This Week in Barrons: 2-10-2019

This Week in Barrons: 2-10-2019:

It’s often the WHO that really matters …

  One-fourth of all the Super Bowls ever played have been won by these 3 coaches: Bill Belichick (New England Patriots), Tom Landry (Dallas Cowboys) and Chuck Noll (Pittsburgh Steelers).  None of the organizations could have possibly imagined how momentous their hiring was, not only to their football team – but also to their surrounding city and region.

  Last week was the 50^thanniversary of the Steelers meeting and hiring Charles Henry Noll as their head coach in 1969. Pittsburgh’s Art Rooney Jr. talked of his father (The Chief) routinely holding court (on that fateful day) in the Sylvan Room of the old Roosevelt Hotel.  The Chief had just offered the Steelers’ head coaching job to then Penn State Coach Joe Paterno – who promptly turned him down. And they were patiently awaiting the arrival and interview of upstart Charles (Chuck) Noll.  Chuck was also being interviewed by the Boston (New England) Patriots and the Buffalo Bills – but the job he really wanted was with the Steelers.  As he tells it, the waiting period prior to the interview was the last ‘unremarkable’ event surrounding Coach Noll that he would ever experience.  To put the hiring process in perspective, the Steelers have had three head coaches in 50 years, and the Cleveland Browns have had 3 since October 28^th.  The Steelers not only wanted a leader, but someone who could keep the attention of the players over the course of a season. They got that, and a whole lot more.

   I saw first-hand what Chuck Noll did for the culture surrounding the Steelers and the city of Pittsburgh.  I was fortunate to experience those same leadership elements in then CMU President – Dr. Richard Cyert and Pittsburgh Mayor – Richard Caliguiri.  All three organizations lacked a winning culture prior to their leader joining them.  And even though their records didn’t show it right away, you could tell there was a difference in the atmosphere when any of those men walked into a room.

   The very first thing Chuck taught his team was: How to lose.  His first Steelers team went on a 13-game losing streak that resulted in the club’s worst season in 25 years.  But learning how to lose was important to Chuck.  In fact, Chuck would intentionally put people in positions knowing they would fail – but demonstrating that failure is a part of life.  In Chuck’s view, it was never easy losing or admitting you were wrong – but there’s also no reason to keep that 7th place participation trophy hanging around.

   The Steelers went on to go: 1 and 13, 5 and 9, and 6 and 8 in their first 3 seasons under Coach Noll.  I remember sensing the changing tide, and the fans becoming emotionally involved in the team. I remember a friend of mine throwing a book at me when the Steelers drafted Franco Harris over Lydell Mitchell.  That was after they drafted ‘Mean’ Joe Green. Coach Noll and Art Rooney Jr. made the NFL draft their focus and obsession.  They realized that WHO they drafted was more important than WHAT position they played.  Their draft emphasized the phrase: “Best Available Athlete,” and was the primary reason why they remain the only franchise to win back-to-back Super Bowls – twice.

   All of the pictured coaches were hired when they were unknown and unproven.  None were in it to make friends, but all had an excellent sense of value and direction.  In any of those situations (New England, Dallas and Pittsburgh), I shudder to think what would have happened if they would have hired a different head coach.  Entire regions, cities, companies, and communities would have taken on a different tone and mindset.  Great leaders: (a) Consistently do the right thing, (b) Act as teachers first and students second, and (c) Magically seem to know where you should be, and (more importantly) how to get you there.

   Great leaders and teams know no bounds.  As I would travel outside the U.S., people in other countries would regularly volunteer their services in exchange for Steeler memorabilia rather than U.S. dollars. When asked why – they would say that the team reminded them of their own champions: just regular, hard-working guys – who never quit.  So on this, the 50^thAnniversary of hiring Hall of Fame Coach Charles Henry Noll – a tip of the cap goes to all of those great leaders who continue to: “Walk with kings, nor lose the common touch.”

The Market:

   The Bear Bounce:  If you're even loosely connected to the stock market, you know that back in December the wheels came off.  70% of the listed stocks fell by more than 20% - some by 50%.  But then spirits flipped and from the end of December until now, stocks have roared higher.  TV stock evangelists are back proclaiming that it’s a new bull market.  But before jumping on that bandwagon, let’s ask the question: Why did the market pout?  It’s simple – because the FED started hiking interest rates and working off their balance sheet.

   Back in the crash of 2008 there was no true cleanse. There was a non-recession recession. It seems that politicians don't like recessions – because it doesn't help them get re-elected.  And Wall Street doesn't like recessions – because less people give them less money.  So our FED changed the rules and bailed them out with low interest rates and liquidity in the form of: QE1, QE2, the ‘Twist’, and QE3.  Since 2009, our economy has been built on the heels of our FED’s monetary heroin.  Obviously we had issues in December, but then FED Chairperson Powell did an abrupt about-face on rate hikes as well as working off the balance sheet.  Which begs the question:“Will this be enough to avert a recession, OR is it already baked into the cake?”

   I would suggest that we're going to get a recession anyway – because the damage has been done.  In fact before 2020, I believe our FED will be CUTTING rates.  I believe that this run up is simply part of a bear market correction, and the bear market we entered in December simply got ahead of itself.  Do NOT forget that Steve Mnuchin told the press that he had gathered the "Presidents Working Group on Financial Markets"(PPT) and gave them the ability to intervene if things got too ugly. 

   I think that 70% of this market run up is because of the PPT.  Recently Deutsche Bank put out a report showing that since October, U.S. equities have experienced consistent and cumulative OUT-flows.  So with everybody selling, that means the only people buying are corporate buybacks and the PPT.  Both didn’t want the December plunge to develop into something wicked, so they’re temporarily stopping the bleeding.  I think we’re in the midst of a bear market rally – fueled by our friendly banksters. 

   The chart above shows January’s top money ‘In-Flows’ going into: Emerging Markets, Bonds and Gold, and shows the top money ‘Out-Flows’ coming from: the S&P, the Russell, Energy and the Nasdaq.  My guess is that the PPT will want to manage the ensuing downside, and at some point will cut rates and possibly inject more liquidity.  When that happens, all heck will break loose.

Info-Bits:

-      Hear that sucking sound?  Per MJP, it’s the sound of private equity and venture capital sucking up the 4.5m small to medium-sized businesses that will be ‘retiring’ over the next 10 to 15 years.

-      New York strong:  Remember when Amazon decided on Long Island City as the location of HQ2?  They’re reconsidering that based upon local backlash.

-      Tesla + Batteries (think again):  Tesla acquired ultracapacitor manufacturer Maxwell Technologies (MXWL) for over $200m this week. Ultra-caps are a lot like batteries – only without the lithium and heat-recharging issues.    

-      The Bird is Down:  Twitter fell 10% after earnings because they saw a 5% decline in their monthly active users.  Their solution = No longer report monthly active users.  Instead, they will be reporting "average monetizable daily active users" – which just so happened to rise 9% this past quarter.

-      When will I see Google Fiber?  Never.  In fact, anyone using Google Fiber internet needs to find a new provider ASAP.  Google Fiber was a potential new source of revenue for the company, but they decided that invading privacy and selling ads was higher on the morality spectrum than becoming Time Warner. 

-      Waymo who?  Amazon has invested in self-driving car startup: Aurora.  Aurora's CEO and co-founder is Chris Urmson, the former CTO of self-driving cars at Google which owned the autonomous vehicle company Waymo.  Cars – start your engines!

-      Barbies are Back:  Did they ever leave?  Mattel announced that Barbie sales have reached a 5-year high.

-      "We're exploring potential solutions":  IKEA is testing out leasing its furniture.  So, by the time you put the dresser together – you need to give it back.

-      Ground Control to Major Tom:  At 41 years old, he won another Super Bowl.

-      Spooky:  Remember those abandoned shopping malls?  Amazon is taking over one in Akron, Ohio.  It’s been closed since 2013 and now resembles any post-apocalyptic film scene.  Welcome to warehouse space – with room for lots of fruits and vegetables.

-      Boeing is picking up speed:  They recently announced a partnership with Aerion, a supersonic jet maker.  Aerion will soon be making a business jet that is 70% faster – so you could be landing in NYC BEFORE you take off in London. 

-      Central Banksters have unlimited funds:  The Plunge Patrol Team uses their money to influence the futures market 95% of the time.  They rarely step in and buy stocks directly.  They’ve found that by purchasing the index futures and driving them higher – the algo-bots will begin to buy stocks in order to equalize the value between the futures and the stock levels.

-      When introducing your new SO to friends:  Let's go public says Slack.   Usually companies go public by hiring investment banks to handle all the complicated stuff. But the non-traditional way is via direct listing and skipping the part where banks get involved.  Last year Spotify successfully went public with a direct listing, making people say: 'Who's next?'  Now Slack is saying: ‘Pick me.’ It was recently valued at about $7B, and that makes it the first of several big-name tech companies (Uber, Lyft, and Airbnb) that could go public this year.

Crypto-Bytes:

-      Binance:  the Malta-based cryptocurrency exchange has an ambitious mandate for its 400 employees in 2019: leverage industry partnerships to diversity the brand beyond its primary trading platform.  One such initiative is to build a protocol that standardizes crypto wallet addresses across currencies and platforms.  This could eventually offer other features such as: giving e-commerce platforms the ability to refund crypto purchases directly to a personal wallet – and to send payment requests to other wallets – similar to Venmo.

 

Last Week:

    SF reported that the world's biggest pension fund recorded a record $136B loss.  Japan’s Government Pension Investment Fund (GPIF) lost 9.1% ($136B) in the three months ending Dec. 31, 2018.  The decline in value was the steepest going back to April 2008.  While stocks helped the GPIF generate returns for the previous two fiscal years, December’s global rout underscored the risks facing the fund since it revamped its strategy in 2014.  More than $10T in equity value was wiped away from global markets during the final quarter of 2018 – as the ongoing trade spat between the U.S. and China raised concerns over a slowdown in growth.  The Topix Index plunged 18% in the 4^thquarter (the most since 2008), while the S&P 500 dropped 14% (the most since 2011).

   On Thursday morning, the EU lowered its growth prospects for the year from + 1.9% to + 1.3%.  That certainly put the Bank of England on hold for any potential rate hikes.   I've been preaching for some time that the global economy is running on fumes, and now the data is showing us just that.   Yet what I find pretty amazing is that despite the overhead resistance, and lowering of expectations – we’re only seeing small market responses.  This is all about the Plunge Patrol Team and their Bankster friends keeping markets this high.  This is not organic growth or fundamentals, but rather manipulation.

Weed & Biotech:

 

   The real reason behind the recent runup in marijuana stocks is a short squeeze.   Money flows are showing that the momentum crowd is aggressively buying marijuana stocks; however, the smart money is SELLING on every ‘up’ move.  Currently, if you’re holding some marijuana stocks – you may want to consider continuing to hold core positions, but taking partial profits on the rest.  If you’re not in marijuana stocks, you may want to consider waiting patiently for the next set of ‘buy’ signals.

   After all, cannabis is now legal in a number of states, but the money it generates is still seen as tainted.  Currently, very few banks and credit unions accept marijuana-related businesses as customers, even though they are legally allowed to.  Treasury has provided guidance to banks and credit unions advising them that handling such business is legal.  But the guidance doesn’t effectively address the expensive and onerous paperwork required by the new AML (anti-money laundering) regulations.  But no one can ignore that 1 in every 5 Americans live in a state with legalized recreational cannabis. And this will be the first year where Colorado’s tax revenues from marijuana sales will exceed $1B - since it began taxing the industry only 5 years ago.

Biotech:

-      Akebia Therapeutics (AKBA = $6.15 / +11.21% YTD):  The main focus of Akebia Therapeutics Inc. is the treatment of kidney disease.  Currently, the biotech firm has two primary products:  First, is Vadadustat which is for the treatment of anemia related to chronic kidney disease that is now in Phase 3 trials.  Second, is Auryxia, an iron deficiency anemia treatment.  Key catalysts include Auryxia performance throughout the year, and the Vadadustat data results from the Phase 3 trials due out in 2019.  Forecast is $18.00 (+192.7%) with a high estimate of $30.00 (+387.8%).

-      Nightstar Therapeutics (NITE = $14.13 / +22.66% YTD): Nightstar Therapeutics focuses on treatments for eye diseases.  They specialize in developing gene therapies for patients with rare inherited retinal diseases. Nightstar has released positive data for two treatments.  First, is the NSR-REP1 for choroideremia (CHM) which is in Phase 3 trials. Second, is NSR-RPGR for X-linked retinitis pigmentosa (XLRP). Their Phase 2/3 expansion studies were initiated in the fourth quarter of last year.  If results continue to be positive, Nightstar can claim leadership status in retinal gene therapy.  Forecast is $34.50 (+134.1%) with a high estimate of $42.00 (+184.9%).

-      Aerie Pharmaceuticals (AERI = $44.59 / +23.52% YTD): This biotech firm is ocular-focused with two groundbreaking glaucoma drugs.  The first is Rhopressa which launched in 2018.  The next is Rocklatan which has a PDUFA goal date of March 14.  That is the reckoning date by which the U.S. FDA must either approve or reject the Aerie’s New Drug Application.  FDA approval for Rocklatan would be the most important catalyst for AERI in 2019. Forecast: is: $64.00 (+43.6%), $84.00 (+88.5%), or $105.00 (+135.6%).

Next Week:  

   This market reeks of desperation.  On Thursday, the DOW faded down from its morning high, hit its 200-day moving average, and bounced in the afternoon.  Friday the DOW was in trouble early, moved through the 200-day moving average, but ended at 25,106 (the 200-day moving average).   The PPT is desperate to keep the DOW above its 200-day moving average – hoping that the DOW strength will pull the S&P up and over its own 200-day.  We’re seeing the PPT and Central Banks do their best to keep the illusion going. So many people rely on the market as an indicator of how the economy is doing, that by keeping the market elevated – everyone thinks that things are fine.  I see it all the time.

   Consider something as easy to calculate as the unemployment rate.  The Government reported the January U.3 Unemployment Rate as 4.00%; however, when you include the long-term discouraged/displaced workers the rate rises to 21.8%.  If J.Q. Public ever thought that 1 out of ever 5 working-age people in the U.S. was out of work – they would panic.  So the Government modified the unemployment calculation to exclude those workers who have not been employed recently.  It’s calculations and logic like that – that make it so difficult to figure out what's next. 

   This coming week will be controlled by politics and most easily viewed via the financial ETF = XLF.  We have global elements such as:

-      India doing a ‘politically motivated’ interest rate cut, 

-      Brexit negotiations are coming to a boil, 

-      China trade war negotiations are re-kindling, 

-      And a U.S. Government shutdown is coming up (again) on Friday.

   The financial ETF is showing an expected move for the upcoming week as $0.54 – meanwhile they moved $0.50 on Friday alone.  The volatility in this particular market place is telling a very different story than what we’ve seen in past rallies.  Today’s volatility refuses to normalize.  Which means that we’re seeing a volatility curve that is basically flat.  The 39-day volatility index (VIX) is roughly the same as the 103-day volatility index – and that is weird to say the least.  You would think that it would be tougher to predict 103 days out than 39 days out.  Which leads me to believe that we’re in for a rough patch over these next several weeks.

   This week Trump’s people will be conducting more trade talks with the Chinese.  You can bet the algo-bots will be scanning headlines looking for any hints of how it's going.   A headline such as: "U.S. Making Progress on China Trade"will move markets one direction, while another one saying: “Nothing Substantial Comes from China-US Negotiations”will move markets another.  So, I’m expecting some bumps and lumps over the next ten days.  I think the market wants to move lower, but the manipulators would like it higher.  The war is on.

Tips:

Top Equity Recommendations:

   HODL’s:

-      Aurora (ACB = $7.52 / in @ $3.57) – & covered write, 

-      Canntrust Holdings (CNTTF = $7.44 / in @ $3.12),

-      Canopy Growth Corp (CGC = $45.30 / in @ 22.17),

-      HEXO (HEXO = $5.33 / in @ $5.12),

-      New Age Bev (NBEV = $6.33 / in @ $6.44),

-      Nova Vax (NVAX = $2.27 / in @ $2.19) – & covered write for $0.60CR,

-      Zynerba Pharma (ZYNE = $5.26 / in @ $5.22).

   Crypto:

-      Bitcoin (BTC = $3,670)

-      Ethereum (ETH = 119.00)

-      Bitcoin Cash (BCH = 127.00)

   Options:

-       Canopy (CGC = 45.30) Bull: Feb, Buy +53 / -54 / +56, Call B-Fly for $0.07 CR,

-       Gold Miners (GDXJ = 32.33) Bull: Feb, +32.5 / -33 / +34, Call B-Fly for $0.01 CR,

-       New Age Bev (NBEV = 6.33) Feb, Buy +7 / -8 / +10, Call B-Fly for $0.05 CR,

-       XLU (XLU = $55.53)  Bull: Feb 15, Buy +55 / -56, Call Debit Spread, and 

-       XLY (XLY = 107.19) Neutral: Feb 15, +100 / -102 / -111 / +113, I.C. for $0.56 CR

   Thoughts:

-      NVAX: Buy this $2.27 stock all day – and sell the $3, March 15^thCovered Call for $0.60.  Take this 60% monthly return all the way to the bank. 

-      QQQ (Nasdaq Index): Haven’t we seen this rom-com before? You know, the one where Trump and Xi plan a date, Xi cancels the date, Trump ghosts Xi, Xi makes Trump jealous, and finally, the two run into each other’s arms as all their BFFs look on with smiles on their faces.  I don’t know which stage we’re in, but the messiness of the US-China trade relationship was enough to make you grab a tissue last week.  But who’s fooling whom?  Neither can live without the other.  That’s why a broad index like QQQ could just trade in a wide range as the ups and downs of the movie play out.  There’s still some premium left in the QQQ options.  If you think QQQ might stay in a range for the next month, the short iron condor that’s long the 158 PUT, short the 160 PUT, short the 176 CALL and long the 178 CALL in the March 22^ndexpiration is a neutral strategy that collects a credit 1/3 the width of the strikes, and has a 68% probability of making 50% of its max profit before expiration.

-      VIX (Volatility Index):  The SPX is up over 9.2% this year, and is less than 1% away from its average annual return.  Wall Street must be happy as the VIX (fear gauge) is approaching extinction.  But maybe most of the SPX’s work for the year is behind it, and it might take the rest of 2019 off and begin reverting to the mean – pushing the VIX higher.  If you think that the VIX might rally from here, the long call vertical that’s long the 15 CALL and short the 18 CALL in the March 19^thexpiration is a bullish strategy with a debit less than the intrinsic value of the 15 call and that has a 54% probability of making 50% of its max profit before expiration.  Other VIX trades are:

o   March 19^th, Bull, PCS, - 16 / + 12.5 PUT on the VIX for $0.85 CR, and 

o  April 17^th, Bull, PCS,  -15 / +12 PUT on the VIX for $0.65 CR.

   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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