This Week in Barrons: 8-23-2020:
E-mail Bag: It’s time to drop the mic…
Are good, great and perfect – all just words-words-words? Not to me. Good and great are not the same as each other, and definitely NOT the same as perfect. In terms of availability: good is almost always available, great significantly less so, and perfect = almost never. If you care enough to get started, contribute, and work hard – that means you care enough NOT to wait for perfect.
Were meetings different BEFORE cell phones? Absolutely. Meetings used to be things that you ‘wanted to be invited to’ rather than ‘forced to attend’. Meetings were never designed to fill a slot on a Google calendar, but rather to communicate an idea and the emotions that surround it. A meeting involved preparation by the moderator, and ‘doing homework’ on the part of the other attendees. If either of those criteria were not met – the meeting was cancelled. Meetings involved zero multi-tasking because that was viewed as: nonproductive, disrespectful, and unhealthy. People were required to look others in the eye to better absorb the meeting’s content. If people brought their own enthusiasm to the meeting, it caused others to ‘lean in’ and contribute even more.
When do you continue working on an idea versus dumping it and moving on? I look at a couple points:
- Can the pains the customer has – be solved by THIS team? All of us are excellent rationalizers. Ask yourself, if your car broke down on the way to a big meeting: (a) How many of your team would help you fix it, (b) How many would ride the bus with you to the meeting, and (c) How many would rather Uber it back to the office under the guise of getting some work done?
- Does the opportunity conform to the Laws of Physics?
o Does it obey the Law of Gravity? NO – it better not. During innovation, gravity works against you.
o When your idea is hit with an action – does it respond with an ‘equal and opposite’ reaction? Your opportunity won’t wear a helmet or seatbelt all of the time, so be ready with a back-up plan.
o Is your ‘moving forward’ idea always moving? It needs to be. It’s true you don’t NEED to beat the bear, but you MUST beat the other hunters.
- To paraphrase TR: “Everybody’s idea has a past. But the past doesn’t equal the future unless you live there.” People become excellent storytellers. Most people (unfortunately) have no interest in stories – just results.
The Market: Could our currency be our own kryptonite?
The value of the US dollar is depreciating relative to other currencies like the Euro. A jar of European Nutella cost $1.10 a year ago, and it costs $1.19 today. You need to pay about 8% more (in a year) to nab that same jar of Italian decadence. The value of the dollar has fallen to its lowest level in over 2 years, but our Superman Currency won’t go down without a fight. The USD's stable reputation makes it a hot global commodity – as it has long been the world's reserve currency for international purchases. Currently if Canada wants to buy oil from Mexico – it’s doing it in USD going from Canadian dollars to USD to Mexican Pesos. This creates an ‘artificial’ demand for USD. With digital currencies and other global cash-processing systems, demand for the USD is declining.
The good news is the US government has never missed a debt payment. That has allowed it to borrow trillions at near-zero interest rates. But our FED has been blasting out dollars to inject back into the economy like jelly beans on Halloween. More dollars cause less demand for the dollar, and less demand means a less valuable dollar. Then there’s (a) the out-of-control pandemic, (b) a shrinking GDP, (c) political instability, and oh yeah (d) our massive $27T national debt.
If the US was a store, it would have a discount sign out front. Depreciation makes American goods cheaper for foreigners. That drives up demand for American products and stocks, which drives up stock market prices. A weaker dollar will trigger more inflation, higher interest rates, higher taxes, and less global power for the US. That will be when China snags the dollar's Superman cape.
InfoBits:
- Mortgage delinquencies skyrocket to 8.2% in Q2… and the percent of renters who paid on time went down – again. Delinquencies of 2% used to be a disaster, at 4% entire departments were fired – but 8.2% is truly unthinkable!
- Kabbage is being acquired by AMEX: Kabbage’s platform uses machine learning algorithms to assess and loan out money to small business owners.
- 300 Pizza Huts are closing… after filing for bankruptcy protection.
- Tesla’s Battery Day event is on September 22nd… Analysts are expecting Elon to unveil a game-changing battery cell capable of 1,000 miles. Batteries are the most expensive part of an EV. If Tesla unveils a cheaper battery pack, it could become a top supplier for other carmakers.
- Home Depot had its best quarter in 20 years: People swapped their red lipsticks for red Adirondack chairs. We shifted our spending from restaurants and clothes to the only place that matters now == home.
- 2 years after becoming the first $1T company… Apple has officially doubled its value to $2T.
- Airbnb has filed… confidentially for an IPO.
- ThredUp, an online marketplace for second hand clothing… is gearing up to go public via an IPO targeted for 2021. It’s looking to raise $250m.
- Impossible Foods is playing catch up... to Beyond Meat by reducing its prices and expanding its distribution. It's also developing new products like pork, steak and milk, which could give it an edge over patty-focused Beyond.
- SpaceX’s Musk-ateers… raised $1.9B in its largest funding round ever. After May’s historic launch, investor interest skyrocketed.
- Uber and Lyft caught a break: Under legal pressure to reclassify their drivers as employees, the companies threatened to halt their rides. An appeals court has allowed them to continue operating while they are considering the appeal.
- Airbnb announced today… a global ban on all parties and events at its listings for health reasons. They also instituted an occupancy cap of 16 people.
- Billionaire Jack Ma’s Ant Group… plans to file for dual listings in Hong Kong and Shanghai in the next few weeks. The Ant Group’s upcoming IPO is targeting a valuation of about $225B – the world’s largest IPO valuation in history.
- Salesforce is giving all employees… the option to work from home until at least August of 2021.
- Palantir is leaving Palo Alto for Denver: This is a big deal because it practically rents all of Palo Alto’s entire downtown area.
- In 23 trading days, the S&P 500 lost 34% of its value… but in the following 97 trading sessions – it gained it all back.
- Tech and Health Care (as a percentage of the S&P)… just surpassed 50%. This is the first time EVER that two sectors have made up more than half.
- Consumer spending is down 8% from January… and the number of open small businesses has fallen 20%.
- Our official (wink-wink) unemployment rate is 10.2%... and that’s higher than at any point during the Great Recession. Realistically we’re over 20%.
- 20% of all working-age adults are unemployed… because the pandemic upended their family’s child care arrangements. That’s why ‘back-to-school’ is important!
- The stock market is drinking rosé on a yacht in the Hamptons… while the economy is eating Safeway frozen pizza and watching reruns of Star Trek in bed. Our GDP is unthinkable. Our unemployment is unbelievable, and we're still mid-pandemic with no vaccine. Yet the market’s at all-time-highs.
- America's five largest companies… Apple, Amazon, Microsoft, Google and Facebook have soared 37% in the first 7 months of 2020. The rest of the S&P FELL a combined 6%.
- Over 50% of new Verizon Fios installs… choose NOT to add cable TV to their home broadband internet package. That spells doom for pay TV.
Crypto-Bytes:
- Crypto trusts Grayscale’s Bitcoin Cash Trust (BCHG) and Litecoin Trust (LTCN) crypto products are set to begin trading publicly on the over-the-counter markets after receiving DTC eligibility Monday. The funds provide institutional and retail investors exposure to their namesake cryptocurrencies: bitcoin cash ($5.8B market cap) and Litecoin ($4.3B market cap).
- INX IPO: INX plans to launch its landmark initial public offering (IPO) as soon as Monday. The cryptocurrency and security token exchange signaled plans to go public in January 2018, aiming to become the first Securities and Exchange Commission compliant security token offering – open to mom-and-pop investors. INX will price 130m tokens at $0.90 each. These tokens will have utility on the company’s exchange and entitle investors to a share of the profits.
Last Week:
Monday: With the S&P just 0.4% below the all-time highs, I have to suspect that they're going to try and take us up-and-over that hump this week. There is some resistance, but they've been working on it for a week now. Everyone’s talking about Buffet putting half a billion dollars in Barrick (GOLD) – resulting in both gold and silver higher this morning. I may begin to double-down on some of my miners like AUY and PAAS. After the first hour of trading, the DOW has started inching it's way higher. GOLD did jump $3 per share on the Buffet news, and that's moved most of the miners higher. Does that mean that the selling in the miners is over? I tend to think so, but I'm a bit shy. One that I like is KGC, and if it gets over $9.42 I'll take some. If AUY gets over $6.24, I will double my stake. Airlines and banks are down 3.8% and 2.4% respectively, while Tesla ramped another 11%. Overstock ripped 25%, and is now up 1,575% YTD. Even Bitcoin (BTC) is making two and a half year highs in here. Remember, after its bubble high of Q4 2017, Bitcoin crashed but never went to zero as the greatest pessimists predicted. It survived the crash, and could this be its Act II?
Tuesday: Home Depot and Lowes are proving that people have been forced to stay home and buy paint, flooring, and kitchens. I suspect they're going to try and get us up-and-over on the S&P today, and that could drag the DOW higher as well. The gold and silver miners are still catching a bid. And yes – we finally did it. The S&P closed at an all-time high of 3,389 today. Big Cap Tech led the way as it has throughout the dazzling ascent. The Nasdaq rallied 1%, as the Dow and Russell fell. Amazon gained 4% to an all-time high. Tesla gained another 3%, Workday +3.5%, Zoom +4%, Adobe +2.6%, Google +2.3%, Netflix +2%, Lululemon +1% == all at all-time-highs. It’s getting silly out there in tech and I’d say it will all end badly but who knows – maybe it’ll all end splendidly with world peace, free immortality pills, and all of us selling at the top in a moment of universal glory. We’ve all gotta thank big cap tech as these stocks have been on crack since the bottom.
Wednesday: Yesterday the S&P hit an all-time-high without any horns or kazoos. The NASDDAQ put in its 34th new all-time-high. My guess, is that they'll try and pull the DOW up, and then all 3 major indexes will be at new highs. Normally, when an index breaks to a new high, it bounces around and tests that level for a bit. So, I think some sideways and lumpy action makes sense. The miners are in the slump that I figured would happen after their massive run. I still like them for a lot more – just not yet. It appears that the S&Ps will remain red by a couple, suggesting to me that there's more work to be done holding onto these levels.
Thursday: China says they're ready to come back to the trade table. Initial jobless claims rose more than expected to 1.1m – which is NOT a great sign. The weakness I’m seeing this morning is because of yesterday's FED minutes that showed no plans to increase stimulus. Until our FED decides to increase QE, we will be headed much lower. Our market junkie needs more stimulus to maintain its high. INTC seems to be building a base after a rude gap down back in July. 99% of all gaps fill back up, so if INTC gets over $50.20 – I’ll take a poke at it. The broader market is green, but that’s only because AAPL is +6, MSFT +5, AMZN +35 and FB is higher. When the crew is up, the market must also be up – it’s just that crazy. All of the FAAMG players ended up over 2% - which is freaking incredible, relentless, and magical. You’re either in this momentum play or you’re not, and now isn’t the time to get brave. Energy continues to be the worst sector – as if I needed to even say it.
Friday: The last several trading days have been an exercise in sideways. Common sense, logic, and reality suggest that we should start heading lower, but our FED could have other ideas. I’m not seeing anything that’s thrilling me. I have a hard time understanding how Deere (DE – a company that sells tractors) posted such good earnings. Aren’t we somewhat locked down due to COVID? I'll probably sit idle until it's clear that the S&P wants to move to new highs, or if we're out-of-bullets for a while and our FED lets us trade sideways and down. AAPL did tack on another 5% today and, while it only passed the $2T market cap earlier this week – it’s already 13% of the way to $3T. Apple is now up 13 of 16 days since it announced its stock split, and TSLA is up 7 of 8 since its announcement. Also, in case you didn’t know – those who can afford it are fleeing cities and moving to areas with less population density.
Gold:
Factually:
- Gold has traced a very long base, and the bigger the base – the more important the move.
- After gold’s most recent breakout, it pulled back. This is normal behavior because gold was overbought going into the breakout.
- The reason for gold’s recent pullback was the rise in interest rates from 0.51% to 0.71%. Interest rates are one of the biggest determinants of gold’s value.
- Gold has developed a bullish pattern on the RSI (relative strength index).
- Because gold is priced in U.S. dollars, whenever the U.S. dollar is weak – gold rises. Recently, the weak dollar has become a crowded trade and is now technically oversold. For this reason, the dollar should move higher in the short term – putting pressure on gold to the downside.
- Our government’s borrow heavy, print more, low interest rate policies are not likely to change any time soon. These policies are the main driver behind gold’s rise and perhaps the reason behind Warren Buffett’s change of heart.
- Gold is a very small (manipulated) market compared with the stock market. Even small inflows into gold from large-cap tech stocks would cause a price spike.
- A move higher in gold should be positive for bitcoin.
- Gold mining stocks are significantly more volatile than gold, but present a more lucrative buying opportunity.
- If interest rates or the dollar rise, gold may fall.
- Central Banks hold large amounts of gold. It’s conceivable that they may start selling their gold in order to manipulate the price lower in order to buy more.
Next Week: The DEATH of Diversification…
- The DEATH of Diversification. This market place is split into 2 different markets. One has 10 stocks in it, and the other has the remaining 3,000. Yes, that’s a slight exaggeration, but part of this market (the IWM) is more representative of the real world, and the other (the QQQ) is on another planet entirely.
- Long is dangerous and hedging is tough… because even a tail has RISK. The QQQ has gone absolutely parabolic and the reasons why don’t matter. You not only need to worry about the substantial move to the upside, but also any downside move is almost impossible to easily hedge right now. Why – because every professional and institutional investor in the world is hedging, and hedging large. The pros are already pricing in tail risk; therefore, to hedge a portfolio right now is virtually impossible by normal means – and that spells danger to me. I still believe that the risk / reward is tilted to the downside, but I continue to play the hand in front of me. This is an extraordinary marketplace – the likes of which most traders have never seen in their lifetimes. It’s causing a wild bifurcation that can (almost) only end badly.
- Expected moves and the great bifurcation… The S&Ps (SPY) did virtually nothing last week. The QQQ (up 30% YTD) cracked through the upper end of their expected move - again. That means not only did they outperform, but they outperformed even what the options market expected them to do – which screams of market inefficiency. At the exact same time the IWM (small caps), the XLF (financials = down 20% YTD), and the XLE (energy = down 40% YTD) are performing miserably and exceeding their expected moves to the downside. There are only a couple sectors that ‘matter’ any more. Apple (for example) at $2T, it’s almost 10 TIMES more important than J.P. Morgan. Tesla is now worth more than Walmart. What this means is that it only takes one or two stocks (in the entire marketplace) to crush the entire market, and that takes me back to the Dot Com era. Congress may ‘seem’ like they care about saving the airlines, but what they ‘really’ care about is hammering out a favorable trade deal for Apple with China.
- Diversification is DEAD… The top 10 NASDAQ companies control about 60% of the wealth in our markets today. Even if you think your 401k is diversified because it’s in an S&P Index fund – that fund basically follows those same 10 stocks. So there is no longer any diversification – unless you’re sophisticated and built it yourself. Fair warning, many of us have seen this movie before in 2000 (the dot com era) and in 2008 (the financial crisis). A handful of tech stocks could easily remove 30% of the wealth of this market in a matter of days due to a lack of liquidity. Even if you move over to the emerging markets (EEM) or junk bonds (HYG) or even utilities (XLU) – you will see that their graphs align and there is virtually NO diversification anymore.
- Where you gonna go… This is difficult because the VVIX (the volatility of the volatility index) remains above 110. This signals that the pros are on edge and are buying the VIX in order to hedge their bets. I can suggest visiting the precious metals like gold and silver, but they’ve had a big run and will need some time to consolidate. Healthcare is going to take until Phase 3 trials begin to come back – which is later in the year. My only move in this market is buying Iron Condors – on the Q’s, AAPL, and TSLA – one standard deviation out of the money and about 30 to 45 days until maturity. The other defensive position I would think about is using Covered Calls on your stock positions to limit your downside exposure.
Tips:
Stock Splits: On August 31st, both Tesla and Apple will be splitting their stock. With TSLA it’s 5 for 1, and with AAPL it’s 4 for 1. This will actually be fun for a change. Back in the 90’s companies would split their stock a lot – so there’s history here. Wall Street will tell you that there’s nothing special about them, market caps remain the same – to which I say ‘Bulls#@t’. What changes is perception, affordability and a decades long track record of big gains for investors. Factually, what you’ll find is that for solid, profitable companies (AAPL for one) history shows that within 24 months the stock is back to its pre-split price – 83% of the time! Now tell me splits mean nothing. Doing the math: Apple is doing a 4 for 1 split. If you have 10 shares of AAPL at roughly $500 per share, you will have 40 shares at $125. Think of the number of retail investors that will buy AAPL at $125 in hopes that it runs back to $500. This is great for the retail investor, and if this catches on – this market is going to get very busy with volumes exploding higher. So, how do you play it? There’s a couple ways, and you can easily see what’s happened to the price of these two since they announced the split. When the split actually happens, you can: (a) buy the stock on any dips, (b) buy long dated call options, or (c) try and get the stock even cheaper by selling naked puts. Everybody’s a winner on a stock split.
HODL’s: (Hold On for Dear Life)
- Yamaha Gold (AUY = $5.98 / in @ $4.60 = up 30%),
- Canopy Growth Corp (CGC = $16.02 / in @ $22.17 = down 28%),
- CTI BioPharma (CTIC = $1.16 / in @ $1 = up 16% ),
- EXK Gold (EXK = $3.65 / in @ $1.53 = up 156%),
- GBTC Bitcoin (GBTC = $13.58 / in @ $9.41 = up 44%),
- Hecla Mining (HL = $5.81 / in @ $2.36 = up 146%),
- KL Gold (KL = $53.16 / in @ 26.85 = up 98%),
- MUX Mining (MUX = $1.21 / in @ $1.14 = up 6%),
- NovaVax (NVAX = $137.62 / in @ $7.24 = up 1,800%),
- New Gold (NGD = $1.52 / in @ $0.82 = up 85%),
- Pan American Silver (PAAS = $33.22 / in @ $13.07 = up 154%),
- Tortoise Acquisition Corp (SHLL = $29.91 / in @ $0.32)
Crypto:
- Bitcoin (BTC = $11,550),
- Ethereum (ETH = $390),
- Bitcoin Cash (BCH = $280)
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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