This Week in Barrons: 9-16-2018:
The Truth is out there…
Tell me the truth – is it too late to buy stocks? David Tepper thought so. Last week David Tepper (an extremely successful investor) was on CNBC saying that he previously cut his exposure to stocks to just 25% of his money. He did it because the logic side of his brain suggested that with rising rates, tariffs, a sinking housing market, a 10-year bull run and a host of other problems – stocks might just stall out. He then admitted that he was wrong, and therein lies the problem. If David Tepper knows that it’s not organic growth or earnings, and normal investing wisdom is telling him that the markets should have faded – I guess the truth is way out there. Because if anyone would know when the Central Banks were going to pull the plug – it would have been David Tepper.
Give it to me straight – should I quit my job? Probably. American workers are quitting their jobs at the highest rate since 2001. The most recent labor turnover survey (JOLTS) reported that from June to July, 3.6m workers (2.4% of the entire U.S. workforce) voluntarily left their jobs. Andrew Chamberlain (Chief Economist at Glassdoor) said: “Those 3.6m workers are likely making a smart move. The average increase in compensation for a worker who quits their old job for a new one is about 15%, and you’re never going to get a 15% raise by staying at your current job." So go ahead and take the leap, and doing it for the money after decades of stagnate wage growth is as good a reason as any.
Where were you on 9/11? I've never met anyone that didn't know where they were and what they were doing on 9/11. For me, I was CMU’s campus – heading off to teach a class. Suddenly there were air raid sirens going off – only this time nobody was saying: “This is just a test.” As a result, there were feelings of disbelief, shock and widespread fear. I remember the day classes resumed (just days after the attack). I asked the class if anyone had lost someone special in the attack. A young lady raised her hand and said that she had lost her mother. A class of a couple hundred students suddenly grew silent. I offered my sympathies, and told her how honored we were for her being here today. Another student cried out: “What are you doing here?” She turned to me and the class and said: “We lived near one of the towers. I have nowhere to go. The only friends and home I have left are here.” There wasn’t a dry eye in the house.
Presumably 9/11 was executed by 19 Saudi’s with box cutters. Saudi's that had been trained at the Venice Florida airport, and as of 9/10 – couldn’t figure out how to fly a Cessna 150. These same Saudi's, somehow took the reins of some of the most sophisticated aircraft of the time, and perfectly navigated them into the World Trade
Towers and the Pentagon. James Corbett did a poignantly funny, 4 minute video suggesting the lunacy of that ‘truth’: https://www.youtube.com/watch?v=hgrunnLcG9Q Obviously the official story is mostly fantasy, and questions still remain like: Who did it and why? Who allowed it to happen? And What did they hope to gain? The truth behind 9/11 is out there somewhere.
I personally have a soft spot in my heart for first responders, and many of them were sacrificed that day. It’s a special kind of evil that knows firemen and police will be rushing INTO the scene to do all they can to help – only to have them killed as well. It’s tough to think that anything positive came from that disaster, but at that moment I saw a side of America that I'd never seen. What I'm talking about is UNITY. For several weeks, there was no white or black, no racism – no hatred. In cities like New York and Jersey City, no one was giving each other ‘the finger’. People were talking closer, quieter, and wanted to feel like they were part of the solution. Everyone seemed ‘nicer’ to each other.
9/11 changed our world, and NOT for the better. It brought in: the Patriot act, TSA checkpoints, militarized police, and a destabilized Iraq and Libya. I will continue to wonder what really happened. I will write something about it each year because it took me on an emotional roller coaster where (to quote Jimmy V) “I thought, I laughed, and I cried – all in the same day.” I lost friends that day. Had they been family instead, the day would have been a lot rougher on me. Ever since 9/11, I think of that young lady in my class that suddenly had no mother or home to return to. All I can tell her is that the truth is out there – and someday we’ll find it.
The Market:
The Market: At current levels, the S&P is 0.4% below its record close set in late August, and both the DOW and the NASDAQ are within 2% of their all-time highs. For the week, the DOW advanced 0.9% - its 4thpositive week out of the past 5 and its highest level since January. The S&P rose 1.2% this past week, and extended its daily winning streak to 5 days on Friday. Finally, the NASDAQ gained 1.4% for the past week, which made it the 3rdpositive week out of the past 4.
Info-Bits:
- USA is #1 in Oil Production: For the first time since 1973, the United States has reclaimed the throne as the world’s largest producer of crude oil. On Wednesday the Energy Department published the preliminary estimates showing that Russia and Saudi Arabia have been unseated. According to the U.S. Energy Information Administration (EIA), production growth in the Permian Basin of West Texas in February was the reason why the U. S. has overtaken Saudi Arabia. It’s the first time it happened in more than two decades. The EIA sees the U.S. remaining atop the world oil market through 2019. With this latest development, technical analysts are telling investors to take advantage of the coming rally in the energy sector.
- Apple – Check out my Toys: The new iPhones are bigger, faster, and more expensive. The iPhone XS Max has a 6.5-inch screen, a longer battery life, a price that starts at $1,100 – and can handle things like being dropped in water or beer. Apple is also evolving its smartwatch to be all-in on health. It has a new heart sensor approved by the U.S. FDA. It could lead to new implications for health care and become a major selling point for a device that has played 2ndfiddle to the iPhone. Blessed be The Fruit.
- Amazon HQ2 before Year End: The site for Amazon’s 2ndheadquarters will be known before the end of the year. There are 20 finalists in North America for its planned investment of $5B and 50,000 jobs.
- Walmart Acquires Cornershop For a mere $225m. Cornershop is a major online grocery business in Mexico and Chile. Walmart continues to grow its online delivery and grocery services across the globe.
- SpaceX is taking Tourists around the Moon: SpaceX, the rocket firm run by Elon Musk, announced that it is planning to launch a tourist on a trip around the moon. They’ve signed the world's first private passenger to fly around the Moon – an important step toward allowing everyday people to travel into space. We will all know who it is and why on Monday, September 17.
Crypto-Bytes:
- Crypto is the #1 ‘Bear Market’ in history – as it has officially surpassed the Dot-Com collapse. If legal enforcement is any guide, then more pain could be on the horizon as more projects are going to experience the regulatory gauntlet. (a) Thus far we’ve only experienced the SEC, DOJ and FinCEN in terms of government regulation. Last week FINRA got into the act. (b) TokenLot and Crypto Asset Management were hit with securities violations – and both paid six figure settlements. (c) Last week the DOJ pushed an ICO case to trial. The defendant tried claiming that two ICO issuances were not securities, but that defense was nixed by the judge.
- Remember the Twins: Tyler and Cameron Winklevoss launched a stablecoin called the Gemini Dollar. The slogan on the product’s website cuts right to the chase: “U.S. Dollars on the Blockchain”. And the description “Send and Receive U.S. dollars like Email” is equally as plain and simple.
- Looking for a qualified Custodian: Look no further as the South Dakota Division of Banking approved BitGo to be a qualified custodian able to store digital assets on behalf of regulated financial institutions.
- How is Ethereum (ETH) under $200? At least part of that answer resides with crypto exchange BitMEX. BitMEX triggered (or at least amplified) ETH's selloff. Two different stories are being told – depending upon which ear is listening. The Red Corner is telling us that BitMEX is manipulating prices. Hayes writes that: “BitMEX hates Ethereum and uses every advantage to bet against it.” In my view, BitMEX simply loves making money and in a gold rush – the winners sell shovels. The Blue Corner thinks that betting on the downside of ETH was simply an easier hedge. Several large hedge funds were diversified into several altcoins and scared that: (a) their alt coins would fall further, (b) wanted to sell into a bounce – fully realizing that (c) moving illiquid positions is expensive. BitMEX offers liquid and cheap Bitcoin and Ethereum perpetual swaps. Because people generally prefer shorting Ethereum over Bitcoin, and because Ethereum tracks closer to altcoin prices than Bitcoin – Ethereum perpetual swaps were naturally a better product to short. Those fund managers shorted with a vengeance – driving Ethereum under $200 and eventually dumping their alt positions on the bounce. No hard feelings – it’s just business.
Last Week: China’s Commerce Ministry confirmed that our two governments were discussing details for a new round of negotiations. However, Bloomberg then reported that President Trump gave instructions to proceed with the tariffs on $200B worth of Chinese goods. Trade tensions dominated the scene yet U.S. stocks finished higher, rebounding from the more than 1% decline experienced the week before. Observers believe most of President Trump’s threats to impose new tariffs are negotiating tactics, and will be resolved over time without a significant slowdown in global growth. The month of September started off on a positive note with the labor market report that showed strong job growth, an unemployment rate at historical lows, and stronger than expected wage growth.
Small Biotech Breakouts:
- Unity Biotechnology (UBX): Announced their new therapeutic approach to longevity and aging. UBX soared 10% on Friday to close at $22.00. Unity Biotech wants to create drugs that slow, halt or even reverse specific diseases often caused by aging. The company is targeting cellular senescence, which is the aging of an individual cell and how it affects disease. By Q1 2019, the results of a phase one trial for osteoarthritis, are expected to be released. Other diseases that could be treated include the loss of cardiac and pulmonary functions as well as cognitive and vision functionality. Unity Biotechnology went public last May and has a market cap of $916m. Amazon founder Jeff Bezos and PayPal co-founder Peter Thiel are among the biotech’s top investors. The latest price target for UBX is a high of $33.00 (+50%) and the buy signal has just been raised.
Next Week: Next week’s economic reports will focus on the housing market. Housing Starts and Building Permits will be released on Wednesday, and Existing Home Sales will be reported on Thursday. Last week ended on a symbolically ‘green’ note after being ‘red’ virtually all day. After all, logic may have suggested that we take money off the table and play a waiting game until the Chinese decide what they would like to do about tariffs. And that leaves the S&P just 10 points from its all-time high, and they can achieve that with a good morning gap up if they would like. My concern still lies with David Tepper and other ‘smart money’ investors – given they have been reducing their exposure to stocks. Stocks continue to rise – yet the ‘smart money’ his heading for the sidelines. Where is the ‘up’ coming from? That only leaves our friends the Central Banks. And there it is: in Q2 the Swiss National Bank purchased another 304,000 shares of Apple, and another 673,000 shares of Microsoft. If you only look at their top 4 holdings, they have over 50m shares.
It’s anyone’s guess how long this behavior continues. When you can print money out of thin air, and buy stocks with no risk since the money cost you nothing – why would you stop? In the past the Central Banks have started selling because: (a) they had a change of heart, or (b) the world contracted a nasty case of hyperinflation as the velocity of money gets ramped up. So I continue to lean long, but we also know that this has entered the insane asylum stage. All the rules have been broken. Even the smart money is making the wrong decision. I don't want too much exposure, but carrying some longs still seems the right way to go for now. Take care.
Tips:
Top Equity Recommendations:
HODL’s:
- Amarin (AMRN = $2.88 / in @ $2.90),
- Canntrust Holdings (CNTTF = $8.40 / in @ $3.12), and
- Canopy Growth Corp (CGC = $47.15 / in @ 22.17),
- Ceco Environmental (CECE = $8.20 / in @ $6.95),
- Correvio Pharma (CORV = $4.63 / in @ $4.79),
- Cytokinetics (CYTK = $8.37 / in @ $7.25),
- Geron Pharma (GERN = $5.46 / in @ $3.75),
Thoughts:
Crypto:
- Bitcoin (BTC = $6,550) - $40,000 by end of year
Thoughts:
- BTC: Bitcoin has seen its price drop from $20,000 to $6,000 – in one of the worst bear markets the crypto ecosystem has seen. Seasonality has shown us how Bitcoin (BTC) can surge during the last quarter of this year. Historically BTC has surged from here until the end of the year – so much so that since 2015 there have only been 14 total trading days where BTC has lost value in the fourth quarter. Bitcoin bull Tom Lee (co-founder of Fundstrat Global Advisors) also believes that using seasonalities – altcoin HODLers may also see good returns in the fourth quarter of this year. In a note to his clients sent earlier this month, Lee maintained his “$25,000 by the end of the year”bitcoin price prediction. For his prediction to come true, the cryptocurrency would have to rise 300% in a few months – which isn’t absurd taking into account last year’s Q4 rally of nearly 200%. Billionaire investor Tim Draper recently reiterated his belief that the cryptocurrency ecosystem’s market cap will hit $80T within the next 15 years. And Galaxy Digital’s Mike Novogratz last week noted that he believed that we had “Put in a low”– right beforecryptocurrency prices started to recover. Binance’s CEO, Changpeng Zhao, claimed that a “1000X cryptocurrency price growth is definitely possible”– so we’ll see. At least we’ll know the truth in this prediction in about 100 days.
Options:
- Amazon (AMZN): Sept 21, -1955 / +1950 Put Credit Spread,
- Russell Small (IWM): Nov 16, +170 / -175 Call Debit Spread,
- Planet Fitness (PLNT): Oct 19, +50 Call and +52.50 Call.
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
