This Week in Barrons – 9-9-2018:
Thoughts…
No one likes to sacrifice. Today our idea of risk is to start a new business with somebody else’s money. We seem to be so afraid of failing and the repercussions – just ask Harley-Davidson. Nobody wants to get caught in the crosshairs – just ask Google. And then there’s Colin Kaepernick who risked it all. Colin was an NFL quarterback who stood-up for what he believed in. On September 1st, 2016, Colin sacrificed his salary and career to battle the NFL. And then Nike weighed in.
I remember a time when people stood-up to those who took advantage of them. Now, Nike's record is not perfect, but they've done a very good job of standing-up for their athletes. Nike is calling both the NFL's and Donald Trump's bluff. Nike is standing-up and saying: “No Mas!” Nike is counting on people following true leaders, and hoping other corporations follow their lead. Nike is counting on Colin Kaepernick being the Curt Flood of football. In 1969, Curt Flood was an outstanding baseball player for the St. Louis Cardinals, but was traded to the Philadelphia Phillies. It seemed like a routine trade until Curt Flood refused to go. Not only did Curt refuse to go, but he went to his personal lawyer and then to Marvin Miller (founder and executive director of the Players Association) and told them that he wanted to sue Major League Baseball. The decision sent shock waves not only through baseball but ultimately through all professional sports. Those waves reverberate even to this day as he effectively founded ‘free-agency’. And though he was aware that it would cost him dearly, he never wavered. It was important to Curt that he had a say in who he worked for. It was important that he had a say in where his children grew up. Colin Kaepernick's story is not about football, but the gladiators themselves. In football, the players are fungible, and only the coach and owner matter. Players are expected to sacrifice their identity for the team. It feels a little bit like: “Déjà Vu all over again.”
After the initial release of the Nike ad, there was talk of Nike’s sales taking a hit. Unfortunately for the detractors, Nike’s online sales have grown by 31% since the campaigns release. Nike’s stock has also held up, and was up 1% on Friday – +29% on the year. The campaign generated plenty of online buzz, with social engagement rising 1,670% this week, and mentions of Kaepernick spiking 362,280%. After kneeling during the national anthem, Kaepernick has become the face of player protests against racial injustice and police brutality. Nike and Kaepernick are now being mentioned in the same breath as Muhammad Ali and Rosa Parks. Nike is further connecting with the younger generation by being the brand that takes risks and stands up to ‘the man’. [ The main text of the Nike / Kaepernick commercial follows. https://www.youtube.com/watch?v=Fq2CvmgoO7I ]
“If people say your dreams are crazy, if they laugh at what you think you can do – good, stay that way.
What non-believers fail to understand, is that calling a dream crazy is not an insult – it’s a compliment.
Don’t try to be the fastest runner in your school, or the fastest in the world – be the fastest ever.
Don’t picture yourself wearing OBJ’s jersey – picture OBJ wearing yours.
Don’t settle for homecoming queen, or linebacker – be both.
Don’t believe you have to be like anybody – to be somebody.
Don’t become the best basketball player on the planet – be bigger than basketball.
Believe in something – even if it means sacrificing everything.
When they talk about the greatest team in the history of the sport – make sure it’s your team.
If you’re a girl from Compton, don’t just become a tennis player – become the greatest athlete ever.
Don’t ask if your dreams are crazy – ask if they’re crazy enough.
It’s only crazy until you do it.
Just do it.”
The Market:
"You either die a hero, or you live long enough to see yourself become the villain." - Harvey Dent from ‘The Dark Knight’
Although the details are in flux, the pattern remains the same. Last week David Morton (the Chief Accounting Officer at Tesla) called it quits after just a month on the job. Elon Musk (Tesla’s CEO) then went on Joe Rogan’s podcast and took a hit off an apparent marijuana joint, and subsequently drove the stock to its lowest point since April. Tesla remains under governmental investigation, and faces shareholder lawsuits after Musk revealed a plan to take the company private on Twitter last month. Let’s not forget that Moody’s downgraded the company’s debt to junk status back in March – warning that it won’t have the $3.7B in cash to cover normal operations, capital expenses, and debt that comes due next year. Combine all of that with Tesla only having a few weeks left to deliver on Musk’s promise to post sustained profits starting in the third quarter – after losing more than $700m in the second quarter. Given the circumstances, Elon – go ahead and take “Another toke over the line.”
We are seeing risk come back into all the markets – especially in crypto-land. U.S. investors are pre-announcing the death of the utility token ICO. Investors are talking with their wallets, and telling founders to: (a) to take more risk, (b) become more accountable, and (c) structure your plans around delivery. "In an industry built upon governance, there's little governance for founders in the ICO process," said Randy Mundy – managing partner at Techlete Ventures. More funds are beginning to deliver in tranches based upon milestones, and the burden on the founders is becoming more intense. Whether this translates to funds only being released when milestones are hit or founders committing to building a certain amount of technology based on how much money they raise – remains to be seen. To quote Geoffrey Arone, a partner at Arrington XRP Capital: "I think the hype phase is over."
- 47: is the average number of times you check your phone each day.
- Pack your Sneakers: A new study says that 1 in 3 women and 1 in 4 men don’t exercise enough to avoid common diseases. You need at least 150 min. of moderate or 75 min. of intense physical activity each week to avoid putting your body into greater risk of contracting cardiovascular disease, Type 2 diabetes, dementia, and some cancers.
- Benz’s electric SUV: Was unveiled as being the first of many. Branded the EQC, it will go from 0 to 60 mph in under five seconds, 200 miles between charges, and will come with a lot of competition. Audi is debuting its own electric SUV – the e-Tron. BMW is taking orders for its upcoming iX3 electric SUV, and Jaguar is starting U.S. deliveries of its i-Pace later this year.
- 90% of Trading Volume: Comes from quant algorithms, index ETFs, and options. The days of organic buying and selling have gone by the wayside. Central Bank money (trillions) is still out there, and when they buy ETFs – then everything in the ETF basket gets a slice of that money. I’m seeing all manner of imbalances, so going ‘buy and hold’ from here is just not in my DNA.
- Gov’t regulating Free Speech: Coincidentally, Twitter and Facebook were on Capitol Hill last week talking about censorship. The cry went up asking for some form of regulation. Now maybe regulating free speech (on the surface) sounds like the right thing to do. But you’re potentially asking a governing body that can’t deliver the mail efficiently – to now regulate free speech. It's just a bad enough idea when a silicon valley nerd does it – but it’s downright catastrophic if Uncle Sam were to try it.
- Amazon hit $2T: The net worth of Jeff Bezos (Amazon’s founder and CEO) is nearly as much as Bill Gates and Warren E. Buffett combined, and the company captures 49 cents of every e-commerce dollar in the U.S.
Crypto-Bytes:
- Blockchain Patents: The race to amass the most blockchain patents is razor thin. As of August 10th, the top five patent holders are: Alibaba (90), IBM (89), Mastercard (80), Bank of America (53), and the People’s Bank of China (44)
- IBM is Going Live: IBM’s blockchain-based payment system – Blockchain World Wire is out of beta testing. The system will “simultaneously clear and settle cross-border payments in near real-time.” A January report marked annual cross-border e-commerce growth at 20% - with over $135T in payment flows during 2016. IBM’s World Wire runs on the Stellar protocol, and uses the Stronghold stablecoin for many transactions. The key is that it eliminates 5 of the 11 steps associated with the traditional international payment system.
- Battle of the Nerds: The University of Malta launched a EUR 300,000 scholarship fund for qualified students. Colombian President Ivan Duque offered to cut taxes for blockchain firms to encourage growth. Blockchain nerds are in high demand, and it’s estimated that 10X more blockchain nerds are needed to complete the already FUNDED blockchain projects.
Last Week: This last week was an unusual week on Wall Street. U.S. large-cap stocks fell by more than 1% for the first time in two months, and the tech-heavy NASDAQ fell 2.6% to register its worst week in nearly six months. For the week, the DOW fell by 0.2%. President Trump announced that the U.S. is ready to implement a new round of tariffs on Chinese imports worth $267B, and that upset the market. But Ed Yardeni (veteran market strategist) believes the market is still in melt-up mode due to the current trade tensions and things can only improve going forward. “The trade war will be resolved in a bullish fashion, in my opinion. Emerging market crises come and go.” The strength of the U.S. economy was validated by the Jobs Report on Friday, when it reported that 201,000 new jobs were created in the month of August. The unemployment rate remained under 4%, and average hourly earnings rose by 10 cents, up 2.9% from a year earlier. Now, the fictitious ‘Birth/Death’ model injected 52% (104k) of those 201k, but hey – that’s never bothered ‘the Street’ before.
Small BioTech Breakout just Beginning: The biotech sector is expected to triple from a robust $6.7B to $20.2B over the next 3 years. New referendums and legislation will ignite this industry, and investors in the medical technology space stand to make a killing. For the last three months, the biotech sector has outperformed the S&P. Many of the biotech stocks are surging due to major pipelines and regulatory updates, but Puma Biotech has been pummeled and left for dead as of late.
- Puma Biotechnology (PBYI = $47.30 /-52.15% YTD): Shares of Puma Biotech are down -52.15% year-to-date, but a massive turnaround is looming large on the horizon. PBYI closed up 7.62% last week, and investors should watch for a major breakout. Their breast cancer drug has been approved by the European Commission, and they were granted authorization to market their product Nerlynx. In regards to shares of Puma, analysts are extremely upbeat. The highest price target for PBYI is $184 (+247.10% increase) with the median target being $81.50 (+72.50% jump) should be enough to attract attention.
Let’s Talk Weed:
- Cronos Group (CRON = $11.99 / +55.13% YTD): Although the main benchmarks were mixed for most of the week due to trade tensions, Cronos provided positive sentiment. This Canadian marijuana company formed a landmark partnership with microorganism-design specialist Ginkgo Bioworks. The two entities will work together to produce cannabinol-containing compounds or cultured cannabinoids. Apart from the opening of the recreational marijuana market in Canada in October and the expansion of the global medical cannabis market, another deal could push CRON sky high. Interest is brewing from amajor alcoholic beverage maker (possibly Diageo (DEO) ) to pick up Cronos as a cannabis partner. The deal would be similar to the arrangement between Canopy Growth (CGC) and Constellation Brands (STZ).
Next Week:
This past week’s market pressure came from the escalating trade tensions that the solid August jobs report failed to outweigh. Nonetheless, rising wages point to continued support for consumer spending which accounts for 70% of economic growth. The environment remains ideal for stocks given the healthy consumer spending and a strong economy; however, volatility from the trade front is still expected in the weeks ahead. Two important economic reports will be released in the coming week: the Inflation Report on Thursday and Retail Sales on Friday.
Sometimes the news moves markets, and other times the news is used as an excuse for market moves. We may have seen a bit of that last week when we found out that President Trump suggested imposing another $260B worth of tariffs on Chinese goods – on top of the $200B already scheduled. So, was that the real reason for the weak sessions, or it is more complicated? Because, we've had tariffs imposed, threats of more tariffs, stalled talks, etc. for weeks – and yet the market hit all-time highs. I can make the case that we were going to be weak ‘because of’ or ‘in spite of’ the tariff news – as September is often the worst month of the year. So this pause could been ‘baked in’, and maybe they’ll start pushing us higher next week? Unfortunately, I have a nagging feeling that (as the chart above suggests) we might see them work this market lower for a bit longer. With tech not doing well, and the financials stagnant, it will be interesting to see what sector is going to try and lead.
Often, when you're talking about the imposition of tariffs, small caps do well because they're home grown and not terribly worried about import/export duties. I’ll definitely be watching the IWM (the small cap ETF) for signs of strength. Last week, the IWM used the $170 level for support, and it held very well. Again, focus on the IWM remaining above $170 and moving higher – before deploying more capital.
Tips:
Top Equity Recommendations:
HODL’s:
- Amarin (AMRN = $3.15 / in @ $2.90),
- Canntrust Holdings (CNTTF = $7.75 / in @ $3.12), and
- Canopy Growth Corp (CGC = $51.23 / in @ 22.17),
- Ceco Environmental (CECE = $8.47 / in @ $7.55),
- Correvio Pharma (CORV = $4.86 / in @ $4.79),
- Cytokinetics (CYTK = $7.85 / in @ $7.25),
- Geron Pharma (GERN = $6.06 / in @ $3.75),
- Progenics Pharmaceuticals (PGXY = $7.36 / in @ $8.10).
Thoughts:
- Amazon.com (AMZN) became the second $1T American company on Tuesday. AMZN crossed the threshold when it hit a high of $2,050.50. Amazon sells everything from computing space to peanut butter to appointments with plumbers. Amazon captures 49 cents of every e-commerce dollar in the U.S. It has an employee workforce of more than 550,000 people while generating over $178B in annual revenue. Amazon continues its dominance in the retail sector and is likely to be the first U.S. company to reach $2T in market cap. But with the new push higher, Amazon Web Services (AWS) will be the prime growth engine.
Crypto:
- Bitcoin (BTC = $6,350) - $40,000 by end of year
Thoughts:
- BTC: This past week, bitcoin (against the U.S. dollar) started a major downside move from well above $7,200. The BTC/USD pair even broke the $6,214 low, and settled below its 100-day simple moving average (4-hours). It tested the $6,100 support and it is currently consolidating above the $6,150 level. It seems like it could correct a few more points, but the $6,350 level is going to act as strong resistance. Above $6,350, the next major resistance level is $6,500. On the downside, the $6,000 and $5,950 support levels could provide a strong base for a recovery.
- ETH: Is Ethereum dead – absolutely not, but there are a lot of people short ETH right now. Last year (around this same time) right before the BTC futures were announced, BTC went from $4,800 to $3,000. Currently the CBOE is waiting on approval from the CFTC to launch an ETH futures contract. Could ETH make the same move that BTC did a year ago? If it did, that would put ETH around $1,400. Currently, we are sitting at mid-2017 levels – right before we had the massive bull run. Am I surprised that we retraced this far – absolutely. And while I don’t think that it will go past $150 – this is crypto.
Options:
- Amgen (AMGN): Oct 19, +195 / -200 Call Debit Spread,
- Celgene (CELG): Sept 21, +92 / -95 Call Debit Spread,
- VIX (VIX): Sept 21, +12.5 / -16 Call Debit Spread.
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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Until next week – be safe.
R.F. Culbertson
