This Week in Barrons: 4-20-2019:
When is it time to quit?
Don’t fore-get about me just yet says Tiger Woods. Because last Sunday afternoon, Tiger Woods made one of the biggest comebacks in sports history – winning his fifth snazzy green Masters’ jacket and his 15th major title. It was also his first win in more than a decade after struggling with injuries, a DUI, and a sex scandal. Mike Greenberg said it best: “Tiger Woods is the most exciting athlete in the world to watch. He just is. I can’t really explain all of the reasons why. He’s the perfect storm of celebrity and infamy in his public life, the unparalleled brilliance on the golf course followed by a huge fall from grace, and now (just when everyone had given up) – we witnessed his return and his redemption. All of those factors combine to make the very sight of him – ‘must-see’ TV.” Factually, two years ago Tiger Woods was too crippled to even tie his own shoes. To quote Jim Nance: “Nobody has ever come back from the chipity-yips, the scandal, and the embarrassments. Nobody has come back with greater dignity and humility. Tiger has changed the way he deals with people and the media, changed his game – overcame all of that to once again – return to glory.”
Which begs the question to any entrepreneur: When do you know it’s time to quit? For most of us, it’s not easy to pick up and leave. From a young age, I was taught to equate quitting with failing, and that success comes from staying the course. But there are a couple ways to view quitting: (1) is the conventional, negative take on it, but also (2) you can view quitting as the end of one project and the start of another. If you’re wondering whether to throw in the towel on a position, a project, or even a business – here are a couple techniques to help you decide.
First, reframe your view of quitting: Author and entrepreneur Seth Godin has written 18 best-selling titles. He found that winners often ‘cut their losses’ and reallocate time and energy to other activities that move them forward. He sees each venture as a project, focuses on what he’s gained from it, and moves on. That allows him to sunset any project without feeling like he’s failed. After all, consider the opportunity costs had Shep and Ian Murray stayed at their Manhattan jobs rather than selling preppy, nautical-inspired ties and accessories out of bookbags on the beaches of Martha’s Vineyard. Today, that venture has exploded into a $1B fashion brand known as Vineyard Vines. The brothers have maintained 100% ownership of the company and have grown their team to over 2,800 employees. Rewind to when Shep and Ian first quit their jobs, maxed out their credit cards and started V-Vines. The opportunity cost of staying employed would have left them without pursuing their passion and missing the journey of a lifetime. It seems that ‘successful quitters’ view moving on as an opportunity gained rather than a position lost. Ask yourself what your current occupation is preventing you from doing.
Secondly, crunch the numbers. Entrepreneurs launch companies for many reasons: to realize a passion, to fill a gap, and to improve the quality of life. But there also needs to be a financial commitment to turn a profit. Sometimes even the best jobs have a limit to how much financial success anyone can achieve. Look for a couple of signs: (a) Is the business climate good and you’re still not making a profit? Or (b) Are customers ‘churning’ at an unsustainable rate. Customers are expensive to acquire, and if they’re not staying around long enough to make them worth your while – it could be time?
Thirdly, decide if your heart’s still in it: Some people might say that it’s a luxury for us to feel passionate about our work, not a necessity. But, as numerous studies of entrepreneurs have shown, being inspired and engaged by your work doesn’t just make it more enjoyable; it also increases customer satisfaction and your company’s overall chance of success. One study from Northwestern University demonstrated that people who enjoy their work are happier, physically healthier, and less stressed. Dr. Kristin Neff, an associate professor at the University of Texas, recommends acting as if you’re advising a loved one. We tend to be more emotionally generous when we’re giving advice to others. Chances are, we will tell a close friend or family member to do what makes them happy. And if their current position or project is no longer enjoyable, we would encourage them to find something new.
Finally, what mistakes did you make, and can you NOT make them again? Hindsight tends to make every decision seem easier, especially when they end with a success story. When looking backward, it’s a lot easier to pin-point the mistake and potentially the reason why the ‘other road’ was taken. In the heat of battle, decision-making is never easy – but learn to notice patterns of success and other patterns that you should work on and fix. Be as kind to yourself as you would be to a loved one, because you may be paving the way for your best opportunity yet.
As I watched Tiger Woods last Sunday, words like ‘mind-blowing’ came to mind. I realize there is always a bit of an ‘eye-roll’ when I say that to someone, and in reality – how big of a deal was it really? Well, all I can say is that coming from a guy who’s watched a lot of golf – I’ve never heard a place sound like that – on a Sunday. Tiger, there were a lot of people watching that are really glad you didn’t quit – when you had the chance. Congratulations and Happy Easter – on a job well done!
The Market:
Tech2 says the Huawei P30 Pro mobile phone is the “best camera you can’t buy in the U.S.” It’s all about the zoom, and their reaction can be summed up in one response: “Their zoom is evil, scary, and wrong! I want one!” Mashable’s Stan Schroeder snapped the above pics that, while grainy, give you a sense of the potential spy-power of the phone’s camera. “If this makes you uncomfortable, I know how you feel,” Stan wrote. “It felt odd taking these photos, even when I knew I had full permission to do it.” Basically, the 50x zoom combines a 5x optical zoom with artificial intelligence-driven digital magnification. Tom’s Guide says: “Even with the watercolor-like effect of the AI-assisted 50x zoom, the results are borderline magical.” According to SlashGear, customers living in the United States can still import the phone, but there are some caveats. First, these phones only support GSM networks like AT&T and T-Mobile leaving Sprint and Verizon out in the cold. Another word of caution is that the Huawei P30 Pro does not come with a warranty. If you still want it, B&H is selling the P30 Pro in Crystal, Midnight Black, and Aurora for $899.99 – although the shipping date isn’t available just yet.
It’s going to take more than one new phone to keep our retail environment afloat. U.S. retailers have announced that they will net close 3,353 stores in 2019. A separate report found that foot traffic is dropping off at malls, and even locations with experiential tenants like Apple and Tesla – have seen declining interest.
Last week the market chopped sideways – just a stone’s throw from its all-time highs. Two weeks ago I mentioned the four ways this could play out. First, we just come up shy of the tops and stall out. Second, we could bang into the highs, back down, try again, back down, and ultimately fail. Third is that we pop through the highs, gather a bunch of excitement, and then roll over. Lastly, we push through and keep going. I opted for choice number 3 – moving through the all-time-highs a bit, and the rolling over. I’m fairly certain of the eventual outcome because our macro-economic data is running at 2017’s pace with industrial production, capacity utilization, GDP, and the 6-month outlook all falling.
InfoBits:
- Zoom – Zoom – Zoom: Zoom, the video conferencing software company IPO’d last week and ZM shot up 72% in its first day of trading.
- Just Keep Pinning: Pinterest also went live last week, as moms everywhere swooned over DIY craft ideas and new ways to furnish their homes. PINS is up 28% since its launch.
- Facebook: Stop me if you've heard this one, but they’re in trouble again. This time they admitted to collecting up to 1.5m users’ email contacts without their permission. Facebook admits to the mistake, and it’s just another black eye for something at this point I can’t even call privacy.
- My mind is blown.Last week scientists restored some brain activity todead pigs. Although the pigs weren't able to regain consciousness, the same process is showing progress on brain injuries such as Alzheimer's or strokes.
- Why do you like the color blue? The World’s Favorite Color Project asked 26,000 respondents to associate specific emotions with specific colors. The color green is most associated with the future, purple and orange were tied to luxury, red is aligned with passion, and dark blue is that shade that aligned best with contentment.
- Pulitzer Prize winners: were announced last week and: (a) the Wall Street Journal won for its investigation into women claiming to have an affair with President Trump. (b) The South Florida Sun Sentinel won for its reporting of the Parkland shooting, and (c) The Pittsburgh Post-Gazette won for its coverage of last year's synagogue shooting.
- Regal recharge: James Bond will need to keep a list of charging stations now that Aston Martin has produced its first electric car.
- BlackRock, Baby BlackRock this week reported that it has $6.5T in assets under management, and they had the strongest first quarter in the last 4 years.
- That Vape Life PAX Labs (makers of cannabis vaporizers and the once-owners of Juul) is raising $400m. The company expects $113m in revenue this year but predicts $1.2B by 2023.
- They Settled: Apple and Qualcomm settledtheirroyalty dispute, and Qualcomm is up over 40%. They’re now the only thing bridging the 4G and 5G gap.
Crypto-Bytes:
- One of my favorite quotes is:“How can something that is failing, go from $0.05 cents to $5,000 in 7 years?” The answer is: “Volatility. i.e. If you want something to go from $0.05 cents to $5,000 and fool everybody into believing that it is failing – then do it with as much volatility as possible.” Honestly, Bitcoin can fail a number of different ways. It could be taken over by a bad actor. It could be displaced by a better platform. It could be hacked. But because Bitcoin does not have any intrinsic value, and because it’s value depends on a social consensus – the most likely way in which Bitcoin could fail is a price panic. If we all decide at the same time that we think Bitcoin is worthless, then it will be worthless. It would be a self-fulfilling prophecy. With Bitcoin, if its price were to plummet, even if the platform remained intact, its reputation would suffer immensely and it could take a generation to rebuild its credibility. This could only happen if people buy amounts of Bitcoin they cannot afford to lose. For example, if people invest their retirement funds or their kids’ college funds into Bitcoin, and as the price goes down they are forced to sell, panic ensues – increasing the selling and price declines. I am personally a believer in the crypto-currency phenomenon, but I also believe that people in a position to invest should only allocate 1% to 3% of their assets toward Bitcoin at current prices.
- Things R Lookin’ Up: Bitcoin's quick bounce from newly established support near $5,170 has neutralized the bearish view. While prices are struggling to rise above $5,300, a violation there may entice buyers and bring about a re-test of recent highs above $5,400.
- Binance makes history: The Binance (BNB) token is currently sitting at ‘all-time-highs’ – rising above its previous ‘bubble-top’. Binance (the 7thlargest crypto by market cap), became only the second asset to reach a new price peak after the bull market crash. EOS has also achieved a similar feat.
- Satoshi’s Treasure: is a new alternate reality game that has hidden the keys to $1m-worth of bitcoin across the globe. The keys to a bitcoin wallet were divided into a minimum of 400 key fragments. As the game itself has no rules, Primitive Ventures co-founder Eric Meltzer said it best: ““Forget about the rules, just go out and play the goddamn game.”
- I just need a little to tide me over: Ethereum co-founder Joe Lubin’s Brooklyn-based venture studio ConsenSys is looking to raise $200m from external investors, on a $1B valuation. The company recently laid off 13% of its workers, and has struggled to stay afloat after last year’s crypto market crash.
- They Settled: Capping an 8-month court battle, Cameron and Tyler Winklevoss have settled their lawsuit against fellow early bitcoin entrepreneur Charlie Shrem over $26m worth of bitcoin they claimed he owed them. Terms of the settlement were not disclosed.
Last Week:
The S&Ps moved down all of 2 points for the week, while the Nasdaq eclipsed its all-time-high on the back of: Qualcomm, Apple, and Microsoft. We have Nasdaq earnings coming up next week, and last week’s earnings for the financial sector turned out to be a bit of a ‘mixed-bag’. One of the surprising elements that I saw from the financials is that some of them missed on revenue. Last week healthcare continued to be weak, and the Russell (small cap index) was down yet again. This is troublesome because a lot of the previous market down-moves were preceded by moves in the Russell. So is the Russell showing the market the way lower, or is it just a bunch of healthcare stocks dragging the Russell down?
The expected move for next week’s SPX (S&Ps) is $32: 2,870 to 2,940. This is lower than I would have expected. This period of ‘contracted’ volatility has gone on for a ‘protracted’ period of time – and is much lower than historical volatility projections. Last week the ‘low beta’ section of the market (XLU = Utilities) continued to march higher. That doesn’t make sense in a ‘risk-on’ type of marketplace – so something’s got to give going forward. History tells us to use ‘contracted’ periods of volatility as predictors of ‘violent behavior’ one way or the other. So now is not a good time to be allocating additional capital because markets are ‘poised’ for a much larger than expected move.
The graph below shows last week’s Russell finishing almost outside of its expected move (to the downside). It is still 13% away from its all-time-high – with all of the other indices within 3% of their respective highs. The Russell preceded the general market decline by between 45 to 60 days in 2018. For me it’s bothersome that bonds are moving lower. If our economy was moving along as nicely as we’re being told – then the bonds should be moving higher. Even the volatility of the bonds is 50% higher than that of the S&Ps – so something’s gotta’ give.
Weed:
As legalized cannabis spreads, its startup economy is booming. April 20th (4.20) has long been a day of defiance for cannabis activists, but in 2019, ‘420’ is taking on new meaning with legalization sweeping across the U.S. Weed is now legal in 33 states for medical use, and 10 states for recreational use. With cannabis still considered a Schedule I illicit drug by the federal government, U.S. startups handling it cannot get banked, cannot go public on the NYSE or NASDAQ, and are finding themselves mired in onerous tax laws and highly restrictive zoning that make it very expensive to operate. Yet cannabis is legal just across the border in Canada, which is enabling Canadian companies to profit from the U.S. market in ways in which stateside companies cannot.
For example, Canopy Growth, a Canadian cannabis company that is backed by a $4B investment by U.S. beverage giant Constellation Brands, has (in recent weeks) announced high-profile partnerships with celebrities like Seth Rogen and Martha Stewart. They also recently agreed to buy one of the largest U.S. cannabis operators, Acreage Holdings, for $3.4B – once federal legalization happens. Acreage’s lobbying tactics have included adding key political figures to its board, such as former U.S. speaker of the house John Boehner. He recently launched the National Cannabis Roundtable to advocate for legalization and has said that he believes the States Act (which would prevent federal interference with states that have legalized marijuana) may become law by early 2020. Kyle Lui, partner at venture firm DCM says: “The fact that these Canadian players have been able to get the scale that they’ve gotten to, and access U.S. capital markets and go public in the U.S., when U.S. companies can only go public in a secondary exchange in Canada, has given the Canadian companies time to become world leaders. Canopy has over a $20B market cap and they only did something like $80m in revenues last quarter.”
The Future of Cannabis: As more states legalize, researchers are getting better access to cannabis. Scientists have already determined that the drug can treat ills ranging from glaucoma to inflammation. But because science hasn’t had a very good understanding of how the different components in cannabis interact in the body, medicine has somewhat stumbled. CBD has been credited for treating every conceivable ailment that affects the human body. It’s in skin creams, and is even touted as a cure for depression, but there’s almost zero clinical research to confirm any claims. Studies thus far have shown that CBD works on fighting anxiety and inflammation, but still needs to settle on dosage requirements and on whether inhaling or taking it orally is best. With recreational legalization comes well-funded corporations that want to get in on the action. Presently there is a potential fracturing of the market that has well-funded corporations setting up large, indoor growing operations that churn out cheap, ‘meh’ weed, while small growers position their product as artisanal. In Northern California, the Mendocino Appellations Project is making the case that due to their unique soil and weather, they produce premium cannabis unlike any in the world. That distinction is largely anecdotal, but studies at Portland State University and elsewhere are beginning to put data behind those claims. The good news is that research is booming, along with the legal cannabis industry.
Next Week:
The above chart shows that the utility sector (XLU) is yielding a 3% dividend, and is performing nicely. However, if our equity marketplace is as solid as everyone is being told, then utilities should be moving lower. And the volatility indicator for the docile utility sector is 100% higher than that of the S&Ps. So the products that investors typically use to ‘duck-n-cover’ are moving in the wrong direction with a lot more volatility than they should be. All of it just doesn’t add-up. Because of that, I’m thinking of initiating a ‘short’ position in J.P. Morgan. I’m debating buying the July monthly $120 PUT options. If JPM moves higher next week, I will be all over this trade.
In terms of the ‘monsters of tech’ watch Microsoft (MSFT) earnings next week. Unless MSFT hits a homerun, the Nasdaq could very well reverse course and head lower. The other earnings announcement to be cautious of next week is Boeing (BA). Boeing could rock the DOW which would then impact the S&Ps, and that would take everyone along with it.
We are wickedly close to the all-time highs. My guess has been that we would pierce them, run for a short period, and then roll over. I reached the ‘roll-over’ piece by simply reading the headlines:
- Taiwan Semi missed earnings: $0.38 act. vs $0.63 est. / Sales were $7.1B act. vs. $9.03B est.
- IBM tumbled after reporting worst revenue In 17 years as cloud hit an air pocket.
- A 3-month trend in production of consumer durable goods has fallen to a -15% annual rate – similar to 2008/09.
- “Corporate stock buybacks remain the largest source of demand for US equities. Other ownership categories have been reducing equity exposure": Goldman Sachs.
- Housing starts fell 0.3% against expectations of a 5.4% rebound, February's 8.7% plunge was revised downward to a shocking 12% collapse.
- 5 companies represent 35% of the S&P 500’s value creation over the last 5 yrs.
- 60% of millennials don’t have $500 in savings ahead of the next recession.
- ‘U-Turn in Trucking’ as the Cass Freight Shipment Index contracts for the 4th consecutive month.
I could go on, but what's the point? The point is that the economy is removed from being connected to the stock market, and the stock market is being manipulated higher. Right now it's approaching all-time-highs and that's going to present resistance.
PLEASE, enjoy this Easter season with those who mean the most to you, and extend the olive branch to those who've been problematic in your past.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $9.00 / in @ $3.07),
- Canntrust Holdings (CTST = $7.11 / in @ $3.12) – missed earnings,
- Canopy Growth Corp (CGC = $44.77 / in @ $22.17),
- HEXO (HEXO = $6.76 / in @ $6.37),
- Nova Vax (NVAX = $0.52 / in @ $1.59)
Crypto:
- Bitcoin (BTC = $5,325)
- Ethereum (ETH = $173)
- Bitcoin Cash (BCH = $302)
Options:
- CGC (44.77): Buy May 17, 47.5 / 50 / 52 Call BFly for $0.03 CR
- CGC (44.77): Sell May 17, -40 / +37.5 Put Credit Spread for $0.70 CR
- SPY (290.10): Buy May 17, (-1) 268 / (+3) 258 / (-1) 256 Put BFly for $0.44 DB
Thoughts:
- XLF: The last time I checked, Bernie Sanders had a 14% probability of winning the 2020 Presidential election. That’s just high enough for the healthcare and insurance stocks to get crushed on the possibility of “Medicare-for-All”. That’s weighing on the rest of the market, with the exception of socialism-resistant bank stocks, and what makes banks think that they would escape the ravages of Marxism – beats me. Which is why a contrarian trader might consider a bearish trade in the financial sector ETF = XLF. It’s up over 15% this year, and its 10% IV rank points to debit strategies. If you think XLF might drop with the rest of the market, the long put vertical that’s short the $26.5 PUT and long the $28 PUT in the May 31stweekly expiration has a 66% probability of making 50% of its max profit before expiration.
- SPY: Overall, earnings aren’t quite what the market’s been hoping for, and that could trip up the long-running SPY. The SPY’s persistently low IV indicates confidence that it won’t, but a contrarian trader might see this as an opportunity for a bearish trade. The long put vertical that’s short the $289 PUT and long the $291 PUT in the May 31stweekly expiration has a 60% probability of making 50% of its max profit before expiration.
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
Until next week – be safe.
R.F. Culbertson
