This
Week in Barrons – 10-22-2017:
Last week former President
Barack Obama offered these words: “If you have to win by dividing people – you
won’t be able to govern or unite them later.” Former President George W. Bush echoed a similar
sentiment: “Our arguments are turning too easily into animosity. Our disagreements are escalating into
dehumanization. We’re judging other
groups by their worst examples, and ourselves by our best intentions.” Because after all what are we … Barbarians?
Prime Minister Rajoy of Spain should be giving
a big thumbs-up to that ‘barbarian’ remark.
This week he is expected to take formal control of Catalonia (the
semi-autonomous region in northeast Spain that includes Barcelona). Earlier this month, Catalonia voted to break
up with Spain. Spain said the vote was
unconstitutional, and has repeatedly called on Catalonia to back off its plans.
Catalonia sent those calls directly to
voicemail. The result is that next week Spain
will make
the bold move to remove the Catalan leaders, and bring the region under their direct
control. Investors beware – this will
not only test Spain’s democracy, but could also mark a spread to other areas of
the European Union.
Yescarta surfaced last week as a newly FDA
approved gene therapy for cancer patients treating adult lymphoma. Doctors pull cells from a patient's immune
system, genetically modify them to attack and kill cancer cells, and then
inject them back into the patient's body to fight the disease. The good news is that virtually all of the
treated patients saw their cancer shrink or disappear. It’s ‘barbaric’ to learn that the drug costs almost
a half-million dollars per patient.
Do you find Amazon’s behavior – of having
cities bid for the location of their next HQ – a bit ‘uncivilized’? They’re promising a $5B facility, and 50,000
jobs over the next 20 years. While the city groveling was embarrassing,
the taxpayer-funded incentives are worse. With virtually all of the 100 bidding
cities begging and bankrupt, Seattle (their current HQ site) is saying ‘bye and
good riddance’.
I find it ‘crude and unrefined’ that Nielsen
(the company that tracks our TV viewing) still measures it as if we were back in
the early 90’s. In fact, Nielsen just
announced that it will soon begin to track the streaming services (Hulu,
Netflix, Amazon, etc.) – with one small exception. It won't be tracking people who are watching on
their phones, and some other portable devices. So Nielsen, it seems we’re still back in the
‘stone-age’ because you can’t track ANY of the 15 hours per week that the
average millennial spends consuming video content.
Last week, the barbarians finally caught and
killed Daphne Caruana Galizia using a car bomb. She's the investigative journalist who was
reporting on the Panama Papers in Malta. Last year, she exposed the offshore accounts
and shell companies that politicians, officials, and celebrities used to hide
their wealth. Most recently Ms. Galizia
was leading the charge on completing the puzzle, and was (until recently) a
“one-woman Wikileaks.” R.I.P.
And then there’s Bitcoin that hit another
all-time-high of over $6,100 per coin last week – a 500% year-to-date increase. In fact, a $1,000 Bitcoin investment in 2010
would be worth over $35m today. Ben
Carlson, director of institutional asset management at Ritholtz Wealth
Management, sees 2 scenarios that would potentially send Bitcoin into the
stratosphere:
- A user-profile expansion that would include institutional money such as endowments, foundations, and pension funds. After all, even institutional investors can contract FOMO (the fear of missing out).
- A bigger catalyst would be a downturn in the U.S. stock market. Carlson writes: “Endowment funds would flow into Bitcoin, if there was evidence that it acted as a diversifying asset during a stock market correction. And once a few pulled the trigger – the herd mentality would kick in.”
- A user-profile expansion that would include institutional money such as endowments, foundations, and pension funds. After all, even institutional investors can contract FOMO (the fear of missing out).
- A bigger catalyst would be a downturn in the U.S. stock market. Carlson writes: “Endowment funds would flow into Bitcoin, if there was evidence that it acted as a diversifying asset during a stock market correction. And once a few pulled the trigger – the herd mentality would kick in.”
Abigail Johnson (Fidelity Investments CEO and a
‘crypto’ supporter) see 4 barriers to adoption:
- Technology: “There is currently a tradeoff between privacy, scalability, and achieving peer-to-peer settlement. Right now, you can’t have all three.”
- Regulation: “Innovation is outpacing regulation. Regulators still have a steep learning curve, and that will cause growing pains.”
- Control: “Bitcoin’s network (by design) has no formalized structure, and institutions would like the ability to influence the developer community.”
- Humans: “Crypto is often seen as a solution in search of a problem. We need use cases that drive clear benefits for individuals and institutions.”
- Technology: “There is currently a tradeoff between privacy, scalability, and achieving peer-to-peer settlement. Right now, you can’t have all three.”
- Regulation: “Innovation is outpacing regulation. Regulators still have a steep learning curve, and that will cause growing pains.”
- Control: “Bitcoin’s network (by design) has no formalized structure, and institutions would like the ability to influence the developer community.”
- Humans: “Crypto is often seen as a solution in search of a problem. We need use cases that drive clear benefits for individuals and institutions.”
Ms. Johnson continues: “This technology has the capability of doing for the transfer of value
what the internet did for the transfer of information. I’d love it if the technology itself became
slightly less ‘barbaric’ and more civilized and refined.” After all, the most recent poll shows that
nearly 60% of all respondents believe that Bitcoin will hit $30,000 (from $6,100)
before the Dow Jones Industrial Average does (from $23,000). Watch out for Bitcoin to continue to bring
out the ‘barbarian’ in all of us.
The Markets:
It's hard to come up with riveting
commentary about a market that only goes up. Despite the fact that it is earnings season
and thousands of companies are spilling their guts about their last quarter –
in many ways it’s worthless drivel.
After all, IBM released earnings last week and their stock went up $10 a
share – even though their revenues actually fell for the 22nd quarter in a row! I suspect that despite all the reasons this
market should fall, it is going to continue to melt up into year end. Think about it, if you’re a fund manager and
you haven't believed in this rally - you
only have 2 choices: (a) try and explain to your clients why you didn't do so
well, or (b) hold your nose and dive in. I think we're seeing a lot of diving going on,
and we will simply gain more into yearend.
This momentum is strong, and while I think people are going to pay
dearly for all of this – it’s not happening right now. Right now, bad news is ignored, and good news
is rejoiced.
The bulk of
company earnings are set to come in over the next two weeks. Thus far, almost 20% of companies in the
S&P have reported earnings for the third quarter. The reports show earnings growth of 2%, and 76%
of the results have beat consensus estimates.
Currently the market is focused on the world’s improving economic
conditions, and on the growing expectations for tax relief. According to Bruce Bittles, the chief investment
strategist at Baird, tax reform is expected to return over $2T in overseas
profits which will be used for even more corporate stock buybacks. And no one can argue with President Trump’s
tweet that since his election – the stock market has gained more than $5.2T in
value.
But
this is NOT normal. Some investors
believe that this is simply a repeat of what happened back in 1995 - 2000 – the
‘Internet bubble’. Back then, markets
went higher on the hope that the new ‘Internet’ would produce big profits for start-ups
with nothing more than a napkin and a phone.
But the profits never materialized, and most were sorely disappointed. Other investors believe that this is more akin
to the 2004 - 2007 era – the ‘Real Estate bubble’. It was a time when real estate could not go
down, and companies were making gobs of money because of all the financing and
building. That also ended badly.
For
me, I simply think we’re witness to the single greatest coordinated money
printing operation the earth has ever seen. We can all add up the money printing numbers,
but the fact is – we have NO IDEA what amounts are being printed and
distributed. Why? Because the Central Banks have hundreds of
ways to print and distribute without telling us. I remember in 2011 when the FED's
emergency lending program was audited.
They found that our own FED had lent $16T to various European banks
during the 2008 melt down. This was money that was printed that no one
told anyone else about.
Forbes at the time wrote: “$16,000,000,000,000.00 was secretly given out to US
banks and corporations and foreign banks everywhere from France to Scotland.
From the period between December 2007 and June 2010, the Federal Reserve had
secretly bailed out many of the world's banks, corporations, and governments.
The Federal Reserve likes to refer to these secret bailouts as an all-inclusive
loan program, but virtually none of the money has been returned and it was
loaned out at 0% interest. Why the Federal Reserve had never been public about
this or even informed the United States Congress about the $16 trillion-dollar
bailout is obvious – the American public would have been outraged to find out
that our Federal Reserve bailed out foreign banks while Americans were
struggling to find jobs.”
This was a headline that was made pseudo-public. Who knows how much money was really printed
and given away. When Alan Grayson asked
FED-head Ben Bernake: “Who got the money?" Mr. Bernake answered: "I don't know.”
So, what we have is a market that is being fueled by so much liquidity
that a percentage of it is landing in the stock market. The buyers don’t care about fundamentals – why
should they? If $50m in untraceable
dollars fell into your lap – wouldn’t you put some of it to work in the market?
Besides, it just so happens that the
stock market is the single largest and easiest way to ‘launder’ money.
The
only questions then become: (a) Does it stop? (b) Why does it stop? And (c) How
does it stop? Some suggest that it
doesn't have to end, and we can just print forever. However, that brings up the concept of
hyper-inflation hitting at some point. Some
feel that they will ‘juice’ these markets until a replacement for the global reserve
currency is set in stone – and then pull-the-plug. Others believe they'll continue to print and buy
up large positions in the world’s leading companies – until one day governments
will own everything.
This
has already gone much further than I would have ever expected. But judging by Friday, there's more where that
came from. You need to continue to lean
long, and hope for the best.
Tips:
Bitcoin
/ BTC ($6,100): The market cap of Bitcoin alone is now over $100B, and is almost
60% of the entire digital currency market.
Money is currently pouring into Bitcoin while altcoins are getting
hammered. At some point in the near
future, (around the Ethereum Developer’s Conference) the other popular coins
are likely to offer an excellent buying opportunity. For Bitcoin, I’m looking for a target of
$6,350 and another one in the $6,850 range.
I don’t recommend fresh trades up here, and I’m keeping my stop loss at
$5,600.
Ethereum / ETH: ($300): Ethereum has been falling, but should hold the $275 level. I’m not buying on the way down, but rather
waiting for the move higher to begin.
That will give us 2 to 3 days to begin a new uptrend.
Litecoin / LTC:
($60): I’m looking for Litecoin to
hold the $57 level and begin to slowly climb higher. I would initiate long positions at $63. My stop loss remains at $55 with a short-term
target of $75.
If you like investing in ETF’s, the 5 best
ETF investments are: (a) TQQQ – NASDAQ 100, (b) TNA – Small Caps, (c) FAS –
Financials, (d) XBI – Biotech, and (e) UPRO – the S&P 500.
Recommendations:
Bullish: (Sell PCS = Sell
a Put Credit Spread)
-
Electronic Arts (EA = 113.62) – Sell PCS – Oct 27: +109 / -110, $0.17
-
Jr. Gold Miners (JDST = 57.40) – Sell PCS – Oct 27: +53 / -54, $0.20
-
Ionis Pharma (IONS = 64.39) – Sell PCS – Oct 27: +60.5 / -61.5, $0.20
-
Micron (MU = 41.50) – Sell PCS – Oct 27: +38.5 / -39.5, $0.16
-
Nike (NKE = 53.08) – Sell PCS – Oct 27: +50 / -51, $0.14
-
Restoration Hdwr (RH = 83.79) – Sell PCS – Oct 27: +77 / -78, $0.20
-
Roku (ROKU = 21.87) – Sell PCS – Oct 27: +19 / -20, $0.15
-
Shopify (SHOP = 102.10) – Sell PCS – Oct 27: +95 / -96, $0.15
-
SOXL (SOXL = 71.65) – Sell PCS –
Nov 17: +97 / -98, $0.35
-
SVXY (SVXY = 108.19) – Sell PCS –
Oct 27: +102 / -103, $0.15
-
SVXY (SVXY = 108.19) – Sell PCS – Nov 17: +92 / -93, $0.13
-
Wynn (WYNN = 142.33) – Sell PCS – Nov 3: +138 / -143, $1.96
-
YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88.5 / -90, $0.38
-
YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88 / -89, $0.15
My Crypto-Currency
Holdings continue to Include:
-
Bitcoin (BTC),
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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