStreetBets has the courage to make their voices heard in a public forum.
I think that this retail phenomenon is here to stay. On Thursday, there were 2.7m members of #WallStreetBets. #WallStreetBets is as important as any hedge fund out there right now, because in a zero interest rate / QE world that’s hungry for yield – #WallStreetBets could quickly become the ‘go to’ place for trading action.
Everybody knows that the financial system is rigged in favor of the rich. Only big institutions can get into hot IPOs. Only the rich can invest in startups. All of this is designed to make the rich richer and keep those without money out of the game – but not anymore. From crypto to day trading, the retail investor now has the tools to WIN the game. The new hedge fund is the self-organizing, Reddit-esque army that goes out and attacks stocks that have been exploited by ‘The Man’. Hedge funds and ‘The Man’ will have a problem on Monday morning: although hedge fund donors can cause change - 11 million retail investors can not only move markets – but they can VOTE and take away a politician’s job. What do you do when the tail ‘learns’ how to wag the dog? Keep some powder dry – because this movie is just gettin’ started.
InfoBits:
- 2020 was the 1st year… Europeans received more of their electricity from renewables than from fossil fuels.
- Amazon, Walmart, and Starbs have lobbied to gain early vaccine access: Combined they have over 3m employees. WMT and AMZN plan to offer the vaccine at +5K locations, starting in seven states this week. They hope to deliver 13M doses a month, with +150M people passing through their doors – weekly!
- The U.S. Government isn’t built for efficiency: Big corporations have huge reach and streamlined leadership - making them perfect for vaccine rollout.
- U.S. Government fleet vehicles are ALL going electric.
- Leon Black is stepping down as CEO of Apollo Group… after audits show Apollo paid $158m to Jeffrey Epstein for ‘trust and estate-tax planning’ advice.
- Budweiser (BUD) will not be advertising in the Super Bowl… for the first time in 37 years.
- Coke with Coffee is (finally) here… for those times when you want to be so awake that you can TASTE what you’re hearing.
- Pfizer will be able to supply 200m COVID vaccines in May.
- PepsiCo and Beyond Meat teamed up… to develop, produce, and market snacks and beverages made from plant-based protein.
- Ryan Cohen (Chewy.com co-founder)… has seen his $76m investment in GameStop turn into $1.4B in 10 days as the stock rose from $18 to +$400/share.
- The J&J vaccine may be a game-changer… but unlike Moderna and Pfizer, which are selling their vaccines for profit – J&J will sell its vaccine "at cost".
- Q4 sales results are in… Tesla reported $11B, Facebook had $28B, but Apple stomped on them both with $111B in sales and almost $29B in profit.
- An afternoon nap… will improve your cognitive abilities. Heck, I knew that!
- WeWork… may go public via SPAC.
- Nerdy, the parent of Varsity Tutors… will be SPAC’d by TPG soon.
- General Motors is pulling a Netflix… but instead of ditching DVD’s it’s ditching gasoline: It will: "phase out petroleum-powered cars and trucks and sell only vehicles that have zero tailpipe emissions by 2035.”
- Diageo saw tequila sales jump 80%... in the second half of 2020.
- Ford's e-scooter division… is rolling out scooters that can automatically park themselves within seconds – out of the way of pedestrians.
Crypto-Bytes:
- Miller Value Partners just bought a chunk… of the MicroStrategy debt used to buy more Bitcoin. They said: “It’s almost a free call option on the cryptocurrency that’s been the best performing asset for a decade.”
- Harvard, Yale, Brown, and the Univ. of Michigan… are among those institutions of higher learning buying Bitcoin. “A lot of institutions are now comfortable with Bitcoin. They understand it and can just buy it directly, as long as it’s from a regulated entity like Coinbase, Fidelity or Anchorage.”
- Square purchased another 4,709 Bitcoin in October. Their initial $50m investment has now tripled to over $150m.
- Long-time Bitcoin foe Mark Cuban has reversed course… “You can sell anything digital using NFT. The upside is truly unlimited. This multi-application platform easily outperforms their traditional financial counterparts.”
- Coinbase is about 3.5 times the size of Robinhood… and has never limited purchases or sales on any of its listed elements. I guess that’s a difference to consider between two ‘exchanges’ going public in the near future.
Last Week:
Monday: The list of names I’m watching includes:: FLL > $6, FCEL > $19.45, JCI > $52.35, FUBO > $44.80, and GOGO > $14.50.
Tuesday: Watch FCEL. It tried to run yesterday, but when the entire market pulled back – it did as well.
Wednesday: The talk on the Street is how the Robinhood traders blew up a hedge fund. GME had huge short interest and #WallStreetBets ganged up and sent it from $18 to +$400/share in overnight trading. The hedge fund (Melvin Capital) covered their shorts and lost $2B dollars. RobinHooders are ganging up to drive whatever stock they want through the roof. AMC has gone from $5 to $20. The NASDAQ'S Adena Friedman says that they’re watching social media chatter and will halt a stock if they notice any unusual activity. So, what if they halt a stock. RobinHooders will just wait for the reopen and pile in heavier. And make no mistake, individual traders are making millions of dollars per day. Watch SOS and INO for craziness. The DOW has lost 1,000 points in the past 3 days as the RobinHooders are causing panic. I always wondered how this constant stair-step higher would end.
Thursday: #WallStreetBets has mentioned the following names: NAKD, CLOV, FUBO, NOK, BB, EXPR, LOTZ, SNDL, RKT, BBBY, TSLA, KODK, PLTR, SOS, SPCE, CCIV, KMPH, AND CRSR. In other news, 847,000 new people filed for first time unemployment last week. Let’s see: our FED has ‘no choice’ but to keep their massive stimulus in place. RobinHooders are moving targeted stocks wherever they want. Our economy is on the ropes. Could this get any stranger? Some of the RobinHooders moved into the silver mining space. SLV, MUX and HL all gapped. What if the RobinHooders decided to buy physical metals and completely over run the COMEX?
Friday: All the talk for 3 days is how the big guys don't like the idea of the little guy taking them to the woodshed. Wall Street has been screwing the little guy for decades, and now they get a taste of their own medicine. You can read a pretty good report on it here: https://www.zerohedge.com/markets/cash-strapped-robinhood-scrambles-raise-1-billion-rich. I wonder if the Robinhood army is hitting enough Wall Street firms, that some need to sell stock to cover their losses. I've never seen this situation before. There's noise about #WallStreetBets realizing that silver is being held down artificially, and they might try and take it higher. Watch the really low-priced silver miners like NAK, MUX, & HL. They all popped at the open, but gave up those early gains quickly. I’d be buying HL over $6.35. Everywhere I look I’m seeing volatility. We’re down 6 of the last 7 trading days. The S&Ps are desperately trying to hold onto their 50-day moving average. If they lose it for the close, look out Monday AM.
Marijuana & Alcohol:
- Wholesale marijuana flower prices in Colorado have climbed to 2016 levels… fueled by increased demand and pricier, premium flower brands.
- Tilray CEO is expecting U.S. cannabis legalization within 2 years. Mexico’s and Canada’s positive programs will spur U.S. federal legalization, and push European countries toward medical cannabis
- Chuck Schumer says the MJ reform bills are being merged… as Congress moves to legalize.
There are 4 alcohol scenarios around economic recovery and vaccine effectiveness:
- #1 "Champagne-Poppin Recovery": If our Economy is Strong and Vaccine Effectiveness High: off-premise habits will fall off as on-premise recovers.
- #2 "Back to the Future": If our Economy is Weak and Vaccine Effectiveness High: we'll see a reversion to pre-COVID consumption patterns. Volumes will be back as on-premise would recover and off-premise would decline.
- #3 "COVID Hangover": If our Economy is Strong and Vaccine Effectiveness Weak: we’ll see on-premise volumes lower and off-premise volumes higher.
- #4 "The Double-Shot Recession": If our Economy is Weak and Vaccine Effectiveness is Low: we’ll see on-premise decline and off-premise increase.
- I like: ‘Back to the Future' and 'Double-Shot Recession'.
Next Week: GME Triggered the Selling … Will it Stop?
Market Damage Report:
- The Big Squeeze = The Crescendo: GME, AMC, and Blackberry were NOT the stocks I would have bet on to trigger an investment re-evaluation.
- SPX was down $127 on the week, and matters because algos use them as a proxy. Volume picked up this week. When things ‘tighten-up’, first look toward the volume for any clues. You’re looking for capitulation in order to plan your next move. We’re currently trading about 2m SPX contracts per day. I’ll need to see between 3m and 4m SPX trades per day before ‘fear’ begins to enter the discussion. Currently we’re elevating our volume, but not capitulating.
- SPX Flat for the year: We had a 2-sigma move to the downside this week – before ending a little off that boundary. Next week, we are looking at a $132.50 expected move – and that is truly ‘big boy pants’ territory. If we break through that expected move to the downside, then you should start seeing opportunities surrounding capitulation (aka ‘blood in the streets’).
- Correlation Grips hold: This week’s advance / decline line showed 92% of the stocks marching to the same drummer, in the same direction, and to the same cadence. Correlation is a precursor to capitulation. Bad times require validation, before anybody begins to throw out the proverbial ‘baby with the bathwater’.
- Net / Net = the damage thus far is MILD: The SPX is flat on the year and it fell 4% in one week, but mild when you put things in perspective. To do serious damage, the S&P (SPY) needs to move from 370 (currently) down to where we started last November @ 320. If we hit 320, that’s when capitulation will become a serious topic, but as a risk manager – we are not there yet.
Will the Selling Stop?
- Volatility futures are saying: “Prepare for Impact”. The volatility futures are inverted – aka there is ‘more’ volatility risk in the next 19 days than in the next 47 days. Traders (not investors) enjoy playing in chaotic markets.
- VVIX goes ballistic: and is sitting at 137. The volatility of the volatility index is above 110 = ‘duck and cover’ territory. Both indicators are screaming caution.
- Traders are NOT (yet) running into bonds: There was a fair amount of volume in bonds this past week, but virtually no movement. Next week, if the rally in bonds (/ZB) goes higher – that should signal a sell-off in the S&Ps.
- Dollar rally could be a sign of imminent risk: The dollar could be the new risk indicator, and it looks poised to make a break to the upside. It’s a great confirmation tool, but we’re not there yet. I THINK that this market place will continue to stair-step lower – bounce higher to suck in the dip-buyers – and then collapse under its own weight. So, trade small and often.
GME and the Big Squeeze: Buying-the-Dip is not the same as it once was. I do NOT think that the selling will stop in equities – which should mean a nice ‘long’ opportunity in crypto. Right now, the net equity damage is mild, the volatility is exploding – offering an amazing opportunity to sell premium. Whether that’s selling Covered Call Options on the stocks that you love, or Option Spreads. Selling premium is the correct position.
- GME has caused a re-think: The average hedge fund is protected, but Redditors will cause everyone to become more risk aware and potentially force the SEC to actually ‘do their job’.
- The bid / ask spreads are so wide… that it really makes no sense to buy, because you’re paying a huge (up-front) options premium to ‘the house’.
- In terms of RobinHood limiting trading: When anyone signs on to any trading platform the terms and conditions give the platform certain fiduciary responsibilities. Regulators will only get involved IF the broker / dealers do not act. For every story you hear of a $2m winner in GME, there are corresponding retail losers to fill that gap.
- ‘Don’t let a good crisis go to waste’: The SEC has a new sheriff, and they will want to take advantage of this crisis to make a statement. FYI: there is no love lost between broker/dealers and hedge funds.
- ‘Hedge funds LOVE this kind of activity’: Hedgies are pulling FOR the retail trader, because it’s the hedgies that are actively making markets and ‘killing it’ on the bid / ask spreads.
- Know what +600% volatility means: It means DEATH to most retail clients. The average retail trader doesn’t have the right tools and/or mindset to react in time to save a large trade from going against them.
- WORST CASE: GME could cause a marketplace collapse: If GME goes to $1,000 or $1,200, not only will the leveraged hedge fund(s) be destroyed – but the clearing house that they use will also go under. Remember: Long Term Capital and Bear Sterns? The actions in GME could go beyond ‘systematic’ risk and move into the ‘systemic’ category. THAT would potentially cause a marketplace shut-down, and THAT is why regulators are scared. Regulators could care less about the retail trader or the hedge fund, but are truly fearful of this spilling over and causing a ‘systemic’ marketplace collapse.
On that cheerful note == Clean up your Risk!
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $33,900 / in at $4,310),
- Bitcoin Cash (BCH = $405 / in at $170),
- Clover Health (CLOV = $13.95 / in @ $12.51),
o Sold Feb. $12.50 / $15 covered calls for income
- CTI BioPharma (CTIC = $3.32),
o Sold Feb. $3 / $4 covered calls for income
- Desktop Metal (DM = $22.97 / in @ 14.24),
o Sold Feb. $22.50 / $25 covered calls for income
- Ethereum (ETH = $1,350 / in at $310),
- Grayscale Ethereum (ETHE = $14.92 / in @ $13.44),
- Grayscale Bitcoin Trust (GBTC = $34.69 / in @ $9.41),
- Hyliion (HYLN = $16.61 / in @ $0.32).
o Sold Feb. $15 and $17 covered calls for income
- **Inovio Pharma (INO = $11.41 / in @ $12.89),
- **McEwen Mining (MUX = $1.39 / in @ $1.24),
- Opko Health (OPK = $5.39 / in @ $5.15),
o Sold Feb. $5 covered calls for income
- New Gold (NGD = $1.922)
o Sold Feb. $2 covered calls for income
- Pan American Silver (PAAS = $32.46 / in @ $13.07),
o Sold Jan. $34 covered calls for income
- **Silver Elephant Mining (SILEF = $0.35 / in @ $0.37),
- **SOS Ltd. (SOS = $2.95 / in @ $2.90).
** Spec Plays based upon #WallStreetBets…
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting: <http://rfcfinancialnews.blogspot.com/>.
Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.
If you'd like to view R.F.'s actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.
If you'd like to see R.F. in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:
https://www.youtube.com/watch?v=K2Z9I_6ciH0
Creativity = https://youtu.be/n2QiPSe_dKk
Investing = https://youtu.be/zIIlk6DlSOM
Marketing = https://youtu.be/p0wWGdOfYXI
Sales = https://youtu.be/blKw0zb6SZk
Startup Incinerator = https://youtu.be/ieR6vzCFldI
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
<http://rfcfinancialnews.blogspot.com>
