This Week in Barrons: 6-7-2020:
With everything that went on last week, does anyone remember:
- When we last trusted each other’s word?
- When our politicians accepted responsibility for their actions?
- When there were no state income or sales taxes – because they didn’t need the money?
- When there were no billionaires?
- When kids could walk safely to and from school without their parents being arrested by Child Services for neglect and endangerment?
- When you could draw a picture of a fighter plane, a warship, and a gun without being regarded as a danger to others and sent for psychiatric evaluation?
- When being bullied and getting into a fight was just a part of growing up. No police or lawyers were called.
- When we were taught to: “Do unto others as you would have them do unto you?”
- When business deals rested on a handshake.
- When your character and what you stood for was all you had.
I remember my dad and I sitting around a small fire – while he explained to me what his childhood was like. His talks taught me to appreciate ‘The Journey’. People get warm and fuzzy over nostalgia, because those memories anchor really good times. I encourage everyone to allow those old stories to bring a smile to your face, because sometimes it’s tough to find something to smile about.
The Market…
Despite 41m jobs lost in the past 10 weeks and a stunning 16% unemployment rate, we as Americans saved more in April than at any other time in history. It's complicated:
- Consumer spending plunged 13.6%... the largest monthly decline on record, but that’s not surprising given our nationwide lockdowns. We are doing more with less, and are spending only on essentials given the economic uncertainty.
- Personal income jumped 10.5%... thanks in part to the $1,200 government stimulus checks and $600 per week extra in unemployment benefits.
- Wages and salaries fell 8%... but that was more than offset by unemployment and stimulus checks. Our population made more money in April than in March or February.
- Our personal savings rate soared to 33%... meaning that we saved (an all-time high) 33% of our disposable income. That triples March’s rate of 12.7% and quadruples February’s rate of 8.2%.
Here’s the rub, the U.S. is a consumer, debt-loving country with huge inequalities that cause most people to live on the financial edge. 78% of U.S. workers were living paycheck to paycheck before the virus hit, and almost half couldn’t come up with $500 for an emergency expense. But now that jobs and economic stability are far from a sure thing, we are turning to saving and doing more with less as a survival instinct. But, a prolonged period of extra saving and conservative spending will slow the economic rebound. When one person isn’t spending – that means another person isn’t earning. The tightrope here is that our enhanced unemployment benefits and small biz loans that will keep the economy afloat through July – will need to dovetail into some combo of economic rebound, COVID outbreak control, and reduced government assistance.
What we learned about today’s NEW consumer is that their top 3 concerns are:
- #1 = INVENTORY – Do you have what you actually say you have in-stock?
- #2 = DELIVERY – How do I obtain the merchandise in a timely fashion?
- #3 = SANITIZATION – If I’m coming there to get the product, I need to see frequent hand sanitizer stations.
- The least important element quickly became a company’s loyalty program. The U.S. consumer no longer cares about frequent flier miles.
Finally, we are becoming more of a welfare state than at any time in our history. On average 40% of our income comes from wages earned (down from over 53% a couple months ago), and a little over 32% of our income comes from government help (up from under 18% a couple months ago). It’s always been difficult to take away money from people that are currently getting it for doing nothing. Given it’s ending in July, let’s see if it’s different this time?
InfoBits:
- Quibi the mobile-first streamer… is running out of time (and money) to turn its $2B reputation around. Advertisers are dropping over low viewership concerns.
- Stitch Fix… the personal-shopping service, notified 1,400 stylists that they will be losing their jobs.
- Hundreds of Facebook employees… protested an executive’s decision not to do anything about inflammatory remarks posted by Donald Trump.
- The cost of renting… in the Bay Area fell 9.4% year-over-year. In Mountain View, rents fell 15.9% year and in Cupertino they fell 14.3%
- Zoom’s revenue grew 169% … from the previous year in its Q1 earnings report. It also nearly doubled its revenue guidance for the full year.
- A class action lawsuit was filed against Google… arguing that "“Google tracks and collects consumer browsing history and other web activity data no matter what safeguards consumers undertake to protect their data privacy.”
- IHOP, Denny’s and TGI Fridays… are part of 9 chains that have permanently closed over 600 restaurants.
- In the latest lawsuit over WeWork’s scuttled IPO… investors allege that WeWork overhyped the business plan and downplayed its losses as being “strategic and laying the foundation for profitability.”
- Per MJP: “Americans in the Great Depression looked for work in order to get by. In the Great Collapse, we sit at home waiting for the gov’t to write us checks.”
- The AMA’s Medical Journal… retracted a major study on hydroxychloroquine – which linked it to an increase in heart problems. It seems the company that provided the data on the heart problems can no longer "vouch" for its accuracy.
- ZoomInfo, a business-to-business database software company, soared more than 60% in its Nasdaq debut.
- The Jobs Report showed that we… added 2.5m jobs last month. It was the most jobs added in a single month dating back to 1948. The jobless rate rose to a corrected 16% from April’s 14.7% - a post-World War II high.
Crypto-Bytes:
- Chase class action: Chase Bank has agreed to repay most of the $2.5m in fees customers say they were unfairly charged for crypto-transactions. Chase credit cards had classified the crypto purchases as “cash advances.”
- Crypto gains: Bitcoin’s recent gains look pale compared to Ethereum (ETH). Bitcoin rose by over 8% last week and ended May with a 9.5% gain. ETH’s price rose by 16% last week and 12% for the month of May.
- Data breach: Coincheck has fallen victim to a data breach after attackers accessed one of their domain name accounts and used it to impersonate the exchange itself.
- Crypto banking: Arrival Bank is launching with a 20-person team and offices in Singapore, Puerto Rico and Saint Petersburg, Fla. It will provide banking accounts to crypto startups via sponsor banks: Mitsubishi UFJ Fin. Group (MUFG), Mizuho Financial Group, and the Sumitomo Mitsui Financial Group.
- Ethereum… is the most popular way to use bitcoin off-chain. Ethereum projects including WBTC and imBTC hold 70% more Bitcoin than Bitcoin-native scaling solutions Lightning or Liquid.
Last Week:
Monday: Year-to-date, the 5 biggest stocks are up 15% while the remaining 495 in the S&P500 are lower by 8% - with the overall S&P index being down 5% YTD. The safest way to play this rising market is via the DIA and SPY ETFs. Buying individual stocks is a crap shoot, but if they're going to jam the FAANMG's higher, then the DIA and SPY must go along. AVID over $7.68 looks interesting. CWH is on my buy list if it can break over $23.75. OSTK over $19.75 could certainly pull me in for a trade. Today the S&P is being led by real estate, energy and financials. Head’s up, ZOOM reports earnings tomorrow after the close. This stock is shaping up to be the poster child for the WeWork From Home wave and an early candidate for stock of the year.
Tuesday: I’m still watching for: CWH over $23.75, OSTK over $19.75, and AVID over $7.68. A couple more names you can watch are: DBD over $5.90, and WYNN - who’s been consolidating in the 80 - 90 range for weeks. If that breaks out, it's going to soar. So, let's see if they let this slip, or round up the troops. Everything’s green across the board, and I picked up some OSTK. I won't take anything else today as I just don't like the feel of the market.
Wednesday: So, we have entire cities locked down, thousands of businesses boarded up, 41m people out of work – and the futures are bright green. Of course this madness is our FED, but where and when does it all end? Target is temporarily closing 105 stores in 10 states, but even Target is green. So, what can we look at in this crazed market that isn't up a zillion points: SLB over $19.58, DSS over $8.89, and CSCO over $47.20 may all work. We've been up 5 sessions in a row, and this market is feeling pretty extended.
Thursday: Well, our friends in the EU decided to increase their QE program by a whopping 600B (now totaling 1.3T), and they extended the program through June, 2021. More free money. If I had to take something, I might try SLB over $20 – as it’s clearly in the gap. X and CLF are holding up in anticipation of an infrastructure bill. If you take on some SLB, be careful of the tropical storm in the gulf. Watch BONDS. There’s a real possibility of the end to the 40-year treasury bond bull market. The latest 10-year yield shows an inverted monthly candlestick. The May candle is confirming the bearish reversal as yields continue higher and bond prices continue lower. The treasury bull has been such an epic trend that if it’s over, there are all types of ramifications such as: higher commodity prices, higher mortgage rates, and a weaker dollar.
Friday: A ton of companies are already realizing that they're surviving on a lot less people. If you're not essential to their operations, you're not coming back. Of the 41m people that need unemployment insurance, my bet is at least 10m of them will NOT be going back to their old jobs. Okay the jobs number just hit and they say that we did NOT lose more jobs, we gained 2.5m and the unemployment rate fell to 13.3% (later corrected to 16%). These aren’t “new” jobs – just people that have been recalled – but any news is good news in this situation. I'm obviously not buying anything "way up here" as this is nuts. The S&P 500 closed up +2.6% capping the best week in two months with an exclamation mark. Small Caps were up 5%, energy up 7%, Royal Caribbean up 24%, Carnival 16%, Occidental Petroleum 30%, Simon Property 15%, and Boeing was up 11%. It was bullish everywhere I looked.
Weed:
- The Louisiana Senate… approved medical cannabis legislation that will allow physicians to prescribe cannabis for any debilitating condition they see fit.
- California generated total cannabis tax revenue… of $134.9m in 1Q20. Regulators estimate only half of regular weed sellers submitted their returns.
- A series of Vaping studies indicate… that vaping is less likely to lead to a long-term habit than smoking combustible cigarettes.
- The WHO commented… that there is an urgent need to regulate new tobacco products in Europe.
- Germany plans to impose… a complete tobacco product advertising ban.
- Future CBD Regulations: The White House is currently reviewing a federal plan for marijuana and CBD research. Details about the document are sparse, but an FDA spokesperson indicated that future CBD regulations could allow for the marketing of cannabis products as dietary supplements or food items. What remains to be seen is whether the FDA plans to wait for this specific guidance to be finalized and for the resulting research to be completed before it gets around to issuing final rules for CBD products.
Next Week: Game Changer – or SHORT of a Lifetime?
My question is whether this past week was a game changer for the markets in terms of moving forward, or whether this is the SHORTING opportunity of a lifetime?
- Do we have an Employment Situation? How can ALL of the analysts and economists miss their estimates this badly? Every expert thought we would lose around -8m jobs and instead we gained 2.5m jobs. If you were to believe these numbers, we just saw the largest creation of jobs in any month - EVER. Because of their ‘different’ accounting – will next month’s jobs number turn mixed and potentially negative? As a trader, this tells me that there is going to be a large degree of employment instability into the future. The other big question is whether it will cause the FED to tapper their asset purchases? There is an FOMC meeting on Wednesday, June 10th. Could Chairperson Powell use this as an opportunity to return to some semblance of normalcy to the FED? What a wonderful time to see if the economy could stand on its own – after a bullish jobs report. The report brought the S&Ps within 200 points of their all-time highs.
- The performance of the S&P is ANYTHING but normal. This week we had a massive breach of the S&P expected move. Until February 1st, 2020, our market was predicting expected moves accurately and moving with incredible efficiency. In February, the wheels started to come off. Last week we produced a 4X std. deviation move. In ‘option-land’, this means you are now an option buyer – not a seller of premium. Reviewing next week’s SPX expected move, I see that it’s $78. We just moved $81 on Friday, so they expect me to believe we’re only going to move $78 in a week where there’s a FOMC meeting? I can’t buy that. If we continue to smash thru the expected moves, we will see unbelievable ratio back-spread set-ups with huge rewards that offer very little risk.
- The Bond Market is Back. This week the bonds were crushed – breaking downward out of their range. This broke the S&Ps free (to the upside) of their very tight range. Remember when we talked about this ‘coiled-spring’ being extremely tight – exploding violently higher or lower? Well this past week was the explosion. If bonds continue their downward slide, they will crush the dollar.
- The bonds caused a rally in the financials. When bonds were crushed, interest rates took off to the upside. Now, it’s not a good idea (in a recession) to raise interest rates. Therefore, I’m expecting J. Powell (at the FOMC meeting) to talk those rates back down and put the bonds ‘almost’ back into their box. The BONDS (however) were the key to the rally in the XLF. If interest rates continue to move higher, then financials will do well, but that will put any recession recovery on hold. If the bonds rally back (higher), the XLF will be sold and there goes the market rally.
- We saw some wicked, outsized moves… including the financials (XLF), energy (XLE), small caps (IWM), emerging markets (EEM) and bonds (TLT). When you are looking at a market that is technically falling apart (upside or downside), buying a ‘strangle’ or using a ratio back-spread are two trading structures that take advantage of oversized moves and cost very little to put on.
- In this week coming up… look for Gold to move. From bonds to the dollar, all of these have been hit in one direction or another – but gold has remained inside its range. I believe that there is an amazing trade in gold coming up – whether you’re using the GLD or via the mining ETF (GLDX). The market will pivot on what the bonds do. I believe that any more sell-side activity in the bonds, will be met with FED action and rhetoric that will move the bonds higher. By pulling bonds higher, they will lower interest rates which will damage the financials and S&Ps in the near term. The FED will be in control this week due to their FOMC meeting on Wednesday – so keep an eye on the bonds for the corresponding direction of gold (GLD).
Tips:
If you believe gold could produce an out-sized move, but you’re not sure in which direction – then buy an out of the money Put and an out of the money Call. It’s called ‘a strangle’ because the put and call have different strike prices but the same expiration date – say the August or September monthly.
HODL’s:
- First Majestic Silver (AG = $9.70 / in @ 9.15 = up 6%),
- Yamaha Gold (AUY = $5.02 / in @ $4.60 = up 9%),
- Canopy Growth Corp (CGC = $16.51 / in @ $22.17 = down 26%),
- DRD Gold (DRD = $9.25 / in @ $3.82 = up 142%),
- GBTC Bitcoin (GBTC = $11.25 / in @ $9.41 = up 20%),
- GOLD (GOLD = $23.29 / in @ 27.20 = down 14%),
- Hecla Mining (HL = $3.18 / in @ $2.36 = up 35%),
- KL Gold (KL = $38.17 / in @ 26.85 = up 42%),
- NovaVax (NVAX = $46.30 / in @ $7.24 = up 540%),
- New Gold (NGD = $1.19 / in @ $0.82 = up 45%),
- Pan American Silver (PAAS = $26.72 / in @ $13.07 = up 104%),
- SPY = in the July 2020 Strangle = $160 Put – sold the Call side.
Crypto:
- Bitcoin (BTC = $9,650),
- Ethereum (ETH = $245),
- Bitcoin Cash (BCH = $255)
Thoughts: It seems like the protests across America have made everyone forget about COVID-19. Maybe people are more willing to fly on planes again. That seems to be what’s pushing up airline stocks, which were some of the most battered over the last couple of months. Southwest Air (LUV) has even said it would be back to near-normal capacity levels by November, and is planning some new routes. LUV is another symbol whose IV has dropped, but is still high enough to reward traders who are willing to take risk by shorting options. Even though LUV has rallied off its lows, you may think that the summer will bring more good news for airlines and LUV in particular. If you are bullish on LUV, the short $30 Put in the July monthly expiration is a bullish strategy that has an 91% probability of making 50% of its max profit before expiring.
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting: <http://rfcfinancialnews.blogspot.com/>.
Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.
If you'd like to view R.F.'s actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.
If you'd like to see R.F. in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:
Creativity = https://youtu.be/n2QiPSe_dKk
Investing = https://youtu.be/zIIlk6DlSOM
Marketing = https://youtu.be/p0wWGdOfYXI
Sales = https://youtu.be/blKw0zb6SZk
Startup Incinerator = https://youtu.be/ieR6vzCFldI
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
Until next week – be safe.
R.F. Culbertson
