This Week in Barrons: 5-10-2020:
“Testing…Testing…1-2-3”
It’s very simple. It’s ALL about testing. You start with the necessary workers that you know you’ll need – those at the grocery stores, hospitals and your service sectors that keep America going. You test them on a daily+ basis. Then you open the spigot a bit, and test those at retail and office locations. You keep testing, and when you find someone who is infected – you isolate them until their infection runs its course. But we can’t do that in America because: (a) it’s going to impact our freedom, (b) we don’t have the tests, and/or (c) all of the above. On the topic of testing, no one has covered this better than John Oliver: https://bit.ly/2xEdo80
We currently don’t have enough tests, but it was never designed that we have enough tests. Factually, we need between 5 and 35 million tests A DAY, and we presently only have between 1% to 5% of that figure. We are presently conducting 200,000 tests a day. This tells me 2 things: (1) Covid-19 deaths will rise astronomically (even Trump believes this). And (2) more testing would just show us how sick we really are as a population – simply reinforcing the decision to ‘cull the heard’ rather than over-populate the hospitals.
We currently don’t have enough tests, but it was never designed that we have enough tests. Factually, we need between 5 and 35 million tests A DAY, and we presently only have between 1% to 5% of that figure. We are presently conducting 200,000 tests a day. This tells me 2 things: (1) Covid-19 deaths will rise astronomically (even Trump believes this). And (2) more testing would just show us how sick we really are as a population – simply reinforcing the decision to ‘cull the heard’ rather than over-populate the hospitals.
What the past 6 weeks have shown me is that we citizens will do exactly what someone else tells us to do – as long as there is money involved. Our government is printing money (like crazy) so they have all the power. The facts have become irrelevant. I thought our goal was to limit the number of infected people – isolate them to slow the passing of the disease – and allow the infection to die in due course. It seems however that the plan is to open up the country – allow the disease to flourish – and let Darwinism (‘only the strong survive’) do its thing. This isn’t even 6 degrees of separation. I can guarantee going forward that you or someone you know will die. So they’re right, why test – if only the strong are going to survive anyway?
I’ve been juggling worst case economic scenarios for at least a decade. Every time I would suggest a downturn, everyone would explain to me how the worst will never happen, and that there will never be another rainy day. Presently friends, corporations, and governments have no savings. They have become fat and inefficient, and will now be starved into consolidation. If people are not scared of the virus today, they won’t remember it when they step into the voting booth in November. We’re proving to the world that the business of America is business. Why should anyone stay home or wear a mask when our leaders don’t? They say this is the ‘New Normal’, and they’re right. But it shouldn’t be.
The Market…
After the worst jobs report in history – stocks ‘naturally’ rocketed higher. If this confuses you, you are not alone. Heck, the Nasdaq is less than 5% off its all-time high. All this insanity, and we’re right back to the edge of glory for big cap Nazzies. April’s unemployment numbers were unprecedented. The jobless rate came in at 14.7%, and our payrolls dropped 20.5m in a month.
The U.S. is $25T in debt. But is it really ‘debt’ if you have no intention of ever paying it back? To our government’s defense, this healthcare crisis has required unprecedented governmental support that has led to a near shutdown of the global economy. Over 30m Americans have lost their jobs, and many industries saw their revenue completely vanish. Our government increased unemployment benefits, sent forgivable loans to small businesses, and offered bailouts to major industries. All of this increased governmental spending all the while lowering local, state and federal tax revenues. They can’t recoup their losses EXCEPT by RAISING TAXES – which won’t happen until after the election.
However, the math doesn’t work. Our government cannot create / drive enough revenue to become profitable. Their only saving grace is that interest rates are so low that debt service is cheaper. But no matter how low you drive the ‘cost of capital’, mathematically you can never pay back the loan. So, is it really a loan – if you never had any intention of paying it back? I don’t know – ask Zimbabwe. I’m hoping we can keep kicking the can down the road, otherwise, a financial default by the U.S. would be catastrophic to the global economy.
InfoBits:
- Is anybody home… because Clorox is crushing it. Their quarterly sales jumped the most in ten years. They see obsessive germ-quashing not as a fad, but as a long-term behavior shift.
- 35m Americans have been furloughed… resulting in 1 in 5 Americans filing for first time unemployment benefits.
- Robinhood… raised another $280m to tide them over until they can figure out how to make money the ‘old fashioned way’.
- Juul is moving its headquarters to Washington, D.C., cutting 1/3 of their workforce, and closing many U.S., European, and Asian offices.
- Coronavirus task force members… are no longer allowed to testify before Congress – says the White House.
- J. Crew… has filed for bankruptcy protection and rumors are swirling around: Sears, JCPenney and Neiman Marcus.
- GE Aviation… will cut 13,000 well-paying jobs
- United Airlines… is encouraging employees to consider "voluntary separation".
- Consumer Debt hits new record… $14.3T
- Airbnb set to lay off 25% of workforce = 1,900 people. Airbnb went from raising boatloads of cash and an IPO buzz – to this. Life comes at you fast.
- California is suing Uber and Lyft… for misclassifying their drivers as contractors and not as employees. Lyft says they’re working on it, but Uber contends they’re a tech software company and is ready to suit up.
- Amazon… has quietly rolled out its digital freight brokerage service for 48 states – in order to shore up its own supply-chain issues.
- Peloton… workouts jumped 81% last quarter. Who knew that people were actually riding their $2,000 bikes?
- Spotify… is now testing video within its app. What a novel idea – a streaming video service.
- Tesla… is preparing to restart operation at its California factory in direct violation of local shelter-in-place orders.
- Someone flushed a toilet… during the Supreme Court's phone arguments this week. Yes, everyone heard it. Proving that no one can escape the little indignities of working from home.
- Target… is acquiring the tech assets of same-day delivery service Deliv.
- Fortinet… gained 31.15% this week. Turns out cybersecurity is a real thing?
- Zoom is acquiring Keybase… a 25-person start-up in New York, to add end-to-end encryption to video calls.
- Grimes and Elon Musk's baby’s name… may not be acceptable to the state of California. He would be the only child named: "X Æ A-12," that's for sure.
- Nonfarm payrolls fell by 20.5m in April… and the unemployment rate rose to 14.7% - both are post-World War II records.
- Google… CEO Sundar Pichai told employees to prepare to work remotely through October and possibly December.
- Facebook… told employees they can work from home through the end of the year, and doesn’t expect to re-open most offices until at least July.
- Apple is planning a gradual re-opening of its U.S. stores,
Crypto-Bytes:
- Emerging markets…. Citizens in the Middle East are turning to crypto to resist the effects of weak governments and wildly fluctuating exchange rates.
- Bitcoin's believers think… that it's likely the global economy is due for a correction. Bitcoin's underlying technology is designed to make it one of the few investable assets that is immune to economic fluctuations.
- Busy days… Ethereum’s network is experiencing its busiest days in 10 months amid issuance of stablecoins and the runup to Ethereum 2.0.
- Tron's relief? Justin Sun’s blockchain platform Tron will receive $2m in U.S. coronavirus PPP relief intended for salary protection.
- Bitcoin futures crossed $10,000… after legendary hedge fund manager Paul Tudor Jones mentioned that he bought contracts as a hedge against central-bank money printing. BTC is now up 37% YTD.
Last Week:
Monday: Over the weekend, Warren Buffet’s annual report was remarkably bearish. He liquidated all of his airline holdings, and a big chunk of his other equities. The market just bounced off the DOW 50-day moving average, and off the S&P’s 21-day moving average. It appears that those are our new support levels. I keep considering a BA short. Their nightmare plane is still grounded, Buffet sold all his airline stocks, and orders for new planes are in the toilet. How is BA holding up? My guess is that it’s being treated as a national security play, and getting bail out money behind the scenes. Also watching X, and if it gets over $8.20 I'm nibbling. I think that Trump's going to announce some form of ‘back to work’ infrastructure bill, and X will benefit from that.
Tuesday: The PPT (Plunge Patrol Team) was out in force yesterday. They are the team assigned to support the markets so that they don’t roll over. Yesterday, at one point we were down 360 points, but in the last hour the PPT kicked in ending the day GREEN by 26 points. Green after Buffet says he sold a ton of stock and isn't buying. Green after the most horrendous economic reports ever seen. That is our FED doing "Whatever it takes." This morning we’re green, only I don’t know if this is a bounce and run, or a pop and drop. Lately it seems that all you have to buy is: GOOGL, MSFT, AAPL, and TSLA and you're rich. The tech ETF (XLK) is sitting right at a breakout level, while the healthcare ETF (XLV) is also having a nice day.
Wednesday: We just received the ADP employment report, and 20.2m people lost their jobs in April. These are depression style numbers. How long can our FED keep the market higher? Does anything look buyable?
- NXPI, PYPL and SQ will benefit from the "no touch" movement.
- CRM is looking interesting, and over $165.65 I’m in.
- SPLK is trying to break out, and over $146.52 would get my attention.
- And there’s MSFT who just can’t go down.
I hate to say it, but this type of intraday action suggests distribution – so institutions are likely selling. The Bank Index was lower for the fifth straight day. Tech was the best sector today as cash continues to migrate into a narrowing group of stocks: Apple, Facebook, Netflix, and Microsoft.
Thursday: We just found out that 3m additional people have filed for first-time unemployment benefits – on top of the 30m who have already filed. Tomorrow, we will have a new monthly unemployment number that could show the worst jobless rate since the Great Depression. That would mean 10 years of job gains wiped out in a matter of months. The Bank of England predicts the UK economy is heading for its worst crash in 300 years, and the EU’s economy could shrink by 7.5%. Despite all of the above bad news, the Nasdaq closed up 1.41% on the day, and the index is now UP for the year. That is astonishing. There were some crazy earnings-related moves in individual stocks. Twilio closed up 40% on the day, Peloton jumped 16% higher, and Lyft rallied 21%. The beauty of markets is that we have no way of really knowing whether this is a momentary lapse of rationality in stocks, or whether our FED is just printing like crazy and flexing its investing muscles.
Friday: Today’s Jobs Report showed that 20.5m jobs were lost in April. The unemployment rate jumped to 14.7%, but in reality it’s north of 20% due to the number of unemployed still not being counted in the system. Unbelievably, the futures soared higher on the news. I’m not big on Friday buying, but AUY does come to mind. AUY is a miner, and it looks to be breaking out from some congestion. SQ and PYPL are back on my radar. We could very well be looking back at the March 2020 stock market panic as the buying opportunity of lifetime. Now that we’re in May, and have: record unemployment, over 75,000 Americans dead from COVID-19, the VIX is still above 30 – AND the Nasdaq is now up on the year. Truly a testament to our FED and their “whatever it takes” attitude.
Weed:
- Constellation Brands has upped its stake in Canopy Growth. The drinks giant, which originally took a 9.9% interest in the Canadian cannabis has exercised additional warrants to increase its stake to 38.6%. The move is significant on Constellation’s part, as it appears to show faith in an investment that has weighed on the company to this point.
- High Times… is set to acquire Harvest Health and their 13 retail locations for $80m in cash and stock.
- Illinois has suspended… its May deadline to issue 75 new cannabis licenses.
Next Week: Are the markets in Ludicrous Mode?
- Even the most bullish are skeptics: 20.5m Americans are unemployed. In the past month, the unemployment rate went from 3.5% to 14.7%, while 33m+ workers registered for new unemployment claims. For the most part, the professional market makers and prop-trading firms are net neutral. Which leaves our FED and the retail trader to drive the markets. In Q1, TD Ameritrade opened 600,000 new accounts who are now averaging 3m trades per day. Those are insane numbers. The pros are (a) nervous, and (b) scared of J.Q. Public sitting in the driver’s seat of a runaway market. They know how this movie ends.
- There is a goldrush inside of the brokerage world: The retail trader has the tools and leverage to trade what he wants and when he wants. They just lack the discipline. That will come to a screeching halt soon. For the past month we have been inside an incredibly tight ranged volatility box. The longer we are in this range – the more hedged positions that are being accumulated (by law) – making that cathartic break-out or break-down even more explosive.
- Every asset class is in ‘lockdown’ mode: The S&P’s are toward the top of their range, but still down 10% YTD. The dollar (DXY), bonds (/ZB), small caps (IWM), gold (GLD) and even oil are locked into their own relative ranges. The issue is the volatility index (VIX) and the VVIX are still high and extremely tradeable. The market’s direction will be a complete binary event because we are dealing with a virtual 100% correlation coefficient. Once we crack the range, the movement will catch fire to either the upside or the downside simply due to the nature of the beast [using a ‘short covering rally’ as an example].
- Watch the Bonds… because they could be coming back to life, and will dictate the market’s direction. Bonds have flat-lined since our FED stepped in on March 21st. Their current range is the tightest in bond history. 4 weeks ago our FED was injecting / buying / absorbing $75B per day. That has dramatically reduced to the $6 to $8B per day level. As our FED’s volume has been declining, traders are re-entering the Bond pits. There was a negative interest rate policy scare last week. Once the bonds break their range, the rest of the markets will follow.
- What’s my positioning? I follow the fruit and am hedged net neutral outside of Gold and BTC.
o Short: INTC, FB, COST, WMT, XLP, and MSFT,
o Long: XLE and XOP,
o Hedge (Call Backspread): XLF, EEM, and TLT, and
o Hedge (Long Iron Condor): SPY
- Next week’s Expected Move: This marketplace has suddenly become very efficient – stringing 4 consecutive expected move weeks together. Last week the expected move was $107, and the actual move came in at $100. Next week’s expected move is $80 – which is the lowest expected move in some time. I’m looking at: (a) range bound for a month, (b) low liquidity, and (c) low trading volume as a recipe for disaster one way or the other.
- Fair Warning: Sooner or later the fundamentals of a marketplace – will flex their own muscles. Eventually, every market moves against its manipulator.
Tips:
I feel that any company that supplies things that help you get something done, without face to face contact, is going to enjoy more business. Companies like DOCU, CHGG, ZOOM all do that. Like CHGG, I think that companies that do distance learning, or billing, or what have you, will be strong. NFLX for instance, did really well as people got locked in and had nothing to do but watch movies. Consider companies in that space. This covid mess isn't over. PYPL and SQ included.
HODL’s:
- First Majestic Silver (AG = $8.28 / in @ 9.15),
- Yamaha Gold (AUY = $5.24 / in @ $4.60),
- Canopy Growth Corp (CGC = $15.34 / in @ $22.17),
- Camping World (CWH = $14.00 / in @ $6.55),
- DRD Gold (DRD = $9.60 / in @ $3.82),
- GBTC Bitcoin (GBTC = $11.45 / in @ $9.41),
- GOLD (GOLD = $27.39 / in @ 27.20),
- Hecla Mining (HL = $2.66 / in @ $2.36),
- KL Gold (KL = $43.03 / in @ 26.85),
- New Gold (NGD = $1.02 / in @ $0.82),
- NVAX (NVAX = $18.73 / in @ $7.24),
- Pan American Silver (PAAS = $22.36 / in @ $13.07),
- Utility Index (XLU = $56.16 / in @ $61.03)
- SPY = $292.44 in the July 2020 Strangle = $160 Put / $305 Call … closed the Call side – it doubled – left with the PUT side.
Crypto:
- Bitcoin (BTC = $8,800),
- Ethereum (ETH = $190),
- Bitcoin Cash (BCH = $240)
Thoughts:
PayPal – (PYPL = $143.25) The Stocktwits Top Dawg for the week is Paypal as it gained almost 21% this week. That’s an epic one week performance for any public company, but a ridiculous one for a corporation with a $170B market cap. It is now up 34% YTD. Their free cash flow grew by 60% YOY. They generated 10m new organic accounts – the largest quarterly growth in company history. And May 1 was their largest transaction day ever – surpassing Black Friday and Cyber Monday 2019. PYPL is a strong business that is turning out to be a low key COVID play. The company mentioned that it grew net new active users by 7.4m in April, and that Q2 could double Q1 growth if it maintains this trajectory. It’s been an incredible investment – just sayin’.
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
