RF's Financial News

Sunday, October 1, 2017

This Week in Barrons: 10-1-2017

This Week in Barrons – 10-1-2017:

“So you had a bad day…” Daniel Powter … 2005 … https://www.youtube.com/watch?v=gH476CxJxfg

Dear President Trump:

When I’m having a bad day, I’ll forever remind myself of your past week:

- Saturday: You started off by lashing out against the NFL using racially insensitive language, and then you called Kim Jong Un the “Little Rocket Man who won't be around long.”

- Sunday: The NFL players and owners responded by standing united against your outburst with their words and actions.

- Monday: North Korea's minister proclaimed your weekend remark a declaration of war, and the effort to repeal-and-replace Obamacare failed.

- Tuesday: You were criticized for your non-existent emergency response to Puerto Rico’s devastation. And you found out that you backed the losing candidate in the Alabama Senate race.

- Wednesday: You put HHS Sec. Tom Price on the hot seat for his use of private jets, and your slow Puerto Rican response gains global traction.

- Thursday: You played defense surrounding the botched Puerto Rican situation, and released a new 9-page tax reform outline.

- Friday: San Juan’s Mayor Cruz expressed her outrage over your non-action, so you immediately fired HHS Sec. Tom Price.

- Saturday: The world began picking apart your tax reform proposal and is finding some glaring issues:

o “What goes up…”: You’re RAISING the tax rate on the poor, and REDUCING the tax rate on the wealthy. Shouldn’t it be the other way around?

o “Caught in a Trap…”: You’re eliminating the ‘millionaire’ estate tax that will save: YOU = $564m, Wilbur Ross (Sec. of Energy) = $545m, and Betsy DeVos' (Sec. of Education) = $900m.

o “Different Strokes…”: You’re comparing your proposal to ‘trickle-down’ economics, but conditions have changed since the 1980’s.

o “Walk in my shoes…”: To pursue tax reform under ‘special budget reconciliation’, you will need to pass a budget and keep at least 50 Senate Republicans in line. How will this end any differently than your ‘repeal-and-replace’ initiative?

o “Time is on my side…”: Unfortunately, it’s not. This week's 9-page outline is at least 200+ pages short and 5 months late. With only 40 Congressional working days left in the year and the 2018 midterm elections on the horizon, policy analyst Gary Krueger said: “This administration continues to over-promise and under-deliver. We believe nothing will pass on taxes this year or next."

This week Gary Cohn (your economic adviser) said: "A typical family that earns $100,000 with two children, and has used the standard deductions – can expect a tax cut of about $1,000. With that they can: renovate their kitchen, buy a new car, take their family on vacation, and even increase their lifestyle." Does he know that the median American family only earns about half that ($55,000) per year? And it’s hard for me to believe that $500 or $1,000 will: renovate a kitchen, buy a new car, take a vacation, or impact any family’s lifestyle.

But the biggest problem with federal tax reform is that most Americans don’t want it. A recent Gallup poll asked people to rank the 10 most important problems in America – and federal taxes did NOT make the list. The list was: government distrust, racism, immigration, national unity, N.K. tensions, health care, jobs, disaster relief, the environment, and crime. Currently, most of the families that earn between $32,000 and $140,000 pay only 2.5% of their income in federal income taxes. Almost half of all Americans pay no federal income taxes at all – but do pay payroll, excise, corporate, property, sales, state and local taxes. So, if there is a problem with taxes, it’s NOT at the federal level.

Mr. President, it’s been a tough week. Might I suggest that we Americans are strange beasts. We argue, fight, and hate each other – but when something disastrous happens we help each other like no other county, showing incredible acts of kindness. I realize that we all seem to be increasingly wired toward ‘WIIFM’ (“What’s in it for me”), but I think a slight change in your stance toward kindness, grace, humility, integrity, and honestly may go a long way at this point. After all, we’ve all seen our fair share of thieves, hucksters, and hustlers. To quote Dilbert: “I want to like people, but they don’t make it easy.” But that’s not to say we stop trying. So maybe you should take the weekend off, play a little golf, and hit it again on Monday with a different perspective?

The Markets:

“They’re back…” Poltergeist II … 1986

Just when you thought it was safe to forget about Bitcoin – it’s back with a vengeance. Often when stocks go through a pull-back, I look for a half-back retracement to prove that the buyers are back. Both Bitcoin and Ethereum are in that camp. But you need to look no further than the most recent crypto-news:

- Christine Lagarde (the head of the International Monetary Fund) believes that cryptocurrencies may give traditional government-issued ones a "run for their money." She said: "It may not be wise to dismiss virtual currencies. Instead of adopting the currency of another country – such as the U.S. dollar – some economies might see a growing use of virtual currencies for ease and security reasons. Call it dollarization 2.0.”

- Sharps Pixley, London’s leading gold bullion broker, announced that they are now officially accepting Bitcoin as a payment method for gold bullion and other precious metals.

- Catalonia (the northeastern region of Spain that includes Barcelona) has fought off and on for its own independence for decades. It is calling for it again – and has announced Bitcoin as their preferred currency. Spain is trying to keep the vote from happening by arresting all of the Catalan officials, confiscating the paper ballots, and sending the police to block people from entering the polls.

- Zimbabweans are also dealing with a crisis concerning their economy. Their nations’ currency is practically worthless, and this is forcing the country’s citizens towards alternative stores of value like gasoline, food, medical supplies, and bitcoin. Earlier this week, bitcoin reached a high of $7,200 on a Zimbabwe exchange, and the current price for BTC is $6,150.

- Dispensaries in California and Colorado will soon have another payment option for legal marijuana purchases - GreenMed. It is an app that uses blockchain technology (supported by Ethereum) to facilitate payments.

- Viktor Shvets (head of global and Asia-Pacific equity strategy for Macquarie) wrote: "It is unlikely that $400 trillion+ of financial instruments circulating around the world would ever be repaid and most are now backed by assets that are already either worthless or are diminishing in value. How does one describe rates and a yield curve that are directly determined by our global central banks rather than price discovery? Investors should consider integrating cryptocurrencies into their portfolio, as a hedge against the devaluation of fiat currencies like the dollar.”

The above chart shows Bitcoin (BTC = $4,285) over the past 45 days. My Bitcoin buy trigger (for the ‘half-back retrace’) fired at $4,120. I’m targeting $5,358, and above $4,680 we should see a quick rally to $5,000. Ethereum (ETH) also triggered, and I’m looking for an upside target of $420 with significant resistance at $344. Litecoin (LTC) did not reach my $58 buy level yet, but when it breaks above $58 – it will be quick leap to $72.

By the way, a note that I find interesting: CNBC’s viewership has dropped to a 22-year low of 152k viewers. Can you imagine – the largest financial network only getting 150,000 viewers? There are hometown radio stations that do better than that, and they’re talking about Mrs. Jones’ garden.

I’ve had many questions regarding what cannabis / marijuana stocks I like. Without going into an ethical discussion, the trend in the U.S. is to slowly continue to legalize the substance. However, it's not the U.S. that is generating the most excitement. Canada is on track to pass nationwide regulations allowing citizens to buy cannabis openly and legally. If these pass, there will be an absolute explosion in demand from the growers and processors because nationwide legalization for recreational use is simply too big to ignore. The most notable names are Canopy Growth (TWMJF = $8), Aphria (APHQF = $5), and Aurora Cannabis (ACBFF = $2). These are not expensive stocks, but all could easily double over the next year. Also, a relative newcomer that is also doing well is MedReleaf Corp. (MEDFF). And finally, there is a ‘streaming’ company for marijuana stocks – that finances the operations for a percentage of the profits – called Cannabis Wheaton Income Corp (KWFLF = $0.75). My top 3 picks are: Cannabis Wheaton (KWFLF), Aurora (ACBFF) and MedReleaf (MEDFF).

September 2017 was the least volatile September on record. The S&P 500 marked its sixth consecutive monthly gain. Small-cap stocks have been on fire to the upside because they are more sensitive to changes in the domestic tax code. Renewed positive sentiment toward tax reform, could fuel additional gains in the small-cap arena. With devastation comes opportunity, and this is the case for the homebuilding sector. Hurricanes Harvey and Irma could fuel demand for housing-related stocks.

But if you doubt this market, it probably says that you’ve lived through run-ups like: 1995 to 2000, or 2004 to 2007 – only to see the crashes of 2001 to 2003 and 2008 to 2009. It also says that you recognize that this is NOT organic fundamental growth, but rather financial engineering at its finest. The ultimate goal is to either have the Central Banksters own most of the great companies of the world, or continue this madness until the next big idea is ready to launch. But, what else is new? Financial visionaries have been calling for a 50% pullback for 5 years or more. As recent as August 10th Mark Zandi (the chief economist at Moody's) wrote: “If you are a stock investor, buckle in. Stock prices are up by nearly a third over the past 18 months, and seem to be hitting new record highs daily. But it will soon be nothing but a memory. The stock market is due for a significant correction. The stock market is overvalued. Stock prices are much too high despite the good outlook for corporate earnings. The only other time in the past half century that stock prices have been so highly priced was during the tech bubble.” But that writing was almost 2 months ago now, and the DOW is up another thousand points since then.

I’m leaning cautiously long until I see a true coordinated move by the Central Banksters to remove liquidity. But it MUST be coordinated. Having our FED sell $10B worth of its assets while the ECB is still printing $65B and the Japanese are still printing trillions of yen is not a coordinated effort. History is indeed being written and we're living through it. Take it for what you can get, but don't get conned into thinking that this is normal. There is absolutely nothing normal about today's markets.

Tips:

Recommendations:

Bullish: (Sell PCS = Sell a Put Credit Spread)

- Applied Optical (AAOI = 64.67) – Sell PCS – Oct 6: +56 / -57, $0.35

- Expedia (EXPE = 143.94) – Sell PCS – Oct 6: +135 / -136, $0.08

- Bio-Tech Bull ETF (LABU = 85.47) – Sell PCS – Oct 6: +79 / -80, $0.20

- Micron (MU = 39.33) – Sell PCS – Oct 6: +35.5 / -36.5, $0.08

- Royal Carib Cruise (RCL = 118.54) – Sell PCS – Oct 6: +110 / -111, $0.08

- Restoration Hdwr (RH = 70.23) – Sell PCS – Oct 6: +62.5 / -63.5, $0.30

- SPX Futures (SVXY = 93.75) – Sell PCS – Oct 6: +82 / -82.5, $0.16

- Wayfair (W = 67.40) – Sell PCS – Oct 6: +60 / -61, $0.10

- Weibo (WB = 98.94) – Sell PCS – Oct 6: +91 / -92, $0.18

- YY Inc. (YY = 86.78) – Sell PCS – Oct 6: +82 / -83, $0.20

- DBV Technologies (DBVT = 43.46) – Sell PCS – Oct 20: +15 / -10,

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!

Disclaimer:

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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.

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Sunday, September 24, 2017

This Week in Barrons - 9-24-2017

This Week in Barrons – 9-17-2017:

“This market is like a porcupine – always respected, but never loved.” …Arthur Guiterman

Thoughts:

Potentially the largest ‘prickly’ event this past week was the continued geopolitical tension between the U.S. and North Korea. President Trump’s U.N. address was strongly focused on North Korea and Iran. And Kim Yong-un of N.K. responded: “I will make the U.S. pay dearly for his speech. I will tame Trump with fire." But it’s natural for North Korea and the U.S. to continue butting heads because the Korean War never ‘officially’ ended.

Korean War casualties (1950 – 1953) saw over 3m Korean dead, injured and missing – 10% of their total population. Officially, there was simply an armistice – a cease-fire between military forces. No peace treaty was ever signed, and therefore, the Korean War wages on. The population of North Korea has been separated from the outside world so long that they truly believe that Kim Jung-un is a God. But why are they acting so ‘pointed’ toward the U.S.? Simple, Kim Jong-un has seen us overthrow dictators in Iraq, Libya, and currently Syria. The common thread was that none of those countries had nuclear weapons. But couldn’t we just launch an attack and take out his nukes. Yes, but N.K. has so many conventional weapons pointed at South Korea, that no matter how hard and fast we strike, they could easily kill 30,000 South Koreans in the first hour. And, the President of South Korea has told us that they do NOT want us doing that.

Recently, President Trump announced that China directed its Central bank, to contact all their member banks and tell them NOT to do any financial business with North Korea. It will be interesting to see what trade and South China Sea concessions China expects in return. But if they push hard enough, Kim will eventually have to make a move. He's either got to fold up his nuclear program, or allow his nation to starve to death. If he backs down on his nukes, he looks weak to his people. And if he continues with his nuclear programs, his people will starve, lose faith, and commit mass suicides. If the suicides start, Kim could figure that his days are numbered, and try to take out as many of us as possible before his overthrow. One thing is certain, the financial markets aren’t bothered by it. In 2007, the market didn't care about the housing and mortgage bubble, and then in 2008 we had the biggest crash in decades. The financial markets aren't as smart as everyone thinks. If China can't pull it off, or if N.K. makes a mistake and drops a missile on Japan or Guam or one of our ships – then the gloves come off.

Diplomacy has often been called: “The business of handling a porcupine without disturbing the quills.” The porcupine cannot eat when its spines are erect. And if it doesn’t eat – it will starve. And it if starves – the ‘prickly’ spines will die with the rest of the body. North Korea, here’s hoping that diplomacy comes first.

Switching gears: MJP pointed out that Uber got itself in a bit of a ‘sticky wicket’ this week. Effective September 30^th, Uber has lost its license to do business in London. London is one of Uber’s largest and most lucrative markets, with 40,000 drivers and 3.5 million people using its app. Uber won’t take this one lying down.

It also seems that both Ford and GM are going through a rather ‘thorny’ patch as of late. Ford recently scheduled downtime at five production facilities and GM is laying-off over 1,000 workers – both due to slowing automobile sales. Whatever happened to all of those cars that would be purchased due to Hurricanes Harvey and Irma?

Toys R Us is even feeling a little ‘bristly’ as last week they filed for bankruptcy protection. It appears everyone is buying their fidget spinners online, and that has left Toys R Us hundreds of millions of dollars in debt. For now, most of its stores will stay open, but things ‘R’ definitely looking a little ‘spiny’.

Last week the SEC yelled: “We’ve been hacked.” They found that last year one of their electronic filing systems that stored corporate disclosures (non-public information) was breached. The good news was that no personal data was compromised. The ‘touchy’ news was that the hackers profited off of trades they made using the stolen information.

The Markets:

“A Skill is successfully walking a tightrope. Intelligence is never trying it.” … Marilyn vos Savant

Factually:

- This week the FOMC announced that it would raise rates one more time before the end of the year, and said that it would begin a $10 billion a month unwinding of its $4.5T balance sheet – starting in October. The reduction would increase by $10B per quarter until a ceiling of $50B per month is reached and maintained. It will take about 10 years to reclaim their assets. Most economists agree that it never achieved the intended results – so let the games begin.

- MJP reminded me that Automobile default rates registered their largest increase since 2011. But that’s ok because with declining auto sales and the normal end-of-year push to make room for newer models – I’m sure easier credit conditions are right around the corner. Yet again, we get to lend more money to people who can’t pay it back – using the excuse that: ‘We’ll make it up on volume’.

- Speaking of disasters, it seems that the world desperately wants OUT of the U.S. dollar. China and the BRICS are trading for oil in their own currencies. Venezuela will no longer accept dollars for oil. And now Russian President Vladimir Putin has instructed his government to approve legislation making the ruble the main currency of exchange at all Russian seaports by next year.

- 2 weeks ago, we talked about a blockchain ‘smart contract’ that could repossess your TESLA without human intervention. One barrier to that implementation would have been the regulatory uncertainty surrounding whether the smart contract would be enforceable. The State of Arizona appears to be setting the pace on that as it recently passed an amendment to ensure the validity and enforceability of digital signatures recorded on blockchain contracts. In doing so, it offered a boost to smart contract utility – placing them on a legal par with traditional contracts. This positions Arizona as a solid place to set up a blockchain company, and also broadcasts to other jurisdictions that a constructive approach is both possible and productive.

- Last week Cambridge University came out with a comprehensive 114-page study on cryptocurrencies that looks at the digital currency world from an empirical data perspective. Key highlights of the study include the number of users and wallets, the burgeoning cryptocurrency industry sectors and the impact the technology is having, as well as interesting information about exchanges, payments and mining.

- Lately bitcoin has entered bear market territory; however, a 30% pullback after such an amazing rally this year should not come as any surprise. There were many of these corrections on bitcoin’s journey to $5,000, and those who had the stomach to sit through them have been handsomely rewarded. Some critical crypto-levels follow:

BTC (3,669) – Bitcoin fell from $4,975 to its 50% Fibonacci retracement level of $2,974. It has strong support at $3,500. If it breaks that level, then the final support is at $3,409, which is the 61.8% Fibonacci retracement. Long positions can be added once Bitcoin breaks out and closes above $4,113.15. Traders should refrain from buying on dips because a breakdown below $2,974 will be very bearish.

ETH (280) – Ethereum’s fall to the $240 area was predicted, but if it breaks below that it is likely to fall to $223 – which is 78.6% Fibonacci retracement level. If that level also breaks, then the digital currency will retest the lows at $200. Traders should wait for a breakout above $312 to initiate any long positions.

LTC (48) – Litecoin is also in a strong downtrend. If it doesn’t find support at $45, it is likely to fall to $42 and after that to $38. Litecoin will not be out of the woods until it breaks out above the $60 level.

Right now, there's very little that I want to buy-n-hold in this market, simply because it's not wise to buy-n-hold after a 9-year gallop to all-time highs. Moreover, the economy was being pushed by banksters printing money NOT by organic growth, and the banksters are stopping some of the printing presses. What’s the end game here? The ECB currently owns 11% of all European Corporate debt. Do they plan on owing 90% of all companies in Europe? The Japanese Central Bank owns over 50% of their stock market – is their goal to own 90%? It sounds too incredible to believe, but that's the path they're on.

Even the Bank of International Settlements (BIS) in their August writings seemed a bit confused about what to do with the situation. They hit on several topics including: the enormous debt situation, stagnating wages, and how Asia provided the world with cheap labor – robbing other nations of that advantage. They talked about how low interest rates could help to pay off our debt, but how it also encourages people to borrow more – increasing the debt. Right now, global debt and unfunded liabilities are out of control – totaling $2.5 quadrillion. [Debt = $240T, Pensions = $400T, Medical = $250T, and Derivatives = $1.5 quadrillion]. This level of indebtedness cannot be paid back. And what can't be paid – won’t be paid. But it’s their last sentence that caught my eye: "There is no silver bullet, but we recommend policy measures to switch from debt to equity finance."

What the heck is equity finance? Are they talking about corporations and governments issuing more equity paper such as stock? Or about using equity in corporations (that central banks are accumulating) as collateral against their outstanding loans? One thing is certain – this isn't your father’s market any more. Something's going on, and we’re all living through it. I can argue about this insanity, as we have no choice but to tag along – being long these markets until something changes. I’m playing in the financials, the ‘hurricane rebuild’ stocks, and taking what the market will give me.

Tips:

This week played out with Gold pulling back under $1,300/oz. and Crude Oil consolidating over $50/barrel. The U.S. dollar held steady, and Treasuries moved slightly lower. The index ETFs did show some investor rotation with the S&Ps (SPY) remaining steady, the Nasdaq (QQQ) rolling lower, and the Small Cap Index (IWM) pushing to all-time highs. What does this mean for the coming week? Equity markets could continue to see some short-term rotation out of the Nasdaq and into the Small Caps as the end of the 3^rd quarter approaches. I’m looking for a pause in both Gold and Crude Oil. The U.S. dollar will continue to move sideways and down, while our Treasuries will see their uptrend at risk.

Factually:

- The S&Ps ended the week at 2,502.22 – marginally higher than where they started (2,500.23).

- The tech-heavy Nasdaq declined by -0.3% to finish at 6,426.92 – within a couple pennies of its downside expected move.

- Only the Dow Jones Industrial Average finished higher at 22,331.92 – again within cents of its upside expected move.

- Mortgage rates went up for the first time in nearly two months. According to Freddie Mac, the interest rate on a 30-year fixed rate mortgage increased to 3.83%, after topping 4% in mid-July and hitting 4.32% last December 2016. With the FED planning on raising interest rates one more time in 2017 and three more times in 2018, the cost of financing a home will continue to rise. Also because the FED will be reducing its balance sheet moving forward, this will also put upward pressure on rates.

This week Apple reminded us of what a really bad iPhone launch looked like. It was the worst in Apple’s history. Apple launched the new iPhone 8, iPhone 8 Plus, Apple Watch Series 3, and Apple TV 4K. Apple (AAPL) shares have fallen over 7% since their September 12^th announcement – making it their worst monthly performance since April 2016. If you’re feeling nervous about Apple and others like it, and would like to hedge your portfolio – the following ‘risk twist spread’ should be comforting for you. The trade offers an excellent 1 to 10 (risk to reward) ratio. Meaning you would risk $100 to make $1,000 if the S&Ps would decline 10% anytime between now and January 19^th, 2018.

Risk Twist Spread:

- SPY = Jan 19 – 2018 / PUTS = Sell (1) 245 / Buy (3) 235 / Sell (1) 233

- Notice: virtually no upside risk – and a nice hedge to the downside.

Recommendations:

Bullish: (Sell PCS = Sell a Put Credit Spread):

- Apple (AAPL = 151.89) – Sell PCS – Sept 29: +147 / -148,

- Applied Opto (AAOI = 63.80) – Sell PCS – Sept 29: +58 / -58.5,

- Lumentum Hldgs (LITE = 55.10) – Sell PCS – Sept 29: +52 / -52.5,

- Restoration Hdwr (RH = 72.22) – Sell PCS – Sept 29: +66.5 / -67.5,

- SPX Futures (SVXY = 89.11) – Sell PCS – Sept 29: +82 / -83,

- T-Mobile (TMUS = 64.06) – Sell PCS – Sept 29: +60 / -60.5,

- Small Cap Bull (TNA = 59.60) – Sell PCS – Sept 29: +52 / -52.5,

- UltraBull QQQ = (TQQQ = 111.88) – Sell PCS – Sept 29: +102.5 / -103.5,

- Weibo (WB = 100.04) – Sell PCS – Sept 29: +91.5 / -92.5

- Axovant Sciences (AXON = 24.99) – Sell PCS – Oct 20: +12.5 / -15,