This
Week in Barrons – 11-12-2017:
“Times, they are a changin’…” Bob Dylan -
1964
In 1998, Kodak had 170,000 employees and
sold 85% of all photo paper in the world.
In 2001, Kodak declared bankruptcy.
It only takes an average of 3 years for a company who refuses to
re-invent itself – to go out of business.
The next 3 years will bring us a confluence of: Ai, healthy living,
autonomous and electric cars, and jobs. After
all:
-
Uber
is the largest taxi company in the world, but owns very few cars.
-
Airbnb
is the biggest global hotel company, but doesn’t own a property.
-
IBM’s Watson gives legal advice that is 90% accurate, and
can diagnose cancer 4 times faster and more accurately than humans.
In 2020, the auto industry will
be completely disrupted. You won’t want
to own a car anymore. You will call a
car with your phone – it will show up and drive you to your destination –
without a driver. You will not need to
park it, only pay for the driven distance, and you can be productive while
driving.
-
Cities will see 90% fewer cars, and need 90% fewer
parking spaces.
-
Auto accidents will drop by 99% – creating financial trouble
for insurance companies.
-
If you can work while you commute, people will migrate to
more rural neighborhoods.
-
Home solar power installations will become the norm on
new construction.
-
Cheaper electricity will deliver less expensive
desalination plants.
The Tricorder (of Star Trek
fame) will be released in 2018. It will
work with your phone – take a retina scan, a blood sample, and a breathalyzer. It will analyze 54 different bio-markers, and
will identify virtually any disease.
This will give everyone access to world class medical diagnosis for one low
price.
But don’t take my word for
this. Bob Lutz is the former vice-chairman
and head of product development at GM.
He also held senior positions with Ford, Chrysler, and BMW. He said: “We
are
approaching the end of the line for the automobile. The end state will be the fully autonomous
module with no capability for the driver to exercise command. You will call for it, it will arrive at your
location, you'll get in, input your destination, and go. In a short time, human-driven vehicles will
be legislated off the highways, because countries will look at the accident
statistics and figure out that human drivers are causing 99.9% of all
accidents. You won’t have to convince
individuals to give up their cars, just the major fleets that purchase between
3 and 5m vehicles per year. Auto performance
will be the same across brands, which will be the death knell for companies
such as BMW, Mercedes-Benz and Audi. We
will witness the demise of the automotive dealer and automobile advertising as
we know it. I think everybody sees this coming,
but no one wants to talk about it. For a
short time, autonomous driving will be focused on the automobile companies –
but soon that technology and others like it will become ubiquitous.”
The
real problem going forward will be job creation. What do you do with the tens of millions of
unemployed car and truck drivers, lawyers, insurance agents, and investment
advisors? Be ready for governments to make
bad decisions – because they’re going to be asked to re-invent themselves within
time-horizons that will be much shorter than they are accustomed. Yes Mr. Dylan, truer words have never been
spoken.
The Market:
"I’m not acting
anymore because I sold a tequila company for a billion f***ing dollars"… George
Clooney.
Factually:
-
“I’m in debt up to my
eyeballs.’ Total consumer credit rose by 6.6% year-over-year. October hit an all-time high of $1.1T for
auto, and almost $1.5T for student loans.
Time will tell if we're brewing another 2007 debt crisis.
-
“Talk about being well endowed.” It turns
out that a lot of universities have been sending their endowment monies overseas to avoid paying taxes. Friday, it was revealed that over 100 U.S.
universities including: Duke, Stanford, Colgate, Columbia, USC, Johns Hopkins,
Indiana and Texas Christian admitted to using secret offshore investments to hide
away a combined $500B in rewards. The
new Republican tax proposal (if passed) would not tax any of this money. “Congress is essentially
subsidizing nonprofits by allowing them to engage in these transactions,” said Norman I. Silber, a law professor at Hofstra
University. “All the while, they’re raising tuition far in excess of inflation,”
said Utah Sen. Orrin Hatch.
-
‘Baby she was born to run.” Last weekend, Shalane
Flanagan became the 1st American woman to win the women’s portion of
the New York City Marathon in 40 years.
-
“There’s something happenin’ here.” While TV hasn't been talking about it, something really ugly
is going on in the Middle East. It
appears that Israel and Saudi Arabia are tag teaming to start a war against
Hezbollah – with Lebanon and Yemen looking to be in the cross hairs. This market has learned to ignore all the threats of
war, but unlike N.K. – if Israel wants war – it will get war.
-
“I’m (not) lovin’ it.”
Grad students are freaking
out about the GOP tax plan. Many Masters’
and Ph.D. programs function as apprenticeships where candidates teach classes
and conduct research to gain experience. In exchange, universities waive their tuition
and provide modest annual stipends. The
current system only taxes student stipends.
The proposed tax plan would include tuition waivers as income – and
virtually quadruple every grad students’ tax bill.
-
“One toke over the line.”
Cannabis lovers in California awaiting recreational marijuana will be in
for a big shock when they see Cali’s newly imposed 15%+ tax. And local California jurisdictions are encouraged
to add their own taxes on top of this.
Medical marijuana is currently priced at around $35/bag ($6/joint). The additional taxes will drive prices into
the $50 - $60 area – keeping the illegal market alive.
If you’re keen on marijuana stocks:
-
Constallation Brands (STZ)
just took a 9.9% stake in Canopy Growth (TWMJF) – telling the market to watch
out for the arrival of cannabis-based beverages.
- Scotts Miracle-Gro (SMG), with its
acquisition of Earthgro and General Hydroponics is well-positioned for growth with
below-average risk.
-
Cree
(CREE) produces indoor and outdoor LED lighting for marijuana growers. Approximately 1/3 of the marijuana in America
is grown indoors, and the electricity consumed is equivalent to the power used
by 1.7m homes. With weed growers switching from the more
expensive sodium (HPS) lights to Cree’s LED lights – the future looks bright.
Last week was the one-year anniversary of the 2016 U.S.
presidential election. Since the
election, the S&P has turned in the best performance in the first year of a
presidential term since 1989 (George H.W. Bush) – returning 23.7%. A total of 59 new record highs were set by the
market in 2017, reflecting a rise in investor confidence. Earnings growth through the first three
quarters of the year was 9.4%. The 4
sectors that performed the best since
the election are: technology (+41.7%), financials (+33.5%), materials (+26.7%), and
industrials (+23.5%). However, this past
week the large-cap indexes broke a streak of eight weekly gains, and resulted in
modest losses for the U.S. stocks. Hopes
for tax reform are fading, and this could dramatically impact small-caps. After all, small cap stocks stand to gain the
most from faster U.S. growth and lower tax rates because of their domestic
focus.
As we head into November
options expiration next Friday, the equity markets still seem unfazed. I’m looking for gold to pause its downtrend,
and crude oil to slow its uptrend. The U.S.
Dollar Index is looking better to the upside after some consolidation, while U.S.
Treasuries are biased lower. Emerging
Markets continue to churn following their break of long term resistance. Volatility looks to remain at low levels
keeping the bias higher for the equity indexes: SPY, IWM and QQQ. When reviewing their charts, the SPY and QQQ are
the strongest, with IWM sitting in a bull flag right above its 50-day moving
average.
My theory has been that we'd be okay for most of November,
but then potentially see the first real signs of a downturn in early December. Why? With earnings season finishing up this coming
week, the only thing left to look forward to is a FED rate hike. As corrupt as Wall Street is, they know that
there are big issues with this economy, and a rate hike is not going to help
90% of those issues.
On Thursday, the GOP Senators said that they
are thinking of delaying the corporate tax rate cut until 2019. If the tax cuts get pushed off into the
future – the markets may decide to end this upside run fairly soon. I know that sounds almost impossible. But, IF there is a time to take some
meaningful profits, it would appear that early December might be that time.
Tips:
After months of anger and
debate, a group of businesses that provide bitcoin services and many bitcoin mining
firms suddenly stopped the bitcoin
‘hardfork’ called Segwit2x. Out of an
‘invitation-only’ meeting, criticisms of Segwit2x came largely from developers,
many of whom didn’t necessarily object to the idea of a larger block size, but to
the culture that had sprung up around it.
It didn’t help matters that the Segwit2x software upgrade was behind
schedule and (if keeping to the timetable) would potentially be introduced
without adequate testing. There remains
a strong sense that bitcoin still needs to scale. “We'll
either bring bigger blocks to people [with bitcoin], or we'll bring the people
to bigger blocks [on bitcoin cash],” said developer Peter Rizun. The news that a block size increase would not
be pursued was highly praised by supporters of the Lightning Network, a
proposed off-chain micro-transaction network that seeks to move bitcoin
transactions off the blockchain itself. And
while this news could position Lightning as a likely solution, the big advances
that appear needed to get Lightning off the ground are now likely to come under
scrutiny. Unfortunately, it’s too early for
me to report on a two-day bitcoin scaling and security technical conference that
was scheduled at Stanford Univ. this weekend. Some think that businesses will embrace
alternative protocols such as bitcoin cash (BCH - which has a larger block size
and has tripled in value since Wednesday) or Litecoin (LTC) – as being vehicles
for faster merchant payments.
Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread)
-
Amer.
Airlines – AAL (45.82) – Sell PCS, Nov 17th: +42 / -44, $0.25,
-
Abbv
– ABBV (95.43) – Sell PCS, Nov 17th: +92 / -93.5, $0.25,
-
Boeing
– BA (260.85) – Sell PCS, Nov 17th: +255 / -257.5, $0.35,
-
AliBabba – BABA (186.70) – Sell PCS, Nov 17th: +175 / -177.5, $0.38,
- Elec. Arts – EA (112.75) – Sell PCS – Nov 17th: +109 / -111,
$0.42,
-
Home
Depot – HD (164.10) – Sell PCS, Nov 17th: +155 / -157.5, $0.30,
- Bio-Tech Bull - LABU (73.92) – Sell PCS – Nov 17th: +69 / 71,
$0.45,
- Red Hat - RHT (124.18) – Sell PCS, Nov 17th: +118 / -120,
$0.25,
- Ultrapro QQQ – TQQQ (133.75) – Sell PCS, Nov 17th: +125 / -127,
$0.20,
- Western Digital - WDC (88.92) – Sell PCS – Nov 17th: +85 / -86.5,
$0.28,
- Biotech Trust - XBI (82.77) – Sell PCS – Nov 17th: +79 / -81,
$0.23,
My Crypto-Currency holdings include:
-
Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ripple
(XRP), Litecoin (LTC), Monero (XMR), Dash (DASH), NEM (XEM), NEO (NEO), Zcash (ZEC),
and OmiseGo (OMG).
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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