This Week in Barrons: 7-14-2019:
Three Vignettes:
What is great customer support worth? Conventional wisdom is that top management is worth a fortune because of the high-leverage decisions they make. But consider an unheralded Air Canada gate agent named Wage. Last week he earned his employer at least $50,000 while getting paid perhaps 0.1% of that. For one particular flight, Wade notice that the gate microphone was out of order and instead of screaming – he walked over and spoke directly to the passengers who needed to hear him. He inquired about the connection status of a family of four (his largest group on the plane). He then picked up the phone, and expedited the family to get them on board. He found a lost wallet, tracked down the passenger and where they were seated, and got it to them prior to take-off. In an era when loyalty is scarce, he probably increased the lifetime value of a dozen wavering customers by at least a few thousand dollars each. Kulak’s Law states that the future of an organization is in the hands of the privates in the field – not the generals back home. The challenge for any business (large or small) is to find their Wade’s. And then figure out how to make it more likely that they bring that same magic to work tomorrow, and the day after that.
3 basic elements of problem solving:
1. Everything in the universe has a root cause. Instead of treating the symptom – find the disease.
2. Learn how to reduce complexity by improving your guessing abilities. Scientists know that very few real world problems have analytical solutions. I’m always reminded that the scientists I admired most, tended to have a ’gut feel’ for when certain elements produced better results.
3. And tough problems must be solved by good teams. Gone are the days of the solo practitioner. The world's largest particle accelerator took a decade to build in collaboration with over 10,000 scientists, hundreds of labs, and over 100 countries. If you don’t collaborate, you won't get very far.
Decide what’s in your ‘Go Bag’. Just the idea of a ‘Go Bag’ takes on different meanings, depending upon where and why you’re going. A FEMA ‘Go Bag’ starts with 1 gallon of water per person per day (for at least three days) and ends with moist towelettes, garbage bags, and plastic ties for personal sanitation needs. But a true grab-what-you-should-and-run‘Go Bag’ often includes: (a) between $500 and $1,500 in cash, (b) a solar phone charger – along with your cell phone, (c) a tent or some other form of protection from sun, wind, and rain, (d) sleeping bags or blankets, (e) high-value items such as jewelry, precious metals, coin or stamp collections, (f) computer laptop (after uploading all important files to the cloud), (g) prescription meds, contact lenses and glasses, (h) important documents in a waterproof container: birth certificates, IDs, insurance & bank account info., and immunization records, (i) change of clothes & hat for each person, (j) portable water filter like Lifestraw,(k) water purification tablets, (l) matches and lighter, (m) a portable camping stove, (n) personal hygiene items like: toothbrush, toothpaste, toilet paper, soap, and shampoo, and of course (o) paper and pencil.
Like everything in life, it’s all in the preparation and knowing why & where you’re going.
The Market: An over-view to set the stage for which way you (as an investor) should be leaning. Spoiler alert = Watch Digital Assets.
- Bullish = Technology stocks (XLK) and Internet stocks are at all-time highs – after being left for dead in 2012.
- Bullish = 75% of stocks in the S&P (the most since Feb. 2018) are now above their 200-day moving average.
- Bullish = Despite all the strength in the economy and the records in stocks – the market is still pricing in a 100% probability of a Fed Rate Cut on July 31st.
- Bearish = $10,000 invested for 30 years in Swiss government bonds will grow to $9,856 at maturity 2049 (note: Yes you’re losing money because the current 30-year rate is negative = -0.05%).
- Bearish = Assuming the U.S. / China standoff is not merely a trade war but the start of a new cold war, then the shift in the U.S. / China relations will cast a long shadow over financial markets and will end up:Bearishfor tech stocks, the U.S. dollar, and Chinese growth, but Bullish for Chinese and Russian bonds.
- Summary = When the U.S. and China are NOT trading partners, you want to be long the assets that no-one owns today (Chinese and Russian bonds) and short those that everyone is overweight today (the U.S. dollar and tech stocks).
A few weeks backI wrote about how it would take a real idiot to screw up the American expansion – well, let’s talk about tariffs and the possible idiot in the room.
This trend change in tariffs is staggering. Even if it reversed tomorrow (and it won’t) large corporations won’t trust the White House on policy. Last week alone, Trump tweeted about more tariffs on India and France. Tariffs have already:
- Triggered a slow-down in U.S. expansion,
- Accelerated growth in many emerging markets,
- Caused investors to have another ‘toe’ out the door on U.S. equities, and
- Have given an advantage to digital assets like Bitcoin to continue to outperform any other asset class.
Info Bits:
- DB – OMG: Deutsche bank is slashing 18,000 jobs, and exiting the equity sales and trading business. DB is now a debt laden disaster with over $43T in derivatives on the books. It will lose 2.8B euros in the second quarter of 2019.
- AAPL – OMG: Morgan Stanley issued a SELL order on stocks last week. (Note, if reality ruled the roost, stocks would have been a SELL since 2015). Also we found that iPhone sales in India were down by a smidge = down 43%!
- Hedgies are cancelling summer Vacay: The S&P is up 20%, and a lot of hedge fund summer vacations are being cancelled as active managers play catch up to the indexes.
- Roku = the little engine that could: They are America's most popular video streaming platform with a 30% market share. That’s double #2 (Amazon Fire TV). They sell their own device that comes pre-installed on many smart TVs.
- Delta – How did you know: not to have any Boeing 737 MAX in your fleet. You’re the only major U.S. carrier, and that means you’ve been gaining market share since March (8%), when your rivals had to ground their troubled planes.
- It’s all in the spin: The Congressional Budget Office released what could happen if the U.S. passed a $15 minimum wage. The good news: it would boost pay for 17m people and lift 1.3m people out of poverty. The bad news: it would lead to 1.3m people losing their jobs and being thrown into poverty as companies cut costs.
- “We are the champions.” 14m = the # people who watched Team USA win the 2019 Women’s World Cup. It’s the highest-rated soccer telecast in history.
- “We’re gonna need a bigger boat.” is what Jamie Dimon (CEO of JPM) said when they realized how much cocaine he ordered. A container ship owned by JPMorgan was seized in Philadelphia with $1.3B worth of cocaine on board. Needless to say, productivity levels at JPM have taken a hit. $1B of illegal drugs on a single ship – and that same JPM thinks that Bitcoin is bad because of the money laundering and criminal element it attracts.
- “Dog, that’s gonna be a ‘NO’ from the U.S.” France’s new tax law wants to collect corporate taxes from big tech firms (Amazon, FB, Google) based upon where the revenue is generated rather than where the corporate HQ is domiciled. That won’t fly with our administration and one response could be more tariffs. Can you say: “Alexa, play ‘Under Pressure’.”
- The KEY to someone buying your product: is being located near other ‘like’ products. Auto malls locate one car dealer next to another. Bookstores have tens of thousands of books, each competing to find a reader. The biggest competitor most marketers face is the prospect doing nothing (80% chance). The solution to ‘inaction’ is to be surrounded by competition. That changes the question from, ‘if’ to ‘which’?
- BPI = Beer Purchasers Index: took a downturn in June marking the lowest June reading since tracking began. June’s reading of 49 is the category's first reading below 50 (meaning contraction) this year.
- September Silver – Buy, Buy, Buy: The 5, 10 & 15 year numbers show that silver is poised for a solid move higher over the next 25 days.
- Alexa meet your new sister – Vesta: Amazon’s working on a robot that is voice activated, will roam around your house using cameras, and will quickly learn all of your secrets.
- Stranger Things 3: The Netflix show broke all records by having over 40.7m global accounts watch it within the first 4 days of the release.
- Teamwork makes the (autonomous driving) Dream Work: Volkswagen and Ford are teaming up to bring you electric and self-driving technology. VW will be investing $2.6B in Ford’s autonomous driving partner: Argo AI.
- A Record $5B FB fine: The FTC has approved a $5B settlement/fine for FB’s privacy violations. The settlement also includes more oversight on how FB handles user data – but NO restrictions on how it collects that data. The fact that FB shares surged higher (instead of tanking) is the real story.
Crypto-Bytes:
- Just do it – like Coinbase: ShapeShift’s new one-stop shop for non-custodial crypto management is launching out of private beta. The new platform wants to rival custodians like Coinbase for ease-of-use, all while giving users full control of their private information / keys. ShapeShift provides all of the Coinbase offering – but in a more secure and self-sovereign way. The new platform – which requires a connected hardware wallet – allows users to buy, sell, trade and track multiple cryptocurrencies in a single place, with over 50 digital assets supported.
- Europe moving quickly is almost an oxy-moron: The ECB wants regulators to kick into a higher gear when it comes to developing rules for big tech firms moving into finance, such as Facebook and its Libra cryptocurrency project. ECB Executive Board member Benoit Coeure said:“It’s out of the question to allow them to develop in a regulatory void for their financial service activities. We must move a lot faster.”
- “And they’re off…” Fidelity readies their own Cryptocurrency rollout.
- ‘Their project cannot go forward” said Federal Reserve chairman Jerome Powell when asked about Facebook's cryptocurrency project. He would like FB to address issues surrounding: money laundering, data privacy and consumer protection. The Fed has formed a cryptocurrency project working group, and is communicating with other central banks around the world.
- Trump practices ‘fake left’ = ‘go right’: By saying that crypto and FB’s Libra are ‘not money’, tells me that Trump knows how to get his FED nominee Judy Shelton (pro gold-standard and pro crypto) through the vetting process.
Last Week: Is Bitcoin or Libra the next global reserve currency, and how’s that affecting markets?
Last week FED Chairman Jerome Powell was asked whether Bitcoin could become globally adopted and ultimately render other reserve assets worthless? He said: “I think things like that are possible, but we really haven’t seen widespread adoption. Bitcoin is a good example, almost no one uses it for payments, they use it more as an alternative to gold, it’s a store of value.” What’s incredible about that statement is that Gold is a +$7T asset with 5,000+ years of history, and Bitcoin is a $200B asset with 10 years of history. But when it comes to their abilities to serve as stores of value, the head of our FED vocally believes they are complimentary to each other. If this wasn’t bullish enough for Bitcoin’s future prospects, President Trump then decided to weigh in:“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
I’m NOT going to pick apart his argument but rather suffice it to say that if I replace the word ‘Bitcoin’ with ‘U.S. Dollar’ in his tweet – you (arguably) get a more truthful statement: “I am not a fan of U.S. dollars, which are based on thin air. These U.S. dollars can facilitate unlawful behavior, including drug trade and other illegal activity.” Trump continued on to talk about Facebook’s Libra cryptocurrency by saying: “Facebook Libra’s virtual currency will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!” [July 12th, 2019]
There are plenty of truths in his statements, including the dollar being the dominant currency in the world and the reliability of it. But to say that it is stronger than ever would be misleading, especially since it has lost more than 96% of its purchasing power since 1913. And to make the claim that the U.S. dollar will be the global reserve currency forever would mean that you are completely ignoring thousands of years of history. The average life expectancy of a fiat currency is around 27 years, and it’s been 227 years since we created the United States dollar – so it’s overdue. Regardless of what you think of Bitcoin or the US dollar, it is important to remember that the dollar doesn’t need to fail in order for Bitcoin to succeed. In fact, it is likely that both will coexist for a long period of time. FYI, the markets shrugged off both remarks with the 10 major coins gaining on the day.
Some of the most powerful financial people are quickly realizing that digital assets are NOT a US-based industry, but instead a global phenomenon that is immune to monetary policy and attempts of currency manipulation. Bitcoin keeps producing blocks of transactions without any issues, and continues to prove why it is the most anti-fragile asset in the world.
As for the equity markets, in what can only be called a ‘melt-up’ the market is going crazy. This is quite the run for the roses, and unfortunately, it's all based on rate cuts, easy money, and buy backs. The market is running on nonsense, and no one seems to care. Being long this market is one of the more frightening things you can do. My head continues to tell me I’m crazy, and yet at the end of the day: "We're up". However inside the indexes, it's really just a fairly small percentage of individual stocks that are carrying the load. Honestly, right now digital assets are making more sense to me than our financial markets.
Weed: In terms of Murphy’s Law: What could go wrong – did go wrong.
My biggest fear of the cannabis space was complete mis-management, and CannTrust (CTST) delivered that ‘in spades’ last week. Whenever a sector is ‘priced to perfection’, you are required to execute without stupidity. Last week CannTrust (an Ontario company) showed us that it was unable to do that. They were hit with sanctions by Health Canada for unlicensed cultivation, and for providing inaccurate information to the federal regulator. As a result, CannTrust’s greenhouse in Pelham received a “noncompliant” rating from Health Canada. But that was just the start of the Canadian cultivator’s troubles. CannTrust next disclosed it had shipped some of theunlicensed cannabis overseas which is an indictable offense. The latest blow came after Ontario’s government-run marijuana retailer yanked CannTrust’s adult-use products from its shelves because of the company’s regulatory woes. It’s unclear how much of a hit CannTrust may take to its bottom line – so potentially this is a buying opportunity. But the developments are a black eye both for CannTrust and the Canadian marijuana industry at large. CannTrust’s woes could tarnish the international reputations of other Canadian cultivators that ship product overseas. All of these bits of news put a scare into the sector – causing every company to break through technical support in a negative way. Bottom line, if you believe that there’s a lot of growth ahead in the cannabis industry, and the process of ‘weeding-out’the managerial deadwood was going to happen anyway – then this is a buying opportunity.
Next Week: This market’s headed higher and here’s why:
Remember the phrase: “If you can’t beat ‘em – join ‘em?” FED Chairman Powell discovered quickly that all his announcements of ‘doing the right thing’ got him crucified on a daily basis by the White House and Wall Street. He found out that currently (when you become the head of the FED) you have an inherent struggle with the phrase: “Inflate or Die”. He knows that inflation is really running north of 6% and in some cases over 8%. But he’s learned to evade, duck, twist, mark-up all manner of stats to show that we’re running at less than 2%. But again, he only has 2 choices and the other one is “Die”.
But he can’t press the ‘reset’ button now because we’ve already passed the point of no return - politically and financially. America's insiders have made about $30T from unearned stock market gains. Their ill-gotten wealth will disappear if the FED stops inflating. If Powell pulled a Paul Volker (early 80’s) and jammed rates higher – because he was “doing the right thing” – everything would melt down (think December).
The result of inflation is higher prices, but it is not the cause. Inflation is caused by increasing the money supply. But increasing the money supply doesn't necessarily increase consumer prices – it depends upon where the money goes and how it gets there. Our FED (after each of the two bubble blow-ups this century = Internet & Housing) decided to stimulate the economy with fake money. The whole idea was a joke from the beginning, because fake money (money that no one earned or saved) can never produce real growth. All of this new ‘stimulated’ wealth was backed by debt and not real GDP. So, what happens? Debt that is already unpayable, becomes more unpayable, and equities soar to unimaginable heights. Then people start using those ultra-high stock assets for collateral for more debt. Factually, the value of all the publicly traded companies in America is about $30T. But companies owe $15T thanks in large part to the $15T they borrowed to buy-back their own company stock. So, what happens if the market gets cut by 50% in a real melt down? They simply go poof. So Chairman Powell’s other choice (death) is not really a choice.
The problem with the market putting in all-time highs on Friday, is that earnings start on Tuesday. Corporate earnings announcements are coming in by the hundreds warning of horrendous numbers. Yet we're at all-time highs. Why? Because no one gives a crap about earnings, overvaluation or P/E ratios. All they care about is that Chairman Powell is their new dealer of Economic Heroin. What are we doing next: QE, directly handing out money, or maybe negative rates like Europe?
A bear market cannot happen because of the “Inflate or Die” scenario. The market, will continue to stair step higher, despite crap earnings, crashing big truck sales, horrific air shipment numbers, etc. BUT (as I've mentioned many times) they are getting desperate for a Black Swan to appear on the horizon. A war, a plague, something on which they can blame a huge market melt-down. They're going to inflate until something comes along and they can sneak out the back door. As much as I hate the sounds of this – we are going higher for all the wrong reasons.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $6.77 / in @ $3.07) – ACB has affirmed profitability for this quarter – so this should jump post-earnings,
- Canntrust Holdings (CTST = $2.58 / in @ $3.12) – doubtful their most recent actions have any impact on earnings,
- Canopy Growth Corp (CGC = $34.21 / in @ $22.17),
- GBTC (GBTC = $14.85 / in @ $10.01),
- Hexo (HEXO = $4.85 / in @ $6.37),
Crypto:
- Bitcoin (BTC = $10,700)
- Ethereum (ETH = $245)
- Bitcoin Cash (BCH = $325)
Options:
- RIOT ($2.26):
o Buy Jan 17, Sell $3 Call / Sell $3 Put / Buy $4 Call for $1.85 CR
o Buy Jan 17, Sell $2 Call / Sell $2 Put / Buy $3 Call for $1.45 CR
o (can only lose money if RIOT falls below $1).
Thoughts:
Facebook wants to clear the deck for the next big battle which is money and payments. They want a piece of this:
No matter what walls now get put up by regulators, Facebook is coming for a bigger piece of the e-commerce/payments action. Thoughts = get long the above stocks: FB, BTC, AMZN, MA, PAGS, SHOP, and PYPL – just wait until after next week!
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
