This Week in Barrons: 9-20-2020:
“So you want to be an entrepreneur…”
A friend shared their business idea with me, and I led them down my natural checklist – hopefully focusing on nailing the business model. My path looks something like:
- How will you obtain new paying customers?
o What’s your message – in 5 words or less?
o What does it cost to get that new paying customer?
o Why, how and when will your paying customers tell their friends?
- How will you keep your customers?
o What does it cost to retain a customer?
o It should be at least 80% less than acquiring a new one.
- Does the business scale? Why?
- Is the business easy to start?
o If yes, then what’s so special about what you’re doing that keeps others from starting their own?
- KYC = Know Your Customer
o Customer traction – Why do they stay and multiply?
o What network effect are you providing?
o What emotional connections are you fostering?
The Market:
I prefer 2-day over 3-day weekends. I like to exercise outside where I don’t think about: SPACs, the Snowflake IPO, or the price of TSLA. The next few months will:
a. Continue our high volatility, but slightly lower than where we are now.
b. Will move the price action sideways to lower as the bubble has been popped.
c. Have the NASDAQ underperforming the other major indexes, and the FAANMGs will all take major haircuts.
d. Have commodities (and Gold & Silver) moving marginally higher while the Dollar declines. The best play is to short the bonds - betting on higher interest rates.
e. Show that the election is a non-event. Math doesn’t lie, and the implied volatility levels of October and November are basically the same.
That said, nobody knows because money is not moving out of the markets – just out of technology into homebuilders, basic materials and some cyclicals. Biotech has struggled the last few months, but big deals are getting done. Gilead just paid almost $100/share for 2 companies that were trading in the single digits 6 months ago. Rates are low, money is being printed, and the promises are flying. Most people are under-invested and angry that the markets went up without them.
What’s trending:
- Clothing and clothing accessories: +3% adj. MoM -24% un-adj. YoY,
- Building materials and garden supplies: +2% adj. MoM +12% un-adj. YoY,
- Electronics and appliances: +1% adj. MoM -3% un-adj. YoY,
- Online: 0% adj. MoM +20% un-adj. YoY,
- Grocery and beverage: -1% adj. MoM +8% un-adj. YoY
InfoBits:
- Vinyl record sales surpassed CDs for the first time since the 1980s: Just another way in which the world has truly turned upside down.
- A ban on U.S. downloads of TikTok… and WeChat starts at 11:59 pm on Sunday. Meanwhile, ByteDance and Oracle are developing a new version of the app to soothe cell phone addicts.
- Facebook lost Gen Z to Snapchat and TikTok… so it's going back to college with "Facebook Campus." Might as well have called it "The Facebook."
- Nvidia acquired semiconductor designer Arm Holdings for $40B… the largest acquisition in semiconductor history.
- DraftKings is making money moves: Last week the company added Michael Jordan as a special advisor, and entered into an agreement with ESPN.
- “He has no clue”… was Elon Musk’s response when he heard Bill Gates’ opinion that: “Electric vehicles will probably never be a practical solution for things like 18-wheelers, cargo ships, and passenger jets."
- As 7-foot-tall robots stack store shelves… just keep telling yourself: "They're really friendly ... they're really friendly."
- Taco Bell is selling its own wine: This definitely feels like an “order the wine at Taco Bell” kind of year.
- TikTok – SchmickTok: YouTube is launching its own version of TikTok with "Shorts." It's testing the feature in India before expanding to more countries.
- 31% of all restaurants have closed due to COVID… and another 40% say that they will close within 6 months without government relief packages.
- Amazon launches ‘Luxury Stores’… which spells more trouble for luxury retailers as you need to be invited to shop there. Just think, all the anxiety of walking past those fancy store windows is now available online.
- No crowd, No turtleneck… Apple unveiled: Apple Fitness+, Apple One, and “Club Apple” all on the same day!
- "Yes you can buy and live on a Carnival cruise ship, by yourself”… Carnival is selling everything to remain afloat including $1B of new stock.
- U.S. consumer spending slowed in August… as extended unemployment benefits were cut. The economic recovery from the COVID recession is faltering.
- 60% of closed businesses… will NOT be reopening.
- Dave ‘n Buster’s… warned that it may need to file for bankruptcy if it can’t reach a deal with its lenders amid the COVID pandemic.
- Snowflake… the data storage and analytics provider, IPO’d this week and immediately doubled from its listing price. It was the largest IPO ever for a software company, but to date it hasn’t shown a profit.
- Facebook… is officially killing off the Oculus Rift line.
- Tenet - the Christopher Nolan mega-flick… dropped into theaters last weekend. Tenet cost $205m to produce, and has made less than $30m to date.
- Disney released (started streaming) Mulan… on Disney+ for $30 / stream. Mulan cost $300m to make, and has made $33m to date in streaming revenue.
- Vape sales are up: A year after the vaping health crisis upended the cannabis industry, marijuana vape sales have rebounded as consumers grasp the danger of consuming illicit-market vaporizers and switch to legal suppliers.
- Uber is looking to sell part of its $6.3B stake in China’s Didi Chuxing as it begins to shed minority holdings to raise cash.
- Century 21 filed for bankruptcy… and it blames insurance providers for its collapse.
- Scientific American breaks 175 years of tradition… and endorses a presidential candidate.
- Chargepoint… the world's largest electric vehicle charging network is nearing a deal to bring its orange charging stations public.
- Tesla’s Battery Day… is right around the corner on September 22nd and Elon believes that “many exciting things will be unveiled” – causing a 19% pop higher.
- Ruth Bader Ginsberg… the legal and feminist icon, passed away at the age of 87. She will truly be missed. R.I.P.
Crypto-Bytes:
- The Central Bank of the Bahamas… has confirmed it is moving ahead with the launch of its “Sand Dollar” digital currency in October.
- India, yet another crypto ban? India’s federal cabinet is weighing a new bill that seeks to impose limits on crypto trading.
- MicroStrategy has purchased… $175m more BTC over and above the $250m acquired in August. Dollars are no longer a safe place for cash. This is a pronounced turnaround for the CEO that once called Bitcoin = “Fool’s gold.”
- A new Crypto Bank: Kraken Financial has become the 1st firm to receive a special type of charter making it an official bank in Wyoming. It has access to the Federal payment infrastructure, can issue digital-asset debit cards and savings accounts as well as securities and commodities services.
- Welcome newbies: New investors are entering the bitcoin market at a faster pace and possibly creating upward pressure on prices. The number of ‘young wallets’ is at its highest level since February 2018.
- More than $1B Bitcoin on Ethereum… is causing record-setting transaction volume, and is boosting Ethereum miners' revenue.
Last Week:
Monday: Last week they used the 50-day moving average as a support level, so the 50-day is an important level. The NASDAQ however plunged through its 50-day (10,936) – closing at 10,853. Last night the PPT (Plunge Patrol Team) kicked in again between 2 and 3am driving the futures bright green. The question is: Will it hold? There is a FED meeting this week, and Wednesday brings those results. Steve Mnuchin (Treasury Sec.) was on CNBC this morning saying: “Now is not the time to be worrying about the fiscal deficit or the FED’s balance sheet.” I assume that means our FED will say that they want more inflation (more money printing) and interest rates will remain low for the foreseeable future. Therefore, equities should move higher.
Tuesday: This morning the futures are up big because of good economic numbers out of Europe and China. German consumer confidence has hit a 20-year high. Am I to believe that Germans think things are better than they have been in the past 20 years? I don't. This is not a full blown joyous market we had yesterday. Oil, gold and silver are all down. I have to think that Powell (on Wednesday) stays the course and says all the right things. Yet the idea of buying anything else in here is not thrilling to me until we hear the FED’s press conference tomorrow afternoon.
Wednesday: Today is Powell and Company’s big day to lay out their vision of the economy. Yesterday, Facebook took a little hit when Kim Kardashian said she was going to take a break from FB and urged her 50B followers to do the same. But they bought the dip, the NASDAQ was saved, and life went on. In other news, Congress is really beating up on Boeing, after the long investigation proved that Boeing put profits ahead of safety on their Max plane. Oh really: Who'da thunk it? And LLY put out positive data on its antibody treatment – which perked the vaccine stocks right up. For the record, in order to legitimatize current forward P/E multiples on the S&P – we would need to see 70% EPS growth for the next 3 years. No way in heck is that possible.
Well, today the FED told us that they are not happy firing regular weapons, they instead fired a bazooka. Their inflation target is above 2%. They will keep interest rates between 0 and 0.2% all the way into 2023. We all know that we’re at 7% inflation right now. Our FED can’t hike rates or everything blows up. Their statement was insanely bullish yesterday.
Thursday: We’re red across the board, but this is a typical reaction to a major policy announcement. Everyone is freaking out that inflation will destroy us, and that the Dollar is going to erode. As far as I'm concerned, we’re in the biggest bubble of all time. When I look back over the past 10 years, I see that despite the economy being in the pits, and debts that can never be repaid – the market has put in high after high. Why would that end today? It probably won't. Also it seems that the ETA concerning a vaccine may be longer than anticipated, and of course worse than a late vaccine is the question - Who's going to take it? I'm going to buy the November $120 call options in Walmart (WMT) – priced around $18.40. They're already over $16 in the money, so we're only paying a couple bucks for time. The market is undecided because after being 7 months into a crisis, spending $7T in stimulus, our FED still printing $120B per month, interest rates at zero – that the new unemployment claims are still at 860,000.
Friday: Okay, so yesterday the S&P came back down to test the 50-day, and it once again held. With the 50-day at 3,339, we closed at 3,357. The NASDAQ attempted to get over its 50-day but came up about 80 points shy. Considering the gift that Powell gave the market, we still have to think that at some point greed kicks in and they push us higher. If the techs can't get up and over that 50-day, it should pull the S&P down through its 50-day, and that will set off more selling. Thus far the markets can't get their act together, although the DOW is trying its best. There's no real selling – the buyers are just on strike.
SPACs:
- Chamath Palihapitiya… filed three new SPAC vehicles last week. Each of them moves in a different direction: Nirav Tolia (the co-founder and CEO of Nextdoor) joined one, Jay Parikh (former head of engineering at Facebook) joined another, and Dick Costolo (former CEO of Twitter) joined the third.
- Reinvent Technology… the SPAC managed by LinkedIn cofounder Reid Hoffman and Zynga founder Mark Pincus, has successfully raised $600m.
- Richard Branson Wants A SPAC: the founder of Virgin Galactic wants to raise $500m for a SPAC. VG Acquisition Corp filed with the SEC saying it intends to sell 46m units at $10 each. VG hasn’t decided on a business to buy but would like something in the: travel, financial services, health, tech, music, media, mobile, or renewables sector. So pretty much anything.
- How about a Playboy SPAC? Playboy Enterprises is exploring options to return to the public markets. BUNY would make a great ticker.
Next Week: Volatility perplexes the markets.
-Where's the Volatility pump? There has been some fairly strong sell-side activity in the last 3 weeks, but there is NO aggression in the selling. This was shown in the VIX where although we were down 33 points on the SPX on Friday – the VIX actually went down along with it. If you look at the volatility futures, the October futures are about the same as the November futures and about the same as the December level – it doesn’t make sense. Everybody always asks: “Are we near the bottom? Is it safe to buy something now?” Because of what I’m seeing inside the volatility futures, I have to conclude that we’re not close to a bottom as of yet. Heck, according to the VIX (volatility index) – this train has not even left the station. The QQQ’s actually tagged the lower side of their weekly expected move, but the implied volatility is signaling that it was ‘nonchalant’ selling. I need to see fear before calling a bottom in the markets.
-Other Risk Assets continue to stagnate: including Bonds, Utilities, Gold and the Dollar. There’s no flight to quality, but at the same time nobody’s bailing out of bonds. I can easily imagine a scenario where if the S&Ps were to tank – the bonds would be flying off the shelves – or would themselves be tanking. The tough scenario to imagine is the stagnation attitude toward the other risk assets. In fact, the implied volatility in the bonds is the lowest that it’s been in approximately 3 years. Utilities are not budging. Gold has been a terrible hedge inside of this sell-side activity – even with J. Powell telling us that he’s going to cause inflation. Everywhere that should be moving in reaction to the QQQ’s moving – is not moving … yet.
-FAANMGs = the Monsters of Tech are moving. The ‘Monsters of Tech’ were up over 50% 3 weeks ago, and are now only up about 27%. So the ‘Monsters of Tech’ are definitely into Bear Market territory (down over 20%). The volatility associated with the QQQ’s, SPX and risk assets – can’t get off the floor. Which brings me to the conclusion – that you should be selling into this rally (STFR).
-Reiterate Last Week’s Warning = Do NOT buy the dip! From 3 weeks ago, I personally am short some Apple, Facebook, Home Depot, Nike, and Nvidia, but would not advise you shorting them from here. This past week the S&Ps really didn’t do that much, but the ‘Monsters of Tech’ had a terrible week. I personally am not covering my short positions until volatility actually tells me to do so. Please do NOT buy the dip.
-Election risk is shifting from November to December and January: We’re pricing the election almost as a non-event. There is more volatility associated with December than there is November which is a very concise indication that we may NOT know the results of the election until December. So the markets are telling us that there will be tremendous confusion surrounding the results of the election – out into potentially January, 2021.
-Position Ideas:
Lululemon = LULU. This stock shot to $400 and I was ready to throw in the proverbial towel, but we’ve had the proverbial pullback and I’m staying in my Puts for the ride lower down to the $200 level. This was up 70% and now we’re only up 26% YTD so we’re definitely moving in my direction. The message here is to do ‘more’ of what things are working, and ‘less’ of what things are not working. There hasn’t been an uptick in LULU in 3 weeks – so there’s no reason to consider bailing out of a winning position. I would anticipate a ripping rally inside of LULU – in which case I will buy more Puts.
XHB = Homebuilders ETF. It’s 3 days removed from their all-time high. I purchased the December, $65 Puts – as a duration position. This has nothing to do with fundamentals, but everything to do with risk vs reward. It is a spectacular downside vs upside opportunity.
XLP = Consumer Staples ETF. I have purchased the December, $69 Puts – as a duration position.
- SPX Expected Move: After all that we lived through during this last week of trading, we ended the week mildly to the downside. We began the week at 3,340 and ended the week at 3,320 so net/net we were virtually unchanged. Last week’s expected move was basically $100. We saw some fairly wicked movement, but for next week the options are showing a contracted expected move to $83. On Friday we (in one day) hit next week’s expected move, so I am NOT a seller of premium inside of this market. Although the volatility is perplexing, all roads lead to the fact that we need to feel the fear in this marketplace, and we just haven’t as of yet. That is NOT SAYING that we can’t rally back – because we can. To me, that rally back in a largely retail driven marketplace is an opportunity for those retailers who are just hanging on – to bail – which will be an additional shorting opportunity. I don’t believe that there’s an easy path to the downside, in fact I’m looking for a short rip higher – followed by another sharper move to the downside.
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $6.12 / in @ $4.60 = up 33%),
o Looking into selling Oct. $7 covered calls
- Canopy Growth Corp (CGC = $16.36 / in @ $22.17 = down 26%),
- CTI BioPharma (CTIC = $1.13 / in @ $1 = up 13% ),
o Selling more Oct. $1 covered calls
- EXK Gold (EXK = $4.11 / in @ $1.53 = up 169%),
o Looking into selling Oct. $5 covered calls
- GBTC Bitcoin (GBTC = $11.74 / in @ $9.41 = up 25%),
- Hecla Mining (HL = $5.68 / in @ $2.36 = up 141%),
o Looking into selling Oct. $7 covered calls
- KL Gold (KL = $51.32 / in @ 26.85 = up 91%),
- MUX Mining (MUX = $1.10 / in @ $1.14 = down 4%),
- New Gold (NGD = $1.88 / in @ $0.82 = up 129%),
o Looking into selling Oct. $2 covered calls
- Pan American Silver (PAAS = $34.63 / in @ $13.07 = up 165%),
o Looking into selling Oct. covered calls
- Tortoise Acquisition Corp (SHLL = $50.00 / in @ $0.32 = 15,525%).
Crypto:
- Bitcoin (BTC = $10,950),
- Ethereum (ETH = $380),
- Bitcoin Cash (BCH = $230)
Thoughts:
#1 Buy longer dated call options on the VIX.
#2 Look at a ‘Risk-Twist-Spread’ out in December on the HYG – to the downside.
#3 It’s been a bad year for Boeing (BA). The stock is down 50% YTD, and Congress released its scathing report this week on the 737 MAX debacle. But BA’s actually up 87% from its March coronavirus lows, and has been trading in a range for the past 3 months. The fact that neither economic uncertainty or the Congressional report tanked the stock indicates that maybe the market has already priced in all the bad news. Plus, BA still has a backlog of 737 MAX orders, and has an order for a Harpoon missile sale to Taiwan. Those extra streams of revenue might be why the market is pricing OTM (out-of-the-money) calls slightly over equidistant OTM puts, indicating risk to the upside ahead of earnings on Oct 28. With 60% implied volatility, BA is the most volatile of the stocks in the DJIA – so it could provide some price swings ahead of earnings to reward speculative trades. If you think BA might rally ahead of its earnings, you might consider a bullish strategy in it. The long call vertical that’s long the $165 Call and short the $170 Call in the Oct monthly expiration is a bullish strategy that has a 66% 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!
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