This Week in Barrons: 12-8-2019:
Are you a Missionary or a Mercenary?
e-Mail Bag:
Grinding vs Ripping…
It is tempting to search for that one magic move that will make everything better. Maybe it’s that new VP of Sales, or a branding effort, or moving everything to the cloud, or even more working capital for the business. It’s rarely one thing that a business needs to succeed – but rather a combo-platter. In any company, there is the classic ‘rip and re-write’ people vs those that will ‘grind and modify’. Grinding and modifying is slow, steady, and honestly not very satisfying. It’s hard to stand up in front of everyone and preach that slow ‘n steady wins the race. Big flashy moves are a much easier sell most of the time – but their failure rate is off the charts. If given a choice between a grinder and a ripper – I’ll take the grinder every time. It requires faith and patience, and the results are often tough to discern – but the probability of success is almost a given.
Maybe we can’t fix stupid…
Last week, the test results from the Program for International Student Assessment were announced. They showed that about 20% of American 15-year-olds hadn’t mastered the reading skills expected of a 10-year-old. Education experts are beginning to wonder whether programs such as: No Child Left Behind and the Common Core are contributors to our loss of educational leadership on the world stage. Factually, about 600,000 15-year-olds from around the world took the test – which is given every three years. Canada, China, Estonia, Finland, Ireland and Singapore were just some of the countries that outperformed the U.S.
Attention vs Innovation…
Some people think that Tesla’s window-shattering launch of their CyberTruck was either an intentional fail (for the publicity), a brilliant success (for the pre-orders), or both. They say: “Any attention is good attention”, and regularly equate attention with innovation. In the past, innovation got you publicity, gave your fans something to talk about, and satisfied people in search of the next big thing. But marketeers learned an important lesson: Innovation alone can’t reach a wide enough audience. The masses don’t want new, they want something that works - that others are using to solve problems. Innovations require the network effect to make themselves relevant. (i.e. They need early adopters to broadcast the innovation to their network of followers, and for those individuals to continue to do the same.) As much as early adopters are thrilled by innovation – everyone else is scared of failure and needs trust. 81% of the market asks questions about reliability, and wonders how they will look in front their peers. By shattering the side-window, Tesla bent (but didn’t break) the trustworthy part of the equation. And, because they’re 2 years from launch (more than enough time to fix a window), they also grabbed the attention (viral) side of the equation. In a world where everyone is a marketeer – the broken window satisfied those that needed to burn a small amount of trust in order to seek a much larger audience. Customers will always choose trust, but need attention to break through the commotion. Congrats to Tesla, and fyi – my sources tell me the window shattering was a legitimate accident.
Are your employees Missionaries or Mercenaries?
According to AP: Mercenaries are opportunistic, all about the deal, and are there to sprint for short-term payoffs. Missionaries are strategic, all about the idea, and the partnerships that surround it. Mercenaries have a lust for making money, while missionaries have a lust for meaning. Mercenaries obsess about the competition and fret over financials, while missionaries obsess about customers and fret over creating enough value. Mercenaries display an attitude of entitlement and love hanging-around with the founders – while missionaries love contribution and welcome time with users and customers. Mercenaries strive for success – while missionaries aspire to be significant. Wall Street is full of mercenaries focused on profits. They leave in a heartbeat for bigger bonuses or more opportunity. There’s little loyalty and most people make decisions based upon their own personal gain. This is exactly opposite the Bitcoin ecosystem, that has benefited from a long list of missionaries.
When mercenaries and missionaries collide – missionaries usually prevail. They believe in what they are doing on a much deeper level, and are willing to go to greater lengths to succeed. They can endure more pain, and refuse to give up. Fanaticism is what has driven Bitcoin from non-existence to one of the most popular currencies in the world in only 10 years. It’s interesting that over 11.5m Bitcoin holders have NOT traded their Bitcoin at all last year – even with an 85% price increase. They don’t care about the dollar-value of Bitcoin because to them: 1 Bitcoin equals 1 Bitcoin. To them: Bitcoin is not an investment but rather a protest – a peaceful revolution against ‘The Man’. Institutions are mercenaries. They play games of probability, risk containment, and are unemotional about their investments. Bitcoiners are also risk adverse, but to them – not owning Bitcoin is the risk. After all, they are the “HODLers of last resort.”
“We can pay any debt … we can always Print More Money…” Alan Greenspan
The Market:
Thanks FX for the 23 second clip:
- Moderator: “Are U.S. Treasury Bonds still safe to invest in?”
- Alan Greenspan (x-FED Chief): “Very much so. This is NOT an issue with credit rating. The United States can pay any debt it has because: We can always print more money.” https://www.youtube.com/watch?v=Ck3FuTzZvhI
If the above doesn’t scare you – you have a stronger stomach than I do. This comes directly from our x-FED Chief in 2011 – when our balance sheet was looking a lot better than it is right now. Can you imagine saying: “I don’t have to balance my budget ever again because I can always print more money.” Agh! It’s because this attitude has been allowed to prevail the last 9 years, that I’m seeing some very strange behavior as of late. In the last several months, Central Banks have gone crazy buying gold. And on Wednesday, someone made a $2m dollar options bet that gold will be $4,000/oz. by June, 2021.
Central Banks are realizing that we’re in a bubble of epic proportions, and they’re buying downside risk protection. They know that they need to continue to inflate, print money, and expand the debt – or the entire globe blows-up. But they also know that it can't go on forever. Therefore, they’re positioning themselves for the big reset. I realize I sound like every other delusional gold bug, but gold has been a great investment since 2000 when it was $280 per ounce. It’s currently around $1,500/oz. and silver around $17/oz. – up over 400% from 2000. I’m looking for gold to rise above $3,000/oz. and silver between $75 and $100 within the next several years. I’m also looking for a new global reserve currency to be put in place that would be based upon a combination of: gold, an SDR, and a digital currency.
Recently, most nations have repatriated their gold, and have increased their gold holdings. They are doing that because they know something wicked this way comes. The move away from the U.S. dollar continues to accelerate. Russia and China have bypassed the U.S.’s Swift payment system. Russia has sold all of its US treasuries, while also acquiring additional gold. This coincides with our FED printing over $3T to supply the overnight, 14 and 21-day repo markets. That’s not normal!
If you don't have any gold, I think that it’s a good time to get some. The bottom line is that we are in the later stages of this end game, with some form of reset coming. I have to believe gold is going to play a part in that reset with a resting price between $3,500 and $5,000/oz.
Info Bits:
- Holiday Sales on Black Friday weekend: (a) Physical store sales dropped 6.2% from last year and the number of shoppers in stores fell by 2.1%. (b) Online sales increased by 20% to hit a record $7.4B. (c) Mobile sales were 65% of those online sales – up 35% YoY. (d) BOPIS sales (buy online – pickup in store) rose 43% YoY.
- eBay… can finally focus on growing its 6.1% share of U.S. online sales, now that Amazon has its 47% covered.
- Google acquired Fitbit for $2.1B: Facebook was also in the bidding but fell just $10m short of Google’s winning bid. Big Tech's next battle will be over your body's data. Apple has its Watch, Google has Fitbit, and Facebook may have to build something from scratch.
- Consumer confidence declined for a fourth consecutive month… driven by a softening in current business and employment conditions. The decline suggests that economic growth in the final quarter of 2019 will remain weak.
- Meal deliveries are now 60% of restaurant traffic: Some restaurants are turning the tables on customers, allowing diners to earn gift certificates or discounts in exchange for making a reservation during off-peak hours.
- Manufacturing activity continued to contract… as the ISM Manufacturing PMI dipped to 48.1 in November. That’s below an estimate of 49.4, and anything below 50 shows contraction.
- Peloton’s Ad… that captures a 116 lb. woman’s incredibly arduous yearlong fitness journey to become a 112 lb. woman – is getting quite the attention,
- Changing of the Guard… Eileen Murray is stepping down as co-CEO of Bridgewater Associates. Bridgewater was founded by Ray Dalio, and has grown to become the world's largest hedge fund with $160B under management. It is DOWN 6% this year, while the S&P is making all-time highs.
- According to ADP, payrolls increased by just 67,000 in November: The private number showed the slowest growth since May. “The job market is losing its shine,” said chief economist Mark Zandi.
- Travelin’ Light… Rent the Runway, the women’s clothing and accessories rental service, is partnering with W Hotels to give guests the option to have clothes waiting upon arrival for $69. You never have to worry about fitting your suitcase in the overhead compartment again.
- Elon, Be Careful What You Wish For… as General Motors and South Korea based LG Chem. are planning to build an electric vehicle battery factory in Lordstown, Ohio. The plant would rival Tesla’s Gigafactory, and is critical for GM’s plan to introduce at least 20 EV models by 2023.
- Are Goldman Sachs clients preparing for a recession? Absolutely, every last one of them. 72% of economists expect a recession by the end of 2021.
- Saudi Aramco priced its IPO… at the high end of the range, raising $25.6B and giving the energy giant a valuation of $1.7T in the world's biggest stock sale.
- Erasing a donor’s name: Tufts University said that it would remove the Sacklers’ name from facilities because of the family’s role in the opioid crisis. But Tuft’s is NOT returning their donations.
- Facebook takes Manhattan: Facebook is looking to lease 700,000 square feet of office space in the Farley Building in Midtown Manhattan, and another 1.5m square feet in the Hudson Yards neighborhood. FB is looking to create 25k jobs in the area over time – making it one of the largest corporate tenants in the city.
- "Wow. That seems a little late"… is what an 11-year old said after her mother told her she's the first black lead ever in "The Nutcracker."
Crypto-Bytes:
- We Bless the Tweets Down in Africa… Jack Dorsey is moving to Africa. That means his new office is going to look like a wealthy couple’s honeymoon safari. Although Africa may be the ideal environment to test any crypto decentralization fantasies, Jack is CEO of 2 public companies that are down ~3% YoY and may need him around.
- Central Bank issues a Bonus Round: This week several Central Banks announced support for a national digital currency. These included the European Central Bank (ECB), France, and China. China confirmed that its citizens will be able to use digital currency for retail payments. While ECB, is still working on the 'Digital Euro', they did take time-out to thank Facebook’s Libra for the nudge.
- Dad is movin’ on up: ‘Crypto Dad’ – J. Christopher Giancarlo (former Commodity Futures Trading Commission Chairman) is joining the Willkie Farr & Gallagher law firm. We wish him all the best.
- Liquidity Insights: Fragmented markets are a salient feature of the crypto-world. No other asset class trades across so many small pools of liquidity, and this market structure often makes it difficult to agree upon price.
- Ditching dollars? Deutsche Bank issued a report claiming that state-backed fiat currencies may struggle to survive under higher inflation. They’re looking for crypto to rise as investors dive into digital assets over the coming decade.
Last Week:
- Monday: The U.S. Manufacturing survey just disappointed, New Orders plunged, and the Employment numbers hit the skids. Construction Spending was down almost 1%. ISM Manufacturing is down to 48.1. Expectations were for 49.2, and last month’s was 48.3. This is ALL really bad manufacturing data. This morning the market is pouting due to some push back from China, and this slew of lousy economic data. Will it matter? Last December the market collapsed for 20% within the shortest timespan in history. Are we looking at a repeat? Doubtful, as last December Powell was talking big about HIKING rates, now he’s cutting and printing trillions. The markets hate both the economic reports, and Trump saying that if we don't get a deal – tariffs go up on the 15th. This should be a red day into the close.
- Tuesday: Trump mentioned waiting until after the 2020 election to make a deal with China, and this knocked the futures for a major loop. But the FED’s money printing will be enough to offset the idea of a "never deal". Consider the headline – Japanese Gov’t considering 25 Trillion yen Economic Stimulus Package. Whenever the S&P gets close to 100 points over its 50-day moving average, it always corrects. Well, just 3 sessions ago, the spread was 127 points. We’ve currently peeled off 780 DOW points in 2 sessions, and the S&P is still 40 points over its 50-day. But betting against the Fed's printing press has never been a good idea.
- Wednesday: This morning the futures are up because someone leaked that the China trade negotiations are still on track. One might think this game of "trade on / trade off" would get old after a while, but no – the algorithms still react to it. The ‘tell’ however will be the Dec 15th tariff hike deadline. There is an impending impeachment trial on the horizon along with an Inspector General's report on improper use of the FISA system.
- Thursday: We are ten days away from new tariff hikes, and China's ministry has said that a Phase 1 deal is only possible if tariffs are rolled back. These games of ‘chicken’ become more and more interesting the older I get. Take a look at MNK as it’s been trying to get over that $4.00 level since September. The interesting part is that there’s an incredible 62% short position. If MNK gets through $4 and holds, we could see a wicked short squeeze. Next up, JBLU. It had a positive volume surge yesterday and its technicals are firming up.
- Friday: Okay so the jobs numbers are out, and if they were real, they'd be spectacular. Estimates were for 187k jobs, and we got 266k. On Wednesday ADP came out with a 67k (more reasonable) number. But that didn’t include the 218,000 new census workers just hired by the government – that will be unemployed again in a couple months. Remove those 218k census workers and the 41k GM workers that came back off ‘strike’ – and we only gained 7k jobs!
Weed:
- 41% of all CBD consumers… expect their consumption of CBD to increase over the next 6 months.
- Currently, 11 states have approved cannabis for recreational, adult use (as well as D.C.), and 35 states have approved cannabis for medical use.
- Over $400m in sales… is what Massachusetts recorded in its first full year of recreational marijuana sales. That’s even with a severe absence of retail stores throughout the state.
- Viv & Oak is de-alcoholizing wine and infusing it with CBD and THC: It just launched its first product Рa Sparkling Ros̩ in two dosing styles.
- Missouri's medical marijuana program is off to a fast start… as it issued almost 22,000 medical marijuana cards in the 1st 5 months of the program.
- Colorado’s Marijuana legalization program is a success:
o Marijuana-related arrests have plummeted, saving millions of dollars and preventing the criminalization of several thousand people.
o Youth marijuana use has NOT increased.
o Opioid overdose deaths and untreated opioid use disorders are declining.
o DUI arrests for driving under the influence (of alcohol and other drugs) are reduced.
o Hundreds of millions of new dollars in tax revenue are available for funding education, school construction, early literacy, bully prevention, behavioral health, and alcohol and drug treatment.
o The legal marijuana industry is creating jobs, currently employing over 225,000 full and part-time workers across the country. The numbers are expected to climb as more state retail marijuana programs come online.
Next Week:
Note, because of what I wrote above about gold, I know that I will get a ton of e-mail asking me if I see any signs of another ‘Vegas Play’ forming? Before I answer that, let me describe what a ‘Vegas Play’ is. The words ‘Vegas Play’ are based upon going ‘all in and laddering call options’ surrounding a particular gold mining company. The first ‘Vegas Play’ was in 2011, and it turned $30K into $1.2m in 18 months. The second one was in 2016, and it took $19k and turned it into $244k in 12 months. I see the beginnings of one, and will be communicating that over the next several weeks.
By now you all know my stance. We’re in a war between horrid economic data which is trying to push markets lower, and an enormous (+$3T) stimulus package courtesy of our very own Federal Reserve. Who will win this war? I’m betting the FED’s trillions will ‘trump’ the lousy economic news for the time being. Corporate profits peaked back in 2015, and since then corporate buy-backs have caused most of the stock increases.
What didn’t move higher last week was gold, silver, and the miners. With all of the fake money floating around, the real money fell back. I think we’re in the final leg of when you can buy gold for under $1,500/oz. Once the asset bubble, debt bubble, and global reset come into play – it’s my belief that gold is going to play a strong role in the new system. In a piece penned by DC he says: “The 200 or so publicly traded explorers, developers, and junior miners are the source of the great majority of future economic deposits. When the market gets hot for them again, the whole sector could go up 10 to 1, with some standout companies going 100 to 1. The upcoming recession will hurt consumption of base metals, but it's going to help gold. As the world’s money printing takes hold, it will evidence itself in retail inflation – bringing both stock and bond markets substantially lower. Their flight to quality will include Bitcoin and gold mining stocks in general – small explorers and developers in particular.” I couldn't agree more, and am looking for a little bit deeper pullback in gold, silver and the miners. After the next 4 to 6 months, we may never see gold below $1,500 again.
Tips:
Learn how to ‘Lose with Honor’: It’s just math. You’re going to lose most of the competitions you enter. How could it be any other way with a hundred, or a thousand, or a billion people competing – and only one winner? That means you’re going to be seen and measured by how you lose, not how you win. The way to win is normally to: (a) fit in, (b) give the judges exactly what they want, and (c) train just like everyone else – only harder. But the way you ‘lose with honor’ is by: (a) creating possibilities, (b) being creative, and (c) doing generous work that’s worth talking about. If you’re going to lose, why not lose with honor?
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $2.43 / in @ $3.07)
- First Majestic Silver (AG = $10.47 / in @ 10.50)
- Canopy Growth Corp (CGC = $18.65 / in @ $22.17),
- DRD Gold (DRD = $4.53 / in @ $4.20),
- GBTC Bitcoin (GBTC = $9.00 / in @ $10.01),
- Microsoft (MSFT = $151.75 / in @ $145),
- Pan American Silver (PAAS = $19.82 / in @ 18.00),
Crypto:
- Bitcoin (BTC = $7,550)
- Ethereum (ETH = $150)
- Bitcoin Cash (BCH = $215)
Options:
- RIOT ($1.32):
o Bot Jan 17, Sold $3 Call / Sold $3 Put / Bot $4 Call for $1.85 CR
o Bot Jan 17, Sold $2 Call / Sold $2 Put / Bot $3 Call for $1.45 CR
o (can only lose money if RIOT falls below $0.70).
Thoughts:
- Canopy Growth (CGC = $18.65) It is one of the few companies that has a high implied volatility (IV) rank due to the relatively large price swings it has had. But interestingly, the large price swings don’t happen as often as the high IV would lead you to believe (the last one, due to earnings, was 3 weeks ago). That means if you don’t want to risk all that much, you can still collect a decent credit with a defined risk strategy. If you think that CGC will stay in a range for the next few weeks, the short iron condor that’s long the $13.50 Put, short the $15.50 Put, short the $21.50 Call and long the $23.50 Call in the January weekly expiration series that has 35 days until expiration is a neutral strategy that collects a credit 1/3 the width of the strikes, and has a 70% 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!
Disclaimer:
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Until next week – be safe.
R.F. Culbertson
Until next week – be safe.
R.F. Culbertson
