This Week in Barrons – 5-6-2018:
“Got my mind on my money, and my money on my mind.” Snoop Dogg … spokesperson for Ripple @ Consensus – May, 2018
“May the 4thbe with you.” I remember seeing the original Star Wars movie in 1977, and then immediately going to the library to look up how to build a laser. My neighbors had no idea how lucky they were that the Internet had not been invented. If I had YouTube and Amazon back then, I’d have had either a ramjet powered Schwinn Sting-Ray, or would have turned my house into a crater.
“Attack Elon – Attack.” I’ve decided to name my next dog – Elon. Wall Street is still shaking from Elon Musk’s words on Tesla’s earnings call. He correctly labeled analysts’ questions about capex and gross margins as boring, and then took questions from a 25-year-old retail trader who owns 54 shares of Tesla stock. Bravo to Elon, and yes Tesla lost close to $1B last quarter.
“I’ll see myself out.” That’s what Cambridge Analytica said last week as the political consulting firm declared bankruptcy. Turns out, being synonymous with Facebook's privacy scandal did not do wonders for the business. Now, they’re officially exiting stage left.
“This is going to hurt you – a lot more than it does me.” In the wake of Cambridge Analytica, fake news, and Russian election-tampering – Mark Zuckerberg wants to make Facebook more proactive in policing content, but thinks that it will take 3 years to get there. He needs to: (a) rebuild trust, (b) fulfill fan expectations for cool stuff, and (c) maintain developer relationships whose businesses depend on FB's continued data collection based advertising model.
“Never in history has history meant so little.”… MCC
“Might as well mail it in.” Goldman Sachs (GS) announced that it is launching a crypto-trading desk. They will open the floor by only trading Bitcoin futures, but Goldman’s entry has larger crypto-implications for:
- Stability – as more banks follow – volatility will ebb with more capital.
- Legitimacy – as an asset class, because Bitcoin ‘isn’t a fraud’ after all.
- Price Discovery – increased liquidity allows for more agreement on price.
- Infrastructure – Wall Street only trades with state-of-the-art toys, all of those will be adapted to trade cryptos.
- Marketing – to secure a sizable advantage, GS will want to spread this word faster than Kanye’s tweets.
"Not available for tracking per request from owner." – This was the sign on a flight-tracking website. It seems people have been obsessively watching where Amazon CEO Jeff Bezos's private jet travels - in an attempt to figure out where the second HQ will be located. Dun-dun-dun.
“Can you feel it coming in the air tonight?” The tension between Iran and the United States is almost palpable. Iran is launching a pilot program for its own government-backed digital currency that will be used to circumvent U.S. sanctions. Just like the Venezuelan Petro, digital currencies fall outside the purview of global superpowers. For countries subject to financial sanctions, transferring value through a crypto-secure payment mechanism is a tangible solution to their woes. And because digital currencies can be pegged to any real world asset – the ways to bypass financial chokeholds are endless. We could be headed towards a future where countries launch campaigns against resources, such as oil, in an attempt to hamstring the purchasing power of their enemies.
“Look, here’s the deal.” Morgan Stanley wanted to beat Goldman Sachs to the crypto-trading floor. Truth be told, everyone wants to beat Goldman. First mover advantages to trading houses are real, and there is simply too much growth taking place in crypto for companies to ignore. It’s either get with the crypto program, or get out of the business. An anonymous source said: “This is the next arms race. Everyone is rushing into cryptos. There isn’t a bank, a fund, a former legend, private equity, venture capital, exchange, consulting firm – that isn’t diving into the digital gold rush.”
To put this in context, the dot-com bubble popped around $3 to $4 Trillion – and that was in a market only accessible to accredited investors, with limited operational hours, and during an age without social media. Cryptos are: global, 24/7, accessible via the Internet, and connected. The current crypto-market cap is 10 TIMES less than the dot-com one. Don’t you think Wall Street is thinking the same thing? It’s not just luck that France reduced their 45% cryptocurrency tax rate down to 19%.
To put this in context, the dot-com bubble popped around $3 to $4 Trillion – and that was in a market only accessible to accredited investors, with limited operational hours, and during an age without social media. Cryptos are: global, 24/7, accessible via the Internet, and connected. The current crypto-market cap is 10 TIMES less than the dot-com one. Don’t you think Wall Street is thinking the same thing? It’s not just luck that France reduced their 45% cryptocurrency tax rate down to 19%.
The Market:
“You can’t have a better tomorrow, by constantly thinking about yesterday.” … Charles Kettering.
Despite the optimism surrounding strong first-quarter earnings and improving economic growth, investors are trying to grapple with the timing of upcoming interest rate hikes by the FED, and skepticism on striking a favorable deal with China. A couple hi-lights of the week include:
Walt Disney (DIS): The movie ‘Avengers: Infinity Wars’ made an estimated $630m at the worldwide box office for its opening weekend. That shattered the previous record for an opening weekend held by Universal's "The Fate of the Furious," which made $541m. It’s also made over $1B in its 11 days of release.
Tariffs: Last week President Trump extended the steel and aluminum tariff exemptions for Canada, the EU, and Mexico until June 1st. The White House announced agreements for permanent exemptions for Brazil, Argentina, and Australia. U.S. Treasury Secretary Steven Mnuchin flew to Beijing to begin wide-ranging talks with Chinese representatives focusing on three major issues: intellectual property, key technology secrets, and currency manipulation.
Jobs: On Friday, the U.S. Labor Department released the April Jobs Report showing that the economy added 164,000 jobs, and the unemployment rate fell to an 18 year low of 3.9%. Wages increased by a paltry 0.1%, and the labor force participation rate remained low at 62.8%. Yes, the headline number was weaker than estimates, but my issue is with the government’s birth/death model which added a ‘fake’ 260k jobs to the final 164k number. Therefore, If you remove those ‘made-up’ jobs – we actually LOST 96,000 jobs last month.
Apple Earnings: Apple (AAPL) beat their profit and revenue expectations due to their software and services segment. The revenue from app purchases and subscriptions such as Apple Music, iCloud, and Apple Pay grew by a remarkable 31% last quarter. Investors are hopeful that this segment will compensate for the slowdown in the global smartphone market.
Buybacks:Apple made history by spending $23.5B in Q1 on stock buybacks. No company has ever spent that much. Now Apple is earmarking an additional $100B for upcoming stock buybacks. The size of Apple’s buyback is larger than the market cap of Goldman Sachs (GS), and about twice the market cap of Tesla (TSLA). Many investors are suggesting that Apple do something ‘real’ with that money other than buying back their own stock – imagine that.
Recruitment:Bitcoin (BTC) appears to finally be making some headway with one of its less-appreciated, but critical challenges: recruitment. Simply put, the number of developers contributing to the cryptocurrency's open-source code is suddenly on the rise. While the number of code merges over the previous 2-month period didn't jump up drastically, I’m seeing new names within the GitHub repository.
Crypto-Trend:Bitcoin (BTC) investors are becoming increasingly excited because over the last two weeks BTC has trended consistently higher. The Relative Strength Index (RSI) and Williams’ Percent Range (WPR) remain in the neutral region – moving Bitcoin into a position of strength that could post strong gains in the short-term. The total crypto market cap has doubled since early April. Analysts are calling a bottom, and announcing the beginning of the 2018 cryptocurrency bull market. In another positive sign, two weeks ago the daily trading volume in the cryptocurrency market was $20B. On Friday, the volume peaked at $30B, and is showing continued increases along with crypto-demand.
Ethereum: Ethereum (ETH) is also on a fast-track higher. Experts are going on record stating that Ether is NOT a security under the laws of the U.S. It’s their observations that have triggered the rapid increase in the price of Ethereum. Tokens such as Decentraland, EOS, Ontology, WanChain, and Ziliqa continue to post strong gains, and serve to reinforce the ‘non-security’ prediction.
FYI, it was interesting that the peace treaty between North and South Korea is being stored on the Ethereum blockchain.
Weed:The voting on The Cannabis Act / Bill C-45 in the Canadian Senate is about a month away. That is the reason why Canadian growers have been expanding their growing capacity at a searing pace. The key to securing long-term supply deals is to have large inventory and production capabilities. When sales of recreational marijuana begin by September, $5B or more in additional annual sales could easily be added to the books.
Last Thursday the market was down 400 DOW points – before the magic happened. The excuse given was that over in China, trade talks had NOT gone badly. Once again, we bounced off the 200-day moving average and are using the 50-day as overhead resistance. Is this when we finally break through and start a prolonged run higher? The Street hopes so. The only thing resisting it is reality. I’m going to wait for some ‘real proof’. The S&P has gotten near its 50-day, three times in three months. Each time it spent 3 sessions around the 50-day, and then faded back. So, I’m going to be waiting until Day 4 (Wednesday or Thursday), before getting terribly excited.
Top Equity Recommendations:
Marijuana stocks (HODL):
- Aurora (ACBFF),
- Cannabis Wheaton (CBWTF), and
- Canntrust Holdings (CNTTF).
Options:
- COST – looking for a bullish move higher into $300 over next 30 days,
- VIX – 15 is the new ‘low’ and I am bullish over the next 60 days,
- HDGE – is a great way to play the downside of this market, and if you haven’t reviewed it – take the opportunity on: www.LMTR.com
Top Crypto Recommendations:
Goldman Sachs (GS) diving into cryptocurrency trading is indeed a positive sign for the crypto market’s future, along with the news about analysts from BlackRock leaving the firm to fund a Blockchain-focused venture capital fund. After the decline from the frothy crypto-levels of December 2017, investors finally feel that they are getting a favorable entry opportunity. There remain crypto-naysayers such economist Nouriel Roubini (who correctly predicted the 2008 crash). But to balance Mr. Roubini’s negative crypto predictions, Alexis Ohanian (co-founder of Reddit) claims that Ethereum is on its way to $15,000 this year.
A step in that $15,000 direction will be taken on Monday when SEC and CFTC officials tackle the question: Is Ethereum (ETH) a security? Several regulators have said that Ether and Ripple are currently in a ‘gray area’. Last week former CFTC Chairman Gary Gensler stated: “There is a strong case that one or both are noncompliant securities.” For that to be true, officials need to obtain evidence indicating that investors purchased Ether with the expectation that it would increase in value. That prognosis is administered via The Howey Test, which has been the pitfall for numerous ICO projects in recent weeks. But many crypto developers and lawyers think that the test is outdated, because digital assets were not accounted for in existing laws - so does it make sense that they’re graded by the same rulebook? When reviewing the sides:
Ethereum IS a security: This relates to The Howey Testand whether investors expect a profitable cash out from ETH. Regulators are also studying the impact that The Ethereum Foundation has on price fluctuations. It could be argued that bounties paid to developers who identify software bugs impact price by improving the quality of Ether’s codebase.
Ethereum is NOT a security:Backers such as Andreessen Horowitz argue that Ether is (a) too decentralized for one party to exert undue control over the network, and (b) it’s main use is to access the utility offered by applications built on top of their platform. Fractions of Ether are paid as transaction fees when users wish to access applications. If he can show that demand is driven by those requests, the argument that Ether is a security should fall apart.
Ethereum IS a security: This relates to The Howey Testand whether investors expect a profitable cash out from ETH. Regulators are also studying the impact that The Ethereum Foundation has on price fluctuations. It could be argued that bounties paid to developers who identify software bugs impact price by improving the quality of Ether’s codebase.
Ethereum is NOT a security:Backers such as Andreessen Horowitz argue that Ether is (a) too decentralized for one party to exert undue control over the network, and (b) it’s main use is to access the utility offered by applications built on top of their platform. Fractions of Ether are paid as transaction fees when users wish to access applications. If he can show that demand is driven by those requests, the argument that Ether is a security should fall apart.
In terms of some crypto-trends:
BTC/USD ($9,505): On May 3rd, Bitcoin broke out of its triangle pattern and has entered an ascending channel – which is a bullish sign. Currently, it is facing resistance close to $10k. Breaking above $10k would make its next targets $11k and $12k respectively. I then anticipate strong resistance at the $12,172.43 mark. On the downside, if BTC breaks below the support line of the ascending channel, it can fall to $9,178 and then down to its 20-day EMA of $9k. The up move will be in danger only on a break below $9k.
ETH/USD ($781): Ethereum’s break above $745 completed a ‘V’ shaped bottom formation. This bullish set up has a target of $1,130, with some minor resistances at $900 and at $1,000. On the downside, $745 will be its first support, trendline support is at $700, and the 20-day EMA is at $645. The trend will turn bearish if ETH drops below $700. You can wait to enter on a retest of the $745 level, but no trades should be initiated if it closes below $700.
BCH/USD ($1,690): Bitcoin Cash has broken through its $1,600 resistance and has an immediate target of $2,000, and $2,400 after that. Aggressive traders can buy above $1,600 – just keep a close stop at $1,400. Due to numerous overhead resistances, keep your trading size small.
XRP/USD ($0.86): Ripple continues to trade inside the range of $0.76 to $0.93777. A break out of this range will indicate bullishness, and a rally to $1.229 is likely. On the downside, support exists at the 20-day EMA and below that at $0.76. The longer Ripple is rangebound, the stronger will be the ensuing breakout. I’m waiting before entering any long positions.
LTC/USD ($169): After remaining in a tight range for the past few days, Litecoin has scaled above the overhead resistance of $160. However, it could not close above my target objective of $180. On the downside, any break of the $141 levels will be a negative sign; therefore, keep your stops at $140.
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Please be safe out there!
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