This Week in Barrons: 10-7-2018:
“People live to be 100. The U.S. was born in 1776 – about 3 people ago.” … Joe Rogan
Who knows U – better than U?
Remember when you were 2 years old? That was potentially the last time your mother knew more about you than you know about yourself. But now, another group of competitors have joined the race. They’re known as: Facebook, Google (YouTube) and Amazon – in that order. Facebook captures all your confessions, and YouTube keeps you staring at the screen long past when it’s in your best interest. I recently listened to Yuval Harari and Tristan Harris talk about how humans need to make themselves harder to hack. If you believe that your choices and desires are due to your ‘free will’ – welcome to the 21st century where we are all hackable animals.
To hack a human being is to understand what's happening inside them well enough to manipulate their behavior. The key is whether somebody (or something) can understand you better than you understand yourself – to the point of predicting your behavior. For example, when you open up YouTube to play that one video your buddy sent you, and you say: “I’m just going to watch this one video.” On average, you wake up from that ‘trance’ an hour later and say, “What the heck just happened?” That’s because you didn't realize that you had a supercomputer pointed at your brain. By opening up that one video, you activated Google's Ai engine – which led to you watching over 13 other videos. It knows (better than anyone) the perfect chess moves to play against your mind. It's not that we're completely losing our free will every time we watch a YouTube video, but realize Google’s Ai engine is designed to win a lot more than it loses. YouTube doesn't actually care about WHAT you watch, it just cares that you watch. Over 70%of the content people watch on YouTube is driven by the right hand recommendations they receive from Google’s Ai algorithm. You may think that it’s your own choice – but it’s not. 70% of 1.9B users is more than the number of followers of Islam, about the same as the number of Christians, and the number of people watching for an average of 60 minutes per day. So for 60 minutes per day, 70% of people’s ‘free choice’ is being driven by a computer.
What’s even scarier than Ai, is what’s happening on the biotech front – because the basics of hacking a human comes from brain science – not computer science. Biotech lets you understand the human to a level that no one can examine by themselves. It’s called Eulerian Video magnification. When your smart phone camera is pointed at a person's face, it will pick up the micro pulses of blood – which will dictate heart rate – and confirm stress level. Dr. Poppy Crum gave a TED talk about our inability to hide our emotions from others, OR the “Ending of the Poker Face”: https://www.ted.com/talks/poppy_crum_technology_that_knows_what_you_re_feeling.
We know from Cambridge Analytica, when given the big 5 personality traits: openness, conscientiousness, extrovertedness, agreeableness, and neuroticism – we can fine tune a political message just for you. Research by Dr. Gloria Mark at U.C. Irvine shows that we can obtain your big 5 personality traits (with +80% accuracy) by just by knowing your click patterns. So, with the death of the ‘poker face’, and machines knowing our major personality traits – any Ai engine worth its salt can adjust the political / advertising messages in real time to manipulate your behavior. This tech can even be employed in class rooms to detect which students are not understanding. Lawyers could use it to negotiate deals. It could be used by diplomats to bring peace to the Middle East. One person simply wears an ear bug, and the computer whispers in his ear what is the true emotional state of his counterpart. The Ai arms race has begun.
Think of Facebook as a priest in a confessional – that listens to over 2B confessions a month. Unfortunately their entire business model is based upon selling 3rdparty access to the confessed information in order to promote your manipulation. Whether it’s by governmentsor corporations – whoever has this kind of data wins the next election cycle. There is no choice – it’s real and happening. The only thing we can do about it right now is to re-TRAIN ourselves how to act.
First comes improving your self-awareness. Improving self-awareness comes from: therapy, sports, art, exertion, etc. Secondly, realize you can't do much by yourself – so join an organization. Unfortunately our social fabric does not allow us to completely unplug. Not because of the Ai, but because of the biology and the type of animals that we are. Currently, all the data anyone needs can come directly from your smart phone. I sometimes joke with my wife who studied drama in college. At the time it seemed like the worst profession because you couldn't really get a job doing it, but now it’s probably the last profession to be replaced by robots.
We need new processes. The good news is that Dr. James Fishkin (a professor at Stanford) has done some amazing work on democracy. His work proves that humans (given time and equal amounts of information) will become more unified, less polarized, and more agreeable. The current Facebook process depends upon alienation, loneliness, and individuals showing pictures of how much fun they’re having without you. There's a reason why solitary confinement is the worst punishment we give human beings. We have endorsed technologies (FB / YouTube) that basically maximize isolation because they require screen time and focus. Because of how far we’ve gone as a specie, we may require an Ai sidekick to protect us against other Ai agents trying to hack and exploit us. So if you have (for example) a weakness for cat videos – your Ai sidekick would intervene, stop the hack, and show you a message telling you that someone just tried to hack you.
I believe every executive is constantly asking themselves: “Was that time well spent?” The problem with an Ai arms race is speed. It quickly becomes a race to the bottom. You have to build it cheaper-faster-better because if you don’t – someone else will. And in fact, we’re potentially racing as fast as possible to create the things – that we should be going as slowly as possible to create. The biggest example of an uncomfortable transition was slavery in the 1800s. There was a point at which slavery was propping up the entire world economy. You couldn't just say we don't want to do this anymore because the entire economy would collapse. If we removed the on-line advertising model out of the global economy, the economy would collapse. After all, we had the brightest people in the world for 20 years cracking the problem: “How do I get people to click on ads?” These methods are now accepted and out there. So even if you get Facebook and Google to completely give it up – that horse has left the barn.
Right now people need to: a) put-the-fone-down (#PTFD), b) get to know themselves much better, and c) have as few illusions about themselves as possible. If a desire pops in your mind – don't just say that it’s because of ‘free will’. Explore it much deeper. And remember to join an organization, because there’s very little you can do just as an individual. I would start very soon, because right now: Google, Facebook, and Amazon all know U – better than U know U.
The Market:
Info-Bits:
- Universities ranked by Earnings Potential:
o 1. Harvey Mudd College = Mid-career salary: $157,400
o 2. MassachusettsInstitute of Technology = Mid-career salary: $150,400
o 3. United States Naval Academy = Mid-career salary: $149.800
o 4. California Institute of Technology = Mid-career salary: $143,100
o 5. Stanford University = Mid-career salary: $143,100
- Time to update LinkedIn:General Electric is saying bye-bye to its CEO John Flannery. Flannery's been the boss for a year, while GE's been riding the struggle bus. GEs value dipped below $100B, sold off major parts of the co, and got booted from the DOW. Now they’re saying 'a change will do us good' and giving Larry Culp (former CEO of science and tech conglomerate Danaher) the corner office.
- Instagram's getting on-boarding docs ready: Instagram promoted Adam Mosseri (its Product VP) to CEO. This comes after last week's announcement that Insta's co-founders were singing ‘so long, farewell.’ Facebook owns Insta, and some think the co-founders packed up their desks because of reported tension between them and Mark Zuckerberg.
- To reduce stress: 1) remove your sense of entitlement, 2) exercise daily, 3) drink more water, 4) read and write more, 5) give without expecting, 6) be a better friend, 7) have quality time with family, 8) stop responding to negativity, 9) generate random acts of kindness, 10) get adequate sleep.
- Amazon upped its minimum wage to $15/hr.: That's more than double the federal minimum wage ($7.25). The change means more than 250,000 people will start getting bigger paychecks. Earlier this year, the company said that the median pay for its employees in 2017 was about $28K, which is approx. $13/hr. It also came out that a significant number of employees were reliant on federal assistance programs to survive. People called out Bezos – the richest person in the world (repeat: the richest person in the ENTIRE WORLD) – for skimping on employees' paychecks. Now, he's saying that ‘we listened’. Of course they cut employee bonuses and stock options correspondingly – hey – it’s just business.
- Facebook’s sharing details on its computer hack: Which led to the exposure of information of nearly 50m of its users. The discovery of the hack comes at one of the most difficult times in FB's history. It’s a honey potof personal info. It’s trying to convince its 2B per month users that it’s responsible enough to handle that incredible amount of data. The silver lining is that it accelerates the tipping point to when a blockchain alternatives is the only way out.
- Google Partners with Ubisoft: Shares of Ubisoft sizzled in Paris. Alphabet’s (GOOGL) announcement that it will partner with the French video games maker to test its video game streaming service lifted the stock. They will be offering up the latest installment in the Assassin’s Creed series. Ubisoft shares are up by almost 50% so far in 2018.
- Honda Eyes 5.7% stake in GM’s Cruise Unit: Honda Motors firmed up its partnership with General Motors (GM)after announcing it will be investing $2.75B to acquire a 5.7% stake in GM’s Cruise self-driving vehicle unit. The two carmakers will jointly develop autonomous vehicles for deployment in ride services fleets around the world. Japan’s SoftBank made its own multibillion-dollar commitment to General Motors. GM Cruise has now matched Alphabet’s (GOOGL) Waymo unit in terms of resources and aggressive plans to launch commercial services.
Crypto-Bytes:
- Yale is throwing its hat into the ring: Reports are suggesting Yale University’s chief investment officer has taken stakes in 2 well-known cryptocurrency funds. One fund is led by a notable group: Fred Ehrsam – a Coinbase co-founder; Matt Huang – a former partner @ Sequoia Capital, and Charles Noyes – a previous Pantera Capital worker. Later, CNBC said that Andreessen Horowitz’s $300m crypto fund – also received an investment from the endowment. The moves fit in with Yale’s reputation for seeking out offbeat investments, and with the second-largest endowment fund in the world – it seems Yale has entered the crypto ring.
- “During a gold rush, sell shovels”: Welcome to all new Crypto Index Funds:
o Coinbase announced “Coinbase Bundle” – a market weight selection of their five digital asset offerings,
o Abra revealed the Bit10 token: a) Bitcoin 61.2%, b) XRP 11.9%, c) Ethereum 11.5%, d) EOS 2.8%, e) Stellar 2.5%, f) Litecoin 2.1%, g) Dash 1.1%, h) Monero 1.0%, and Zcash .9%
o Circle announced three additional “Collections” that are weighted by market cap and grouped by sector:
§ Privacy: Monero (74.94%), Zcash (25.06%)
§ Payments: Bitcoin (71.15%), Bitcoin Cash (6.79%), Stellar (3.47%), Litecoin (2.59%)
§ Platforms: Ethereum (75.44%), EOS (19.44%), Ethereum Classic (3.87%), Qtum (1.25%)
- Latest crypto poll: Thomas Lee’s pole and the top 2 responses for each Q:
o Q1: What is the most important macro factor influencing crypto prices?
§ 35%: Central banks
§ 27%: Emerging markets
o Q2: Do you think Crypto prices rise in a recession?
§ 59%: Yes
§ 41%: No
o Q3: When do you think Bitcoin will bottom?
§ 45%: Bitcoin has already bottomed
§ 25%: Bottom before year-end 18
o Q4: Where is Bitcoin’s price by YE 2019?
§ 43%: $15,000 to the moon
§ 25%: $10,000 to $15,000
- REMINDER: A single bank laundered more money than all of the cryptocurrencies combined:
o Crypto market: $225B
o Danske Bank: Laundered $235B
- Top 10 Blockchain Universities:
o 1. Stanford Univ.
o 2. University of Cal. Berkley
o 3. New York University
o 4. M.I.T.
o 5. Cornell Univ.
o 6. Georgetown Univ.
o 7. Harvard Univ.
o 8. Duke Univ.
o 9. CMU
o 10. Univ. of Pennsylvania
- CFTC Chairman Chris Giancarlowas recently interviewed by CNBC’s Fast Money to understand his vantage point on crypto regulation, oversight, and future progress. Q: Where will we be in 2 years? A: “Cryptos are here to stay, but will not rival the dollar – because there’s a section of the world that needs a hard currency. Crypto could be the entire answer 10 years down the road.”
Last Week:
U.S. stocks went into a slump when the 10-Year Treasury rate rose above 3.2%. As a result, the main U.S. stock market benchmarks dropped sharply to end the week. The DOW finished the week lower at 26,447.05, the Nasdaq retreated to 7,788.45, and the S&P also slid – ending the week at 2,885.57. Thursday, the DOW registered its biggest one-day percentage drop since August. For the week, the Nasdaq declined 3.2% while the S&P 500 slid 1%, and the DOW remained almost flat.
The September jobs report (released on Friday) showed that 134,000 new jobs were added last month. The figure was below the projected 168,000 jobs; however, recent storms / hurricanes were seen as having an influence on job creation. The unemployment rate dropped to 3.7% while the average hourly earnings rose 0.3% per hour. The 12-month rate of hourly wage gains stands at 2.8%. With the jobs number coming in ‘light’, maybe someone paid attention to the BLS birth/death data. (The BLS birth/death data is a theory that for every ‘x-number’ of people laid off – some amount of those will go out, open businesses and hire.) There’s absolutely no proof of any of that happening, but they guess at the number in the jobs report. Usually that statistic ADDS between 40k to 200k jobs/month. This time, instead of injecting jobs into the report, the BLS birth/death model subtracted 67k jobs from the total. So if they included that 67k back into the total, we would have been well over the 200k that the market deemed acceptable. Is it possible the market added the BLS numbers back into the report and realized that the number reported is actually smaller than reality – and that’s what shook them? It’s always possible.
Biotech & Weed:
- Amarin (AMRN = $19.80 = +393.77% YTD) Business Insider tracks the buying and selling of stocks through the free-trading app Robinhood. Interestingly, AMRN is one of the most popular stocks among millennials. Its value has quadrupled in recent weeks, and younger investors are hoping more gains are on the way. Amarin (a bio-pharmaceutical firm) was fairly obscure (except in THIS NEWSLETTER) before September 24. Its drug (made from purified fish oil) had breakthrough results in a clinical trial. The drug not only reduced the risk of heart attack, stroke, and other catastrophic cardiovascular events by 25% in high-risk patients, but also did so without side effects. It’s relatively cheap to produce. AMRN is up by an amazing +393.77% year-to-date. With good prospects in the horizon, the less than $20 stock is showing buy signals again.
- Canopy Growth (CGC= 47.49 +100.75% YTD) If there is one ‘weed stock’ to own before October 17 (when legal recreational marijuana goes on sale in Canada) it is CGC. Canopy Growth has more advantages than any other company in the marijuana industry. Canopy Growth is cash-rich, andcan therefore capture growth opportunities others couldn’t as well as withstand the industry’s inherent volatility. Analysts see CGC rising as much as 63.0% to $77.34 by EOY. CGC is well positioned internationally, and the appetite for CGC should continue to grow once their major shareholder (and the maker of Corona Beer) – Constellation Brands (STZ) begins developing marijuana beverages.
Next Week: U.S. stocks retreated this past week because the 10-year Treasury yield climbed above 3.2% for the first time in 7 years. Even rates on investment-grade corporate and municipal bonds rose to their highest levels. Notably, interest rates are rising for the right reason - solid economic growth. The week also ended with the September jobs report showing a winning streak in the labor market during the third quarter. For as long as inflation remains at or near 2%, the FEDs can slowly hike short-term rates without dampening the solid economic growth which is the primary support for the current bull market in stocks. On the average, dips in the stock market (a decline of 5% or more) occur more than 3 times per year. Volatility will eventually set in on the bond market particularly on bonds with longer maturities. Next week, the important economic data to be released are as follows: the Producer Price Index (PPI) on Wednesday, Inflation readings on Thursday, and Consumer Sentiment on Friday.
Back in July when selloffs such as this week happened, the S&P chopped up and down for about 6 sessions, before finally deciding it would go on an upwards romp. The same thing could happen again. However, the common thinking was that if the bond rates ever exceeded 3% the equity market would take a hit. Well, we hit that level and then some, and sure enough the markets have not been happy. The selling in the Russell Small Caps has been the most spectacular.
In any other market over the past 30 years, I'd be screaming that the bull is over, and it's time to start staging in some shorts, or puts or inverse ETF's. But I'm going to say something that's not terribly popular: "It's different this time". Since 2009 it’s been different. We have had synchronized Central Bank printing and buying. We have had Central Banks proudly displaying the billions in Corporate stock they own. Worse is the fact that I don't even think we were ever told the true level of how many trillions they have printed. Right now, markets look to be running out of steam, and getting ready for a correction. Yet I know that we’re only one good Central Bank injection into the futures or ETF markets away from turning on a dime and pushing us to new highs. It really is different this time.
On Friday, my feeling was that they'll take us well off the lows for the close, as they don't like going into the weekend talk shows on a down note – and that is exactly what happened. But that being said,there's definitely a change in the air. The IMF is talking more bearish than normal and warning about the possibility of an impressive slowdown. The FEDs are still on track to hike rates again in December. Corporate buybacks haven't quit, but word is there are going to be less of them going forward. And then there are the insiders, who have been selling their own stock at a record pace. This has all of the makings of a market that just wants to move sideways.
The IWM (the Russel Small cap ETF) is incredibly overdue for a bounce. The S&P bounced off its 50-day support. If both of those combined don't fire up a short term rally next week – then that would be a signal of some potential pain to come. Earnings season is right around the corner, and the quality of those earnings are going to be scrutinized like never before. Companies that miss their estimates will be dismissed out of hand. Be careful out there. Keep your trades short and small.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora(ACBFF = $9.87 / in @ $3.57),
- Amarin(AMRN = $19.65 / in @ $2.90),
- Canntrust Holdings(CNTTF = $9.32 / in @ $3.12),
- Canopy Growth Corp(CGC = $47.49 / in @ 22.17),
- Ceco Environmental(CECE = $7.79 / in @ $6.95),
- Correvio Pharma(CORV = $3.89 / in @ $4.79),
- Cytokinetics(CYTK = $8.60 / in @ $7.25),
- Eyepoint Pharma(EYPT = $3.37 / in @ $3.25),
- Geron Pharma(GERN = $1.83 / in @ $3.75),
- Managers Alt Harvest(MJ = $38.82 / in @ $38.02), and
- Protalix BioTheraputics(PLX = $0.71 / in @ $0.75)
Thoughts:
- Microsoft Corp. $112.13 (+34.64% YTD) Microsoft is the DOW’s No.2 top-performer, and is projected to soar in this coming season of new gadgets. The company recently unveiled their Surface Pro 6, the Surface Laptop 2, and the Surface noise-canceling headphones. Along with the new Surface devices, the next-generation, productivity-focused Windows software called “Windows 10 October 2018 Update” was launched too. Microsoft will make waves again particularly with enterprise business professionals.
- Nike Inc. (NKE) $80.12 (+31.89% YTD) The downgrade of Nike has caused the stock to drop, but it brought NKE close to the flat-base buy point of $81.10. Still, HSBC analysts say Nike stock deserves its "high multiple"given that the stock is the third-best performer in the Dow Jones.
Crypto:
- Bitcoin(BTC = $6,680) – “$10,000 by end of year is a no-brainer” M. Novogratz.
Options:
- Canopy Growth(CGC): Bullish: Oct 12, -50 / +47.5 Put Credit Spread,
- Russell Small(IWM): Bullish: Nov 16, +170 / -175 Call Debit Spread, and
Thoughts:
- IWM: Maybe the market loves the new NAFTA deal, but small caps (the Russell 2000) don’t. The rallies in SPY, QQQ and DIA were kind of ‘meh’ after giving up most of their early gains, but IWM tanked after opening higher, and fell the equivalent of 1.5 standard deviations by the close. Despite the fall, IWM’s volatility index is still low. That’s why if you’re bearish and think that IWM might keep going lower, debit spreads are more interesting. If you are bearish, the long PUT vertical that’s short the 165 PUT and long the 168 PUT in the November monthly expiration is a bearish strategy with a 62% probability of making 50% of its max. profit before expiration.
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
