RF's Financial News

Sunday, April 1, 2018

This Week in Barrons - 4-2-2018

This Week in Barrons – 4-2-2018:

With the start of Baseball season: It’s becoming increasingly more difficult to tell the players without a program. Everyday there is some new trade rumor or a market ending event. Just last week the market was seeing ‘strike-out after strike-out’ fretting about a trade war with China – until China acknowledged that some concessions are necessary. Then South Korea started ‘putting the side down in order’ until a new S. Korean deal was announced that: “Imposes a limit of 2.7m tons of S. Korean steel exports to the U.S. per year” [That is about 70% of the existing amount.] “The deal will also allow the U.S. to extend its 25% tariff on imported Korean pickup trucks, and will double the number of U.S. vehicles allowed to enter S. Korea annually.” So, the trade war is on hold because the world realized that the U.S. is customer #1 for the world’s goods, and nobody wants to ‘cut off their nose to spite their face’.

Then we found out that ‘the closer’ was warming-up. Right under our noses, it seems that China recently launched the Petro-Yuan – their version of the Petro-Dollar. As reported by Bloomberg: “With China being the world’s largest oil consumer, yuan-backed crude oil futures for September have started being offered on the Shanghai International Energy Exchange. Experts see China's yuan-dominated contracts as historic – since the launch ends years of setbacks and delays from the time China first attempted this listing in 1993.”

What’s troubling with this launch is that the U.S. dollar is the world's reserve currency ONLY because of the ‘petro-dollar’. The petro-dollar is a nickname for a deal that was stuck with the Saudi's decades ago – that guarantees oil sales would only be priced in U.S. dollars. Given every nation uses oil, that gave every nation a reason to accumulate U.S. dollars. China is now threatening that rationale. China buys most of its oil from Russia. By launching the ‘Petro-Yuan’, both Moscow and Beijing told the world that they will be using their own national currencies for all oil transactions, and therefore, will be reducing their U.S. dollar holdings. Also in October of 2017, Beijing launched a new electronic payment system for settling transactions in yuan and Russian rubles. That means that settlements for Russian oil deliveries to China (totaling over 60m tons per year) can be done seamlessly, and without U.S. dollar interference.

Hayden Briscoe (Head of Fixed Income at UBS Asset Management) said: “China’s launch of its crude oil futures exchange will improve the clout of the yuan in financial markets, and will threaten the international primacy of the U.S. dollar. This is the single biggest change to our capital markets – maybe of all time. This helps to cement the exchange's viability, and challenges the existence of a petro-dollar system. This will decrease demand for the greenback, and boost both U.S. inflation, and demand for yuan from foreign investors eager to participate in the Shanghai International Energy Exchange. This will drive the price of the U.S. dollar downward.”

I have written many articles suggesting that the Chinese wanted more global exposure for the yuan. In 2010, I thought that the Chinese would get the yuan included in the Special Drawing Rights basket, and that was accomplished in October 2016. Now, they're really throwing down the gauntlet. Oil has been dominated by OPEC, and has been priced in U.S. dollars for decades. Since every nation needs oil, every nation needed to inventory U.S. dollars – but not anymore. Russia and China have been very vocal about being forced to use U.S. Dollars, and it looks like they ‘hit it out of the park’ with this one.

If the Shanghai International Energy Exchange really has legs, then this will damage the U.S. dollar. What I will be watching is how the slide in the U.S. dollar will affect the price of gold (which is also priced in dollars). As a side note, other nations that have tried to get away from using the U.S. dollar for oil didn’t fair so well – just ask Libya, Iraq, etc. Just sayin’.

The Markets:

Despite crypto-currency advertisements being banned on the most popular media platforms, intense regulatory scrutiny, and a lot of bad press – money has been pouring into the ICO market since the start of the year. Blockchain startups raised $3B through ICOs in the first two months of the year - which is almost triple the pace of 2017. Smart (VC) money has also been busy setting an all-time-high for crypto-investment in a 3 month period. Last week Morgan Creek Capital, the $1B hedge fund run by outspoken blockchain bull Mark Yusko, announced it has acquired Full Tilt Capital – a venture capital company dedicated to investing in blockchain. Yusko thinks Bitcoin will reach the $1m mark in coming decades. They are currently raising $500m in additional funds in order to become the largest crypto hedge fund in the world. Yusko is looking toward pension and insurance funds as customers because ‘crypto’ is a non-correlated asset class that will create disruptive power across all sectors.

It’s just business, but number don’t lie – below are the stock price increases between December 2016 to March 2018:

Increase: Increase:

Facebook 32% Weibo 191%

Amazon 100% Nvidia 112%

Apple 48% ServiceNow 119%

Netflix 143% Shopify 200%

Google 30% Square 275%

Info Bits:

“Free-range Parenting…” Utah passed a law that makes it LEGAL for kids to do things like walk to school on their own. Very retro.
“Do I have to…” Facebook's Mark Zuckerberg agreed to testify before Congress about that time 50m FB users unknowingly had their personal data shared with a political consulting firm in the UK. Zuck said that he’d be a ‘NO-SHOW’ when the UK asked him to appear in front of Parliament.
“Look ma, no hands…” Google’s Waymo showed off a new driverless all-electric Jaguar. It's planning to roll out 20,000 of these by 2022.
“Who isn’t acquiring a healthcare company…” Walmart (WMT) announced that they are engaged in early-stage talks about developing ‘closer ties’ with Humana (HMT). This closely follows in the footsteps of the CVS-Aetna and the Cigna-Express Scripts deals.
“Gimme some money…” On Thursday, Under Armour (UAA) disclosed that some 150m MyFitnessPal accounts were hacked.
“Gimme more money…” One week ago, the City of Atlanta's computer system was hit by a malware attack that encrypted a big chunk of the city's files. To unlock everything, the hackers demanded a $51,000 ransom in bitcoin. This was just the latest in a series of attacks against U.S. cities. Everyone thinks that SamSam (an anonymous group of hackers) did it, but no one’s really sure. Governments aren’t exactly known for their high-tech skill sets. The fact that they're getting hacked and held for ransom on a somewhat regular basis may mean it's time to throw out those Windows ‘95 computers and start acting like it's 2018.

Crypto Bytes:

Coinbase announced that it will support ERC20 tokens. Three ERC20 tokens that are receiving considerable buzz from the announcement are:

0x (ZRX): The 0x team has existing ties to Coinbase,
VeChain (VEN): Billionaire Tim Draper is an official investor in VeChain, and
OmiseGO (OMG): A popular project that received a commendation from the Bank of Thailand.

Coinbase is in talks to acquire Earn.com for between $30 and $120m.
Spring Labs: (a decentralized global credit ecosystem that exchanges identities and credit information via smart contracts) raised $14.75m in a seed funding round.
MedCredits (a decentralized healthcare market) partnered with Civic – a secure identity platform in hopes of creating the world’s first decentralized public registry of physicians.

Komodo (a decentralized ICO platform) partnered with ValueNet – a Beijing-based VC fund that will provide strategic consulting services for decentralized ICOs occurring on Komodo’s blockchain.

Volatility can often translate to ‘reversion to the mean’. From there it will oscillate up and down – inside of a range. From January 2017 to January 2018, the VIX (volatility index) bounced around 12. Then in February, the market corrected a bit, the VIX quadrupled in price, and then settled back down to oscillate around 20. Has the world changed and re-set the VIX’s mean from 12 to 20, or is this just another ‘head-fake’ as we return to complacency? Factually:

DOW ended Q1 DOWN 2.5% ending 9 consecutive quarters of gains – the longest such rally since 1997. It also posted its 2^nd consecutive negative month.
S&P ended Q1 DOWN and ended a 9 consecutive quarter rally.
NASDAQ ended Q1 UP 2.32% for its seventh straight quarterly gain, but registered it’s 2^nd straight monthly decline

Market analysts are excited because a seasonal trend is on the horizon. Dating back to 1950, April has always been a strong month for stocks. In fact, April stands as the best month of the year for the DOW, the 3^rd best for the S&P, and the 4^th best for the NASDAQ. The DOW is below its all-time-high by 9.4%, the S&P is off by 8.1% and the Nasdaq by 7.5%.

This week Facebook (FB) tried its best to quell the negative publicity surrounding its recent data breach scandal. The social media giant has decided to end its partnerships with several large data brokers. These data brokers target people in social networks for advertisers. In addition, Facebook adjusted the privacy settings on its service to give users better control over their personal information. This action by FB brought outcries of ‘foul play’ by 3^rd-party data providers – such as Axcion saying that it will lose $25m because of FB’s actions.

As for the rest of Wall Street, you could almost hear tiny voices saying: "Defend the 200-day moving average – Defend the 200-day." Back on February 9^th, the DOW was down 1,600 points intra-day, and the S&P fell slightly through its 200-day moving average. It was exactly THEN that the Central Banks came in and pushed the DOW higher by 500-points, and saved the day. Since then, we've rallied, fallen, rallied, and ultimately fallen back to test the 200-day.

In terms of what’s next? I think they're going to string a few more green days together, but I don't think we’re out of the woods yet. I have this nagging feeling that there's another drop coming. I say that because we haven’t seen a massive volume flush downward as of yet. I'd be all over ‘buying the dip’ (BTFD) if we had a massive high volume dump, but without that – we’re in chop-mode. I think next week’s tradeable rally lasts a few days, but after that – I’ll be looking for another pull back. So, look for plays to hop on to, but not to marry – not yet.

Tips:

Top Equity Recommendations:

Marijuana stocks (HODL):

Aurora (ACBFF),
Cannabis Wheaton (CBWTF), and
Canntrust Holdings (CNTTF).

CannaRoyalty (CNNRF) announced a pair of acquisitions: Kaya and Alta Supply.
Friday Night (TGIFF) announced strong financial results along with ones from subsidiaries American Medical and Infusion Mfg.
Aphria (APHQF) announced that newly acquired Nuuvera would be renamed Aphria International and focus on: Australia, Germany, Italy, Lesotho, Malta, Portugal, and Spain.

Options (I LIKE):

SPY, SPX, and DIA long into April 4^th,
Northrup Grummon (NOC) – long into April 20^th (earnings), and
Raytheon (RTN) – long into April 20^th earnings.

An article in Coindesk said that Bitcoin may be approaching the bottom of its bear run. Bitcoin (BTC) hit a 50-day low of $6,630, and there are indications it's going to get worse before it gets any better. The speculation is that BTC will drop in the $6,000-$6,600 range over the weekend. Historically, BTC repeatedly makes bull reversals after it drops below 30 on the Relative Strength Index (RSI) – so any drop below $6,614 should be short-lived. The fact that BTC has recently recovered the $6,614 to $7,200 range only validates the historical pattern. Going forward, be on the lookout for:

BTC finding a bottom over the weekend in the range of $6,600-$6,000.
A daily BTC close above $9,177 that would open the door for a test of its major resistance level at $11,700.
A significant bull run will only be triggered if price breaks above $11,700.
On the downside, look for multiple closes below the $6,000 level, and that would trigger a continued sell-off.

Top Crypto Recommendations:

Bitcoin (BTC), and
Fiat.

To 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 RF'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 RF 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

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, March 25, 2018

This Week in Barrons - 3-25-2018

This Week in Barrons – 3-25-2018:

#DeleteFacebook and #UnspoilMe:

Since the Cambridge Analytica data scandal broke last week, Mark Zuckerberg (the CEO of Facebook) has been the focus of intense criticism. His early public responses to the scandal failed to address any of the key questions surrounding Cambridge Analytica’s misuse of people’s personal data. In his final interview with CNN, he still attempted to convince us that Facebook was the VICTIM. A hashtag campaign: #DeleteFacebook is fully underway, and even Elon Musk has deleted the Facebook pages for Tesla and SpaceX. Personally, I don’t see Facebook becoming MySpace over night, but let’s ‘backup’ and set the scene.

Employing subterfuge, Cambridge Analytica (with Facebook’s knowledge and permission) hired 270,000 people via Mechanical Turk to answer questions in an application that they installed on Facebook. That application gave Cambridge access to the group’s Facebook (FB) information – along with the information of their 50 million friends. Although the 270k people may have given Cambridge Analytica permission to access their own data – the other 50m NEVER gave their consent. And NONE of those violated gave Cambridge Analytica permission to use and distribute their data.

We all know that FB is in the business of selling our private information to governments and corporations. What’s surprising is that FB refuses to take responsibility for doing it. When the Russians invaded FB, FB refused to acknowledge it. Now Cambridge compromises 50m FB users, and FB claims that: “It’s not a data breach.” I can only assume that at FB making money takes precedence over ethics, employees, users, or our country’s elections. With Monday’s resignation of FB’s Chief Information Office, it was revealed that he was pushing for increased transparency surrounding Russia's campaign antics but was told to ‘cease and desist’ by FB leadership. Lately, the FTC is reviewing whether FB violated a consent decree that regulated user privacy, and if 50m users were in fact exposed – then FB’s legal exposure will be in the trillions. A former FB data operations manager explained that data extracted by 3^rd party developers “could not be monitored by FB. In fact, executives turned a blind eye to the security risks because legally they would be in a stronger position if they didn’t know about the abuses.”

Cleary FB understands that all the power today comes from chips (computers) not clips (guns). We need to stop coughing up our life stories (for free), and allowing FB to slice, dice, and sell them to advertisers – so we can be influenced. We’ve allowed our social networks to become the custodians of our personal information, and it’s time to take it back.

Then there’s Google, Siri, and Alexa – all home gadgets capable of voice interaction, playing music and audiobooks, assembling to-do lists, setting alarms, streaming podcasts, controlling smart devices, providing weather, traffic, and news, etc. And it seems that they are even capable of ‘laughing’ at me. I remember in 2015, Samsung drew criticism for its always-on voice detection policy that stated: "Please be aware that if your spoken words include personal or other sensitive information, that information will be among the data captured and transmitted to a third party." If that wasn’t creepy enough, it seemed that owners of Samsung Smart TVs were also vulnerable to spying. Newly published documents detail a problem called ‘Weeping Angel’ – an attack designed by the CIA and United Kingdom's MI5 that make Samsung smart TVs look like they're turned off when they're not. When the CIA was asked about the program they said: “We would never use them to spy on Americans. Samsung TVs are sold all over the world, and there are bad people everywhere.”

Okay, so we have a history of the CIA spying on people through Samsung TVs, Facebook releasing personal data on the world, Google and Siri listening to everything that’s said, and Alexa laughing at us – could it get stranger? Sure, it seems Samsung has a new program called ‘Unspoil Me’. It solves the problem of someone spoiling the ending of a TV show for you. Simply go to the Samsung website http://www.samsung.com/se/unspoilme/eng/, they will hypnotize you, and REMOVE the memory of that show’s ending. Their website clearly states: “You decide what TV series you'd like to forget. Then you will be guided through a self-hypnosis, digital, audio experience – led by a certified hypnotist. The experience lasts for about 23 minutes, and has to be experienced without interruption in order to work. Once you've completed the hypnosis it's recommended that you get one nights sleep, before you watch your TV show for the first time – again.” http://www.samsung.com/se/unspoilme/eng/

For me, creepy just hit a whole ‘nother’ level. The same outfit, that worked with the CIA, wants to crawl around in my head, and help me ‘forget’ things - really? They say it will only remove that TV show – honestly? It’s probably an over-reaction on my part, but something tells me that there's more to this than just wanting to let me see a TV show through a fresh pair of eyes. Bottom line, we need to start taking back our own information and privacy. My friends have been moving off Facebook for years. Now that Facebook’s stock is down, shareholders are suing, and users are losing trust - #DeleteFacebook along with Alexa, Google, Siri and Samsung all are in the cards for me.

The Markets:

A couple Crypto-Bytes:

- 10 Years: is how long Twitter and Square CEO Jack Dorsey thinks it will take until Bitcoin becomes the single global currency of the Internet.

- Yi Gang: newly appointed head of China’s Central Bank said: “Bitcoin is a currency that provides freedom to anyone that uses it”.

- Fundstrat Global Advisors: “We believe the current crypto purgatory period will last for between 150 and 175 more days. That implies the bull market for alt-coins really starts mid-August to mid-September”.

- Peter Thiel: PayPal co-founder: “I would be long Bitcoin, and neutral to skeptical of just about everything else … with few exceptions.”

- VersaBank: is beginning to secure digital assets via their own blockchain-based bank.

- PwC: announced a blockchain audit service that should give companies more confidence that the technology is being used properly. PwC is already seeing traction as a major exchange and a digital wallet provider have signed up as customers.

- Jane Street: a global liquidity provider and market maker, revealed that Bitcoin was just added to their list of tradable assets. Being a high-frequency trading firm that trades $13B in equities, their announcement is a clear indication that prominent providers are getting involved in crypto. For traders looking to make a quick buck on Bitcoin’s intraday price movements, Jane Street’s entry isn’t making their lives any easier.

- Cybersecurity and blockchain: A recent report declares cybersecurity a top impediment to economic growth, and cites blockchain as a potential “aid to help the economy function more efficiently and securely.” The statement describes blockchain as being “nearly invulnerable to cyberattacks”. So while there’s been no official endorsement of Bitcoin, central bank digital currencies continue to be likely contenders to win Congressional approval.

Last week U.S. stocks were besieged following the convergence of three major Wall Street threats. (1) Our FED 2.0 raised its benchmark interest rate by a quarter percentage point to between 1.5 and 1.75%, and places the new effective federal funds rate at 1.63% - the highest since Sept. 2008. (2) Pres. Trump announced the beginnings of a trade war with China by signing a memorandum that imposes up to $60B worth of tariffs on Chinese goods. The memo stipulated a 30-day consultation period to begin after a list of appropriate Chinese goods was submitted – leaving a window for the two countries to hold discussions. China responded by saying: “China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the U.S. will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.” (3) Finally, a $1.3T government funding bill was signed.

In a weekly response to those events, the DOW and S&P plunged by almost 6%, and the NASDAQ dropped below 7,000. After all, a full-blown bi-lateral trade war could damage the global economy, and significantly bring down profits of major U.S. exporters. The markets’ biggest sectors (technology and banking) slumped the most due to their massive overseas business interests. Bank stocks fell because investors sought refuge in bonds, driving yields down – which is detrimental to bank profits. The only bright spot was the marijuana industry when Pres. Trump exempted Canada from the tariff discussion, and Canada passed Bill C-45 – further securing country-wide ‘weed’ legalization after June, 2018.

Last week I showed the DOW inside a narrowing sideways cone – wondering which direction it would break. There were hundreds of reasons for it to break to the downside, and only 2 to the upside: Central Bank and Corporate intervention. This week the downside won, as Friday’s DOW closed at 23,533 – approximately 200 points from its 200-day moving average of 23,357. That will be the next level of support, and ‘yes’ I think we will get there. Why? Last week’s 700+ and 400+ point down days were on just above-average volume. For a washout to end, there needs to be a large volume capitulation day – and we haven’t had that yet. Our markets are currently in a short term oversold condition. Only 15% of the S&P remains above their 50-day moving averages – so a bounce is in order. Watching how far that bounce takes us before we roll over again will be key to deciding whether the correction is over. After all, last week was the worst for the market in over 2 years. Tomorrow, we could experience ‘Margin Call Monday’, or at minimum – increased volatility.

If you have a long portfolio, it’s time to begin to assess your risk. Last week’s expected move in the SPX (the S&P Index) was around $45.60, but we moved $164 = 3.6 TIMES that amount. This means that the option market professionals are not handicapping risk correctly – and that’s scary. Although you may think market volatility has increased enormously, looking back over 20 years of data shows that last week’s actual price movement was only ‘slightly’ above average. This means we could see larger 5 to 6% moves going forward – rather than the 2 to 3% moves that we’ve experienced lately. And even though the recent downside moves in a stock like Amazon have been large, we’re not even back to Amazon’s December levels. Think for a minute, if Amazon (which currently sits at $1,500) fell to its December level of $1,100 – the devastation that would fall upon the NASDAQ would be horrific. It would NOT necessarily be caused by people selling Amazon directly, but more by Mutual Fund and ETF (QQQ-style) redemptions. Because Amazon has such a prominent weighting inside many of the global funds and ETFs, it would take a significant hit by virtually any global exit strategy. For next week, the SPX is expected to move $77 in 4 trading days – which is 1.75 times last week’s 5-day expected move. The Financials are looking at twice their normal implied volatility, and if the bonds rally again – the financials will get crushed. So, a bounce is to be expected – but a lot of people will be selling into that bounce. I’m wondering if we see a little flight-to-crypto = safety this coming week. Just be careful and remember – cash is a position.

Tips:

In recent days, daily volumes of Bitcoin, Ethereum and the other cryptos have remained low, but if they can sustain the current daily trading volume over the next few days, the market may be able to rebound. Currently, I’m not finding any buy setups in the cryptocurrency space. If Bitcoin can break above $9,561 – I’ll change my tune, but until that point my next buy point for Bitcoin is at $4,450, In order words, ‘look out below’ unless we pierce above the $9,561 level.

Top Equity Recommendations:

Marijuana stocks (HODL):

- Aurora (ACBFF),

- Cannabis Wheaton (CBWTF), and

- Canntrust Holdings (CNTTF).