This
Week in Barrons – 9-10-2017:
“Whether a balloon lives or dies, strictly depends upon where you fly it.”…
Richard Branson
Thoughts:
Most importantly, I would like to express my
most sincere thoughts and prayers to those caught in the path of Hurricane Irma. I hope you are safe, and reading this in the
comfort of friends and loved ones.
Before I purchase any asset, I first determine
if I’m an investor, trader or speculator in that asset. My answer strictly depends upon whether I can accurately
forecast the price of the asset at the end of a specific time horizon.
I frequently talk to people who tell me that
they are long-term investors, but want to know why the asset they purchased last
week isn't up 20% by now. I truly understand that when you put your
hard-earned money to work – you would like to see results. And I’d like to think that a well-timed buy
will garner a quick response. But it doesn’t always work that way because
markets are inherently unpredictable. Just when a stock starts to move and you jump
in long – Kim Jong-Un decides to fire a missile over Japan and the Dow sells
off for 200 points. That doesn't mean that you made a mistake, but it
does force you to decide whether you’re a speculator, a trader or an investor. Jesse Livermore (in his book Reminiscences
of a Stock Operator) said: “A speculator is not an investor. His object is not to secure a steady return on
his money at a good rate of interest, but rather to profit by an immediate rise
or a fall in the price of that asset.” In
Jesse’s world, speculating is not gambling but rather defined as “making an educated
guess (with 70% certainty) about where an asset's price will end. And it’s only the degree of certainty that
rises as you move from speculator, to trader, and finally to investor.”
Is gold an investment? A lot of people will tell you that because
gold has no inherent value, you’re strictly speculating that gold’s price will
go higher in the future. But that’s not true because the price of gold is
directly correlated with the U.S. dollar.
As the dollar loses purchasing power through inflation – the price of
gold tends to rise. In addition, when
the economic environment gets a little dicey, gold prices tend to rise as a ‘flight
to quality’. You can't bank on gold in
the same way as a dividend producing stock, but gold (as an investment) serves
an important role in any portfolio – especially as a hedge against inflation
and a stock market sell-off.
Is bitcoin an investment? You can't (at least not yet) value bitcoin in
relation to the U.S. dollar. But there's
no denying the incredible run bitcoin and other crypto-currencies have enjoyed.
It's interesting to me that bitcoin has
become somewhat of an alternative to gold. Bitcoin certainly has more utility than gold –
because you can actually buy stuff with it, and crypto-currencies (in general) are
gaining acceptance on the world stage. Even the CBOE (Chicago Board of Options
Exchange) will be offering cash-settled bitcoin futures in the spring of 2018.
That’s an important step as it will single-handedly begin to stabilize the
price of bitcoin, and will therefore lead to many more people using and trading
it. The question is: At what price will
bitcoin stabilize? It seems certain that
bitcoin isn't going away, and if you already own bitcoin – then you're investing
based upon the price being higher in the spring than what it is right now.
Is biotech an investment? Back in June, I remarked about a cancer drug
trial for a company called Loxo Oncology (LOXO). The stock recently gapped up from $49 to $70. But even after that huge jump, can Loxo go
higher? After all, what's a truly
effective cancer treatment worth? We can all try to put a number on it,
but unlike gold and bitcoin – it’s value is often determined more by politics
and emotions than correlations. For
example, just a couple days ago Gilead Sciences announced that they were buying
Kite Pharmaceuticals (another cancer biotech company) for $12B. That acquisition put all cancer-related biotechs
(like Loxo) in play, and it’s only via speculation that Loxo's stock price will
continue to climb higher.
Personally, I invest in gold and bitcoin,
and speculate on biotech. I base my category
decisions solely on whether I can (with over 70% certainty) forecast their price
next week – next month – or next year.
Speaking of UN-certainty, last week Equifax decided to tell the world: ‘Opps, I
guess we’ve been hacked. Yes, it was a
while ago. And sorry we didn’t tell you
before now.’ Equifax is one of the three
major U.S. credit reporting agencies and (among other things) is responsible
for calculating your credit score. It
seems that earlier this year, hackers broke into the Equifax data repository
through a website vulnerability, and stole the personal information of 143m Americans
– roughly two-thirds of all adults living in the U.S. They appropriated social security numbers,
birth dates, addresses, driver's license and credit card numbers. That’s a lot of personal information that’s
out there being sold. Equifax said that
it’s cybersecurity was lacking because it didn’t want to spend the money to
adequately protect your information, but offered up a website that allowed you
to report your identity theft. However,
what they failed to tell you is that by checking the identity theft box on their
own ‘consumer protection’ website – their terms and conditions are worded so
that it absolves them of any negligence and prevents you from suing them going
forward. Honestly, I think I’ll be
investing in Equifax on the short side.
The Markets:
“You do the math.”… Meg
Ryan from the movie When Harry met Sally
In terms of predicting the weather, the
three best sites – that truly ‘do the math’ are: weatherbell.com, bearpawsweather.com, and tropicaltidbits.com. Weatherbell.com
has both a free and premium side. The
premium side is used mostly by hedge funds and farm conglomerates – people that
have a lot riding on how the weather will impact their crops. But the free
side is packed with enough information that you can get a pretty good glimpse
of what's coming your way. Joe Bastardi
is one of their forecasters, and is about as good as it gets. He predicted that Hurricane Irma would hit the
western side of Florida when everyone else was saying that it was going east –
so he’s got my vote. If you want to look
at the tropics, and get a really inclusive view of what's out there and where
it might be going – then visit: bearpawsweather.com.
They put all the charts, satellite photos, spaghetti tracks, cones, and
official statements in one place. And on tropicaltidbits.com you will find the latest
tracking models. The site allows you to
pick what predictive model you would like, and proceed through it – hour by
hour. Based upon the models that I’m
seeing, I truly hope that somebody got the math ‘wrong’ on this one – because Irma
looks to be the real deal.
Historically, the S&Ps have declined 2% over the 10 days before and
after a major hurricane. The effect
tends to moderate going forward due to the pickup in public and private
spending. Underperformance is most noticeably felt in sectors such as: insurance, hotels,
restaurants, airlines, telecom and cable providers (due to capital
expenditures related to repair and cancellations), and industrials (due to rising
supply costs, disruption in production, and transportation). The out-performing
sectors are those tied to repair and replace such as: energy equipment and
services, communication equipment, automobiles, air freight, distribution, basic
materials, and engineering companies. The top performers typically are in the transportation-distribution sector
(rising 3.1%), with construction materials coming in second (rising 2.9%).
This past week we learned
that FED Vice-Chairman Stanley Fisher submitted
his resignation effective Friday, October 13th. Mr. Fisher you’re right – it’s not as much
fun navigating the world's largest economy when you are raising interest rates and
paying back debt – versus pushing rates to 0% and printing money like there’s
no tomorrow. In his letter to President
Donald Trump, he cited personal reasons for his departure from his term as vice
chair – that was set to expire on June 12, 2018. He knows the deal, and wants
out before this thing really turns ugly.
September is a notoriously weak month for the stock
market, and a couple of hurricanes could compound that weakness. Hurricane Harvey has already hurt the job
market. Last Thursday the federal
government reported that initial jobless claims surged 27% to the highest level
in over two years. Most of that increase
came from Texas. The markets are wary
that Hurricane Irma will have an even
larger impact on the broader U.S. economy.
Right now, it’s hard to be
excited about the long side of this market – but that’s not to say it’s a ‘no-brainer’
going short either. The financials are
rolling over. The energy sector (which
was rallying after Hurricane Harvey) announced that it’s taking a break. For a stock to move higher – you need a lot
of coordinated buying. However, for a
stock to fall you do not need concentrated selling, but rather simply a lack of
buying. Think of it like this: Nvidia
(NVDA) is a great company, but what if everybody who wants to own NVDA –
already owns it? Very seldom does a
stock like NVDA trade sideways until finding more buyers. What most often happens is that institutions
and ‘buy-n-holders’ have pre-set stop-orders on their NVDA shares. Meaning, that if NVDA falls to a certain
level – it will automatically trigger their shares to be sold. Unfortunately, today’s markets are really
good at ‘finding liquidity’, and will tend to drift toward these pre-set levels
in order to intentionally trigger sell (or buy) orders. Selling often begets more selling and stocks
like NVDA will then begin to drift lower until either: (a) corresponding buy
orders are found underneath a much lower level of support, or (b) some brave souls
attempt to ‘catch a falling knife’.
The pockets of strength in this
market are somewhat localized to the biotech sector as of late, as we have a
true flight to quality going on with bonds (TLT), the Yen (FXY), and gold (GLD). These safety plays along with a small ‘dead-cat’
bounce are reflected in my recommendations below. I will continue to discuss various shenanigans
surrounding bitcoin and other crypto-currencies next week, but for now I’d like
to reiterate my hopes and best wishes for those trapped in Hurricane Irma’s
line of sight.
Tips:
Recommendations:
Bearish:
-
UVXY – Sell Put
Credit Spread – Sept 15: +26 / -26.5
-
Gold Miners
(DUST) – Sell Put Credit Spread – Sept 15: +17.5 / -18.5
Bullish:
-
Boeing (BA) –
Sell Put Credit Spread – Sept 15: +230 / -232.5
-
Gold Miners
(NUGT) – Sell Put Credit Spread – Sept 15: +37.5 / -38.5
-
Gold Miners
(JNUG) – Sell Put Credit Spread – Sept 15: +20.5 / -22
-
Twilio (TWLO) –
Sell Iron Condor – Sept 15: +27 / -30 to -29 / +32
-
Lulu Lemon
(LULU) – Sell Put Credit Spread – Sept 15: +57 / -57.5
-
Ultra-Financials
(UYG) – Sell Put Credit Spread – Sept 15: +89 / -90
-
Small-Cap Bull (TNA)
– Sell Put Credit Spread – Sept 15: +50 / -51
-
SodaStream (SODA)
– Sell Put Credit Spread – Sept 15: +54 / -55
-
Ultra-Dow 30 (UDOW)
– Sell Put Credit Spread – Sept 15: +59 / -60
-
Athena Health (ATHN)
– Sell Put Credit Spread – Sept 15: +125 / -126
-
Avis (CAR) –
Sell Put Credit Spread – Sept 15: +35 / -36
-
Applied Opto
(AAOI) – Sell Put Credit Spread – Sept 15: +51.5 / -52.5
My Crypto-Currency Holdings
Include:
-
Ethereum (ETH),
Litecoin (LTC), Dash (DASH), Digix (DGD), MaidSafeCoin (MAID), Metal (MTL), OmiseGo
(OMG), PIVX (PIVX), Patientory (PTOY), Steem (STEEM), and NEM (XEM).
To 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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