This Week in Barrons: 9-6-2020:
Is anything REAL anymore?
Gun stocks (Smith & Wesson and Ruger) are near all-time highs. 1.8 million guns were sold in the month of August. That’s a record, but then almost every month this year has been a record. Kids have assault rifles and are walking around killing on our streets. But don’t worry because Zoom was up 40% today and Peloton another 10%. Per HL: just buy a gun, trade stocks from home, talk to your friends on Zoom, get your supplies delivered from Amazon, and stay in shape on your Peloton. I’m excited about America – aren’t you? Maybe our new motto can be: “Get rich in your basement, just STAY in your basement.”
This week’s ADP showed that small businesses are going OUT OF BUSINESS at a faster rate than anticipated. So it’s no surprise that medium to large businesses are finding good people and hiring them. Heck, after firing 30m people in March and hiring them back at between 500,000 and 1m per month, I think that around mid-2023 we’ll be back to ‘normal’. That is if nothing else goes wrong in the next few years.
What else could go wrong? Well, down in Australia they’ve taken COVID restrictions to a new level. (a) You can only leave your house for one hour a day. (b) You can’t go more than 5 kilometers away from your home. (c) You can have no visitors, and all weddings are canceled. (e) There’s a curfew from 8 pm to 5 am every day. The list goes on, and it’s affecting our youth.
70% of Generation Z and 69% of millennials report challenges with telework and maintaining a work-life balance, when compared to only 55% of Baby Boomers having those same issues. Our youth are struggling with a lack of space, more distractions, and a severely limited ability to nurture connections.
But honestly, I’m suspect of just about everything about now – including government reporting. Do they truly expect me to believe that the “Vee” recovery is intact and gaining steam. I’m not buying it. Sure, maybe if you own a moving truck in New York City – your phone is ringing off the hook with New Yorkers desperate to move out of Manhattan. But telling me that this market is a reflection of our economy 6 to 12 months down the road is just crazy. This rally is nuts – completely caused by FED money – and probably moving higher in the coming weeks. If our FED is going to push this thing higher, we might as well make money off it. But just like in “The Truman Show” – know when to leave. When Christof (the creator) says to Truman: “There’s no more truth out there [in the real world] than in the world I created for you.” Jim Carrey (as Truman) turns to the camera and tells the entire world that he can no longer take the lies, deceit, and fake news any longer by saying: “In case I don’t see ya – good afternoon, good evening, and good night” – and steps through the door back into the real world. It’s coming – we just won’t have Jim Carrey to tell us when it’s here.
The Market: You just gotta have Faith.
For hundreds of years, people who live and die in the world of economics and finance have had faith in a set of rules that they would like us to believe are sacred. The rules told them:
- What bonds ‘n gold will do when interest rates are low ‘n high.
- What P/E ratios tell us about a stock’s future price and earnings.
- How to manage inflation and deflation via interest rates.
- And how to control a financial ecosystem like an old Pioneer equalizer – moving each of the sliders to the precise spot that will ensure a balanced outcome.
But now we’re finding that was all an illusion. They were simply throwing darts at a board, and asking us to have faith. For the past 13 years they’ve told us:
- To diversify our portfolios UNTIL NOW – because suddenly 5 TECH stocks control the world because they make up over 25% of this market.
- To invest based upon sales and revenue UNTIL NOW – since Tesla’s sales have increased 3% and their stock price over 700% during the past year.
- To pay-off your debts first UNTIL NOW – because the stock market’s at an all-time high and so is our country’s debt load at over $27T.
- And to invest in ‘Value’ UNTIL NOW – well that hasn’t worked for the past 13 consecutive years.
You continue to ask me to ‘have faith’ that this will all work out. Faith that the paper & plastic in my wallet will continue be able to be exchanged for goods and services.
- Faith that there’s a ‘greater fool’ out there who will pay more than $2,250 per share for my Tesla shares.
- Faith that as we pile on more national debt – that it will all be magically paid.
- And faith that as I buy that new house for 30% above the asking price – that it will someday be worth more than that.
Faith gotcha. You know that the market cap of all U.S. stocks now amounts to almost double (190%) of our GDP. We’re beating the previous high that was reached at the peak of the internet boom in March 2000. For decades the "alarm bell" was that if debt ever got near 100% of GDP you would be crashing. Yet we're at 150% debt to GDP and 190% market cap to GDP and we’re still going higher because of our FED. You’re asking me to find that unquestioning faith in our economic policymakers because otherwise – this is an impossible market for people that don’t have faith. Heck, if you don’t have faith … you’re short Tesla at $300 (pre-split).
InfoBits:
- Happy Birthday Mr. Buffett: Last Sunday Mr. Buffett turned 90. I remember when he turned 70 and people said he was: “out of touch and value will never outperform again.” Then the Internet bubble popped and the Nasdaq went from 5,000 to 1,000. I wonder if lightening can strike twice?
- The Google Career Certification Program… will (for a fraction of the cost) train and certify the best and brightest high schoolers – and hire them at top wages. It’s a replacement for college. WHEN this works, look for other large tech companies to follow and accelerate the death of the traditional university.
- Restaurant closings will double… over the next 90 days due to COVID. With additional regulations and cold weather – it’s going to be near impossible for even the best ones to remain open.
- The U.S. has 4% of the world’s population… and 22% of confirmed COVID deaths. Experts say that if the U.S. would have done what the rest of the world did – 145,000 less people would have died.
- Free streaming for the next 100m Netflix subscribers… is what’s going to have to happen for NFLX to maintain its growth. The surge has passed its peak, and streaming wars have heated up with newbies like Disney+.
- Compass Pathways… the magic mushroom maker filed to IPO in the U.S.
- Crispy Utz… the maker of salty things you eat at sports stadiums, went public last week via SPAC after 99 years as a family-owned business.
- Drone baby drone… says Amazon as it wins FAA approval for its Prime Air drone delivery fleet.
- Jobs for MBAs… well not so fast. MBAs are usually swimming in job offers but not this year. PwC (for example) has NO PLANS to hire up to 100 second-year MBAs as is normally their charge.
- Bayer AG is buying… Care/of – an online vitamin and health supplement company to expand its nutrition business.
- Dialpad is buying… Highfive – the company behind the popular video conferencing service UberConference.
- Intelsat is buying… the inflight connectivity provider Gogo. One small catch, Intelsat is still operating under Chapter 11 bankruptcy protection.
- Nike is releasing its first line of maternity wear… because carrying around another human for months is definitely a workout.
- Zoom is growing abnormally fast… with a 3,300% growth in profits and 355% sales growth last qtr. Apple’s iPhone 3 killed it in 2008 with 90% sales growth. Facebook liked itself in 2014 with 72% growth, and Netflix had 50% in 2011.
- Walmart+ is a $98/yr Amazon Prime contender … just one small problem – over half of its top-spending families have a Prime membership. Since they’re already paying $119/year, they might as well use Amazon's free grocery delivery.
- The Mulan remake was released exclusively for Disney+ subs… for an additional $30. The digital release isn’t the only thing new. She’s also not cutting her hair, talking to a dragon, and there’s no hot army general boyfriend.
Crypto-Bytes:
- Decentralized Exchanges… are coming in a big way. August trading volume on decentralized exchanges set its third consecutive monthly record high after climbing 160% from July.
- I’d like to be a bank… said Stripe and Coinbase. Well, the U.S. OCC is forging ahead with a plan to offer national banking charters to payment firms that don’t take deposits, easing the way for businesses like Stripe and Coinbase to become licensed.
- Coinbase’s boardroom is changing… as it’s adding legendary investor Marc Andreessen (of venture capital firm Andreesen Horowitz) and Gokul Rajaram from DoorDash – replacing Chris Dixon and Barry Schuler.
- There’s gold in them thar hills: Bitcoin miners enjoyed a 23% increase in revenue during August.
- Pornhub, the popular adult entertainment site,… has added bitcoin (BTC) and Litecoin (LTC) payment options for its Pornhub Premium product.
Last Week:
Monday: TSLA has moved sharply higher from its split price and AAPL is up, but not crazy. As I mentioned previously, historically post-split stocks travel sideways and possibly down. But with the FED buying stocks who knows? And right now TSLA is up $45 a share and AAPL is up about $6. Even in the lunatic times of the late 90's, a stock split would usually cause a fade for a week or two. So does anything look good? What about Intel (INTC)? It looks like it is finally getting ready to climb up and close that monster gap down it experienced. I would take some over $51.80 if it gets there. Do we want to buy into AAPL and/or TSLA? Not today. I'm not big on buying things that are up $45 bucks in a day.
Tuesday: We're in the biggest bubble market of all time, and the FOMO (fear of missing out) is continuing to spread. But this morning Tesla announced that it is selling $5B in stock. Okay, so why? Do they need to raise $5B? I think Musk wants in the S&P very badly, but to do it he needs a cheaper stock price – hence the split. And now he also needs more outstanding shares – hence the offering. In less wonderful news: “NYC Mayor Deblasio will keep indoor dining closed until there is a vaccine.” It’s no wonder that gold, silver and bitcoin are all up. Zoom is up $120 on earnings. It all boils down to how much risk you are willing to take – because we are in a bubble. That means less about finding value, and more about the greater fool theory: meaning we want to buy something because we can sell it higher to the next idiot in line. This can go on for a long time. I could be talked into taking some AAPL over today's high of $132.92 and/or some TSLA over $502.50.
Wednesday: The ADP payroll report is out and it was wildly ugly. Instead of a gain of 1.1 million new jobs, they posted about 480,000. Ouch. So what happens now? Another long slow melt up like yesterday? Remember, just like 1999 – we’re not running on anything but emotions and FED money. This market desperately needs a pullback and they won't let it happen, which means that when it hits – it’s going to be fast and hard. We're in the late stages of the FED's plan to get things as high as they can, because when they yank the rug and swing us over to their new digital money – even a 30% fall will be tolerable. Okay, so INTC is still in the gap. I don't know if INTC is going to hold this breakout. So if it is above $51.85 at the close, I'll fill half a position and the other half tomorrow – if it's still above that. If it doesn't hold, I will not go in.
Thursday: I’ve rubbed my eyes twice. I've even gotten out of my chair and walked around a bit. Yet when I look at my screens I still see deep red – like -70 points red on the S&P, -400 on the NASDAQ, and -320 on the DOW. Why the selling? Well, why the 500 up points yesterday? It’s fun to see social media melt down, especially the newbies that thought stocks only go up. There's some real gnashing of teeth going on. I'm not suggesting that the market has seen the top, it probably hasn't, but it does give me the creeps. The question is, is this a one day wonder, or a multi-day fade? One hint will be the close. In the past few months, huge dump days like this, saw very heavy buying into the close. If we see that, we might be bright green tomorrow and all this – just a bad dream. But if we are still down 500+ points at the close, it could signal that there's more selling to come. And another question: Is the big rally finally over? I don't think so. Nothing's changed from our FED. They haven't said they're stopping their QE, or hiking rates. The Swiss National Bank hasn't declared that it won't buy US stocks. All in all, this is a profit-taking sector rotation. Now don't read me wrong, we should be falling, and we should peel-off about 15k points. But that won’t happen unless the central banks want it to happen. If they drive us higher off the floor near the close, I may pick up some out-of-the-money call options – just to sell at the open tomorrow. If (on the other hand) we go out down 600+, I'm not doing anything.
Friday: Yesterday, stocks had their worst day since June 11. The S&P 500 fell 3.37%. Too many stocks got bludgeoned to mention them all, but here is a taste: Zoom -11%, Nvidia -9%, Teladoc -9%, Mercado Libre -9%, Wix -8.66%, AMD -8.5%, Slack -8%, and Apple -8%. Bitcoin got smoked too, down 5%, and made a 5-week low. Today we have the Jobs Report. They’re saying that payrolls rose 1.4m and unemployment rate is 8.4%. Really? So ADP, who processes gazillions of payrolls, showed less than HALF that number of jobs – I’ll cry BS on that one. Oh and somehow wages increased by 0.4%. Even the birth/death model added 159K phantom jobs to the report. The good news is the market smells a rat as well. As I'm typing this the DOW is off 570. The NASDAQ is down 526. The S&P down 90. But here comes the PPT (Plunge Patrol Team) to start their pre-weekend buying spree. They managed to take it up off its lows but it’s still ugly. The Nasdaq ended up down almost 5% as tech stocks had their worst 2-day period since March. Apple and Tesla were some of the biggest losers, shedding over 8% after their big stock split surges.
More InfoBits:
- U.S. debt levels are the highest… they’ve ever been as a percentage of GDP, and are projected to go higher next year.
- Bill Ackman approached Airbnb… about merging with his SPAC but the home-rental site rebuffed him – saying it prefers a traditional IPO.
- Robinhood is facing a civil fraud investigation… over its early failure to fully disclose its practice of selling clients’ orders to high-speed trading firms.
- Thanks to COVID… the stigma surrounding online dating is all but gone. Bumble, the dating app where women have to make the first move, is planning to IPO at a $6B-$8B valuation in early 2021. Dating is harder during a pandemic.
- Match.com’s stock has soared almost 700%... since its 2015 IPO, and 40% since January.
- Juul Labs is laying off a lot more workers… after cutting 1/3 of its workers earlier this year. Now it's considering halting its sales across Europe and Asia.
- Whop Whop-per: Burger King unveils its touchless restaurant concept, complete with solar panels, outdoor seating, and lots of drive-thrus.
- Peloton is releasing two new products… as demand for home fitness equipment continues to surge. A new “low-cost” ($3,000) treadmill and premium stationary bike are expected to be released as early as next week.
- In NYC the 44-story Hilton Times Square Hotel is closing: NYC tourism has come to a standstill. There will be more large closures, legal battles, union job losses and tax revenue. What a mess.
- The Pentagon reaffirmed that Microsoft… is the government’s choice to receive the largest-ever cloud computing contract. A spokesperson from Amazon said that they are continuing to challenge the decision.
- Tesla's shares sank more than 6% after hours on Friday after Etsy, Teradyne, and Catalent were added to the S&P 500 Index, but not Tesla.
- “We could easily fall another 10%”… “if people start thinking fundamentals” said the Allianz Chief Economic Advisor Mohamed El-Erian.
- I saw Qualcomm in 1999 go from $3 to $60 in a matter of months: The company was not bad, but it took 20 years for the company to grow into that valuation before it would achieve new highs again this year.
- People are staying for months… at an Airbnb. Airbnb’s CEO said that people are booking multi-month stays during the pandemic. Wow, people really, really wanna get away from it all.
Next Week: Is the worst of the market place yet to come?
- Is this a market correction or a downward spiral? The Nasdaq in two days went from being up 40% on the year to being up just 24%. So a 16% decline in 2 days ain’t too shabby in terms of closing in on corrective territory. Yes, we rallied back on Friday later in the day, but the chart is scary. During this holiday weekend, a lot of fears are going to bubble-up to the surface, and all of those could manifest themselves on Tuesday morning.
- It’s ‘fish or cut bait’ time. Do I bail on my longs? Do I hedge with in-the-money puts? If you are long this marketplace, you have lived through one of the most impressive rallies in history – now do you: “Sell in May and go away?” You know as well as I do that more volatility is coming, and we could be staring at a very precarious market – as early as next week.
- How do I hedge my risk? If you just want to ‘get thru next week’ – then go out and buy a 0.85 Delta PUT on the SPYs trading for around $10. Buying a single Put (which covers 100 contracts) on the SPY ($340), will basically mitigate $34,000 of long risk in your portfolio. If you have a $100,000 portfolio, then purchase 3 SPY Delta 0.85 Puts for September 11th, and you’re covered for that $100k downside risk until the end of the week. Otherwise, just sell out of some of your long exposure down to the sleeping point.
- The volume of options contracts being purchased is scary large. The cart is literally leading the horse at this point. Today the SPY did 7m option contracts by itself. On Thursday the entire market did 48m option contracts and on an average day about 28m option contracts are traded. So we’re almost double average volume, and the option holders have the steering wheel.
- Here’s a rea-life situation in Microsoft. 2 times the number of puts were traded on Friday as calls. So the retail trader is banking on MSFT going lower. The market maker (who sells you those puts) will be forced to sell stock to hedge their risk. And once you look around and realize the same scenario exists within Apple and Facebook and all of the Fab-5 – realize that retail traders could (by their own fears) push markets lower and it would fold in on itself. Again, happens due to the extremely narrow leadership (6 or 7 stocks) of this market.
- The volatility futures are making me nervous. If you look at the 12-day volatility futures, they’re tracking directly with the VIX (/VX). But if you move out 47 days (right before the election), volatility jumps up by leaps ‘n bounds. What are the pros seeing that the rest of us are not? This week, we could see the 12-day volatility futures spike above the 47-days – which would then explain the large discrepancy. But if the markets open higher on Tuesday, I would look out for an impending sell-off.
- When bifurcation collapses into correlation; the risk is magnificently large. I think people are unloading their big cap tech (Fab 5), and yes it will drive the QQQs a lot lower – it will also take the SPY and IWM with it. We could see what is currently bifurcation (2 different markets – QQQs vs the world) become complete correlation and everything collapse as one. That is the risk when 6 or 7 stocks control an entire marketplace.
- The Advance / Decline line is displaying a complete lack of diversification. This market is at the sole mercy of the Fab-5. So where Apple, Microsoft, Facebook, Amazon, Google, Netflix and a handful of others go – will determine the fate of this market over the next week. If the Nasdaq sells off, it will take everything with it. We will drop back into a correlated state and our marketplace risk will skyrocket. This is the time to try on those ‘big boy pants’ to see if they fit.
- The VVIX saw this move coming. The VVIX has remained above 110 for a while, and on Wednesday when the market was rallying – the professionals were madly buying protection and driving the VVIX to 120. We were warned, and now it’s telling us to get our portfolio RISK under control.
- SPX Expected Move. Honestly, I’m getting closer to selling options premium – but I’m still on the buy side of options for right now.
o Last week’s Expected Move was $62.16 and we got very close to it.
o Next week’s Expected Move (4 day trading week) is $107.71.
o Get ready to rumble. The SPX is presently at 3,430. This is telling us that we’re easily going to trade down to 3,300 and/or all the way back up to 3,550.
o This is trading weather – not investing weather.
Tips:
Some are saying it was a controlled sell off and there was no panic. Wrong. Tens of thousands of retail traders who thought that this trading thing was easy, were crying their hearts out. They had bought TSLA and AAPL only to go up - right? The question going forward is simple – the answer is not. Was Thursday and Friday the start of a downturn, or was it a flash in the pan – something that’s already over? I think that we have more downside to come. Yes they used the 50-day average on the NASDAQ as support on Friday, but things are still pretty weak. The DOW and the S&P have a significant distance to fall, before they will hit their own 50-day averages. I do not think the overall run is over. The Feds haven’t decided to stop printing. The Swiss National Bank hasn’t decided to stop buying. The only question is how low will they let this fade go before they step back in? I’m thinking that we put in a volatile up and down session for a few days, with a bit more of a lean to the downside. Then they’ll let some BS news about a China deal and/or a vaccine hope slip – along with the FED’s next round of digital printing and up we’ll go.
HODL’s: (Hold On for Dear Life)
- Yamaha Gold (AUY = $6.02 / in @ $4.60 = up 31%),
o Selling Sept. $7 covered calls for $0.15
- Canopy Growth Corp (CGC = $16.21 / in @ $22.17 = down 24%),
- CTI BioPharma (CTIC = $1.02 / in @ $1 = up 2% ),
- EXK Gold (EXK = $4.09 / in @ $1.53 = up 167%),
o Selling Sept. $5 covered calls for $0.20
- GBTC Bitcoin (GBTC = $12.01 / in @ $9.41 = up 28%),
- Hecla Mining (HL = $5.58 / in @ $2.36 = up 136%),
o Selling Sept. $7 covered calls for $0.25
- KL Gold (KL = $51.68 / in @ 26.85 = up 93%),
- MUX Mining (MUX = $1.26 / in @ $1.14 = up 11%),
- New Gold (NGD = $1.82 / in @ $0.82 = up 122%),
o Selling Sept. $2 covered calls for $0.20
- Pan American Silver (PAAS = $34.47 / in @ $13.07 = up 164%),
- Tortoise Acquisition Corp (SHLL = $50.35 / in @ $0.32 = 15,634%).
Crypto:
- Bitcoin (BTC = $10,200),
- Ethereum (ETH = $350),
- Bitcoin Cash (BCH = $230)
Thoughts:
#1 Buy longer dated call options on TSLA and AAPL, and enjoy the ride back up.
#2 After SLV rallied 40% from the middle of July to the middle of August on political turmoil in the US and weakness in the dollar, it’s settled into a range for the past couple of weeks as it’s digested the impact of both those factors. But SLV sold off a bit over the past couple of days as the dollar strengthened on comments by the European Central Bank that they were eyeballing the Euro/USD exchange rate, implying that they might take action that could push the Euro lower. Add in a little profit-taking by SLV bulls, and it now sits in the middle of the range it’s been in. Looking forward, though, the drama that’s propped SLV up so far will likely not subside anytime soon. SLV’s 46% IV rank means its options could be good short premium opportunities. If you think that nothing will happen in the next few weeks to drive SLV lower, and that it might either rally or not drop very much, you might consider a bullish strategy in it. If you are bullish on SLV, the short $23 Put in the Oct monthly expiration is a bullish strategy that has an 89% probability of making 50% of its max profit before expiration.
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Please be safe out there!
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