This Week in Barrons: 11-15-2020:
Results Matter…
In the ‘fantasy’ world of participation trophies and nobody saying anything bad about anybody else … RESULTS still matter. Those 7-year-olds playing T-ball know who really won the game, and that 13-year-old knows what you really meant to say. Results don’t change – just because the world becomes faster and more competitive. Results exist, are measurable, and live long after the event is over. In many cases results are binary: (a) a bridge either falls down or it doesn’t, or (b) your market share either went up or down. People tend to view results as threats, but they should be seen as opportunities. Denying the results doesn’t change a thing.
As the world compiles the results, any one person’s narrative gets pushed aside. Results are concrete, universal, and can cause a lot of distress and denial. On the other hand, your narrative is your own. No matter how much we overlay anyone’s personal beliefs on to the results – results will win. We may never stop hearing personal narratives, but more systems make decisions based upon real results.
There’s only one real entrepreneurial teaching / launching environment that continues to stress results, and that’s Stanford Univ. They produce between 100 and 600 small companies each year – with other organizations bragging about producing maybe 30. Every other organization emphasizes engagements over sales, de-emphasizes Newton’s 3rd Law (for every action there is an equal and opposite reaction), and consistently delivers embarrassing results. They love making plans, building models, and constructing ‘make-believe’ competitions – but ‘DOING’ = not so much. When you ask them one simple question: “What’s the success rate / profitability / sustainability of the businesses that you have launched?” – they talk about their mentors, incubators and accelerators to avoid saying their true RESULTS.
Entrepreneurs know that the true measures of success are top and bottom-line RESULTS. Entrepreneurs know who’s ‘walking the walk’. Edward Norton said it best in ‘Boiler Room’: “You’re either slinging crack rock or you’ve got a wicked jump shot. The honor’s in the dollar kid. You want in?” You’ve either been lucky enough to attend Stanford, or you’ve learned by attending the ‘School of Hard Knocks’. Why are these ‘in-between’ organizations allowed to exist with such horrific track records? Because the results haven’t caught up with them yet. They will. Recessions / Depressions have a way of doing just that.
The Market: Can’t we just go back?
This week was a lesson in why timing the markets is a bad idea, and being in the markets is a good idea. The big winner from the election was cannabis. Arizona, Montana, South Dakota and New Jersey all voted to get high. A favorite idea for a lot of marijuana investors is the new ETF called MSOS which is a collection of the US multi-state operators. There are currently 25 states with legal medical markets, and 1 in every 3 Americans live in a state where recreational marijuana is legal. What else is working? IPO’s are working and some big ones are coming down the pipe. JAPAN is at 29-year highs. It may not be easy to own stocks, but it is deadly to be short them.
I also wonder how many of the habits we acquired during this pandemic, will stick with us if/when we go back to doing all of the things we once did.
1. Will our use of Zoom decline when the pandemic slows down?
2. Will business travel EVER go back to where it was?
3. Will we return to the gym even though we love Beyoncé and our Pelotons?
4. Will we rush back to the mall and abandon our e-commerce habits?
5. Will we fight the traffic and parking to return to our downtown office?
InfoBits:
- McDonald’s unveiled its McPlant… as its new plant-based burger. Beyond Meat (BYND) was down 26% on the news.
- The FDA has granted Eli Lilly emergency authorization… for its Covid-19 treatment given to former New Jersey governor Chris Christie.
- CBRE Acquisition Holdings (a SPAC sponsored by commercial real estate giant CBRE)…. has registered plans to raise $400m for a IPO.
- Adobe said it will acquire Workfront… for $1.5B to add a collaboration tool to its marketing software.
- Google founder Eric Schmidt is close to Cyprus citizenship… and one of the highest-profile Americans to take advantage of a 'passport-for-sale' program.
- VF Corp is buying Supreme…. to add to its other collection of brands such as: Vans, North Face and Dickies.
- United Airlines has increased its Thanksgiving flight schedule ... as it expects the most travelers since March.
- Airbnb’s IPO… has slipped to next week.
- The Ant Group’s valuation came crashing down… as Beijing announced proposed regulations on micro-lending that would force them to hold more capital and look more like a bank than a tech company.
- Ulta Beauty and Target are moving in together. Target will set aside 1,000 square-foot sections in over 100 of its stores for Ulta Beauty mini-shops.
- Walmart teams up with GM’s self-driving electric car company Cruise… to test driverless grocery delivery.
- Palo Alto Networks is buying Expanse… a company whose software monitors attack surfaces to perform risk assessments and mitigate threats.
- Google is ending free, unlimited storage.
- Chinese EVs are charging higher. XPEV soared 33%, NIO surged 12%, and LI leapt 27% this week alone.
- Live Nation’s Ticketmaster unit is working on a TSA-like plan. After buying a ticket you will be required to verify that you’ve been vaccinated OR that you’ve tested negative for COVID-19 no more than 3 days before the concert.
- It’s not just about electric wheels... Ford’s also making a subscription play with digital add-ons to help customers track and manage their fleets. It already charges $25/vehicle/month for those services, and is expanding their offering.
- Pfizer struck a deal with the EU… to charge Europe LESS for its COVID-19 vaccine than the U.S. #ThanksPfizer
- U.S. airline employment will fall to the lowest level… in 40 years as 90,000 jobs are cut this year.
- DoorDash filed for an IPO. DASH is a food delivery company whose revenues skyrocketed to almost $2B during the 2020 pandemic.
Crypto-Bytes:
- Figure Technologies (a blockchain-based financial lender)… has applied for a national bank charter. U.S. approval would simplify compliance and cut costs by allowing the startup to offer its services across the nation and consolidate its reporting duties under one office.
- Ripple has set up a regional base in Dubai.
- California’s Proposition 24… also known as the California Privacy Rights Act (CPRA), could be a boon to crypto firms looking to comply with Europe’s strong privacy protections.
- Bitcoin as a hedge: Financial advisors are waking up to the prospect of bitcoin as a portfolio investment – if only as a non-correlated hedge. Given the FED is committed to inflation while depressing interest rates, wealth managers see bitcoin as a monetary hedge. JPMorgan analysts have found that Grayscale Bitcoin Trust is outperforming gold ETFs. “The risks of bitcoin going to zero are lower than ever – further reason that every major investment bank and high net worth firm will eventually have exposure to bitcoin in the near future.”
- Billionaire U.S. investor Stanley Druckenmiller is long Bitcoin. He predicts bitcoin will outperform gold in the long run – largely due to millennial and Silicon Valley attraction to the crypto scene.
- CCB (the world’s second-largest bank)… will issue $3B worth of bonds on a blockchain.
- President-elect Biden announced his financial ‘brain trust’ and it includes… former CFTC chairman and noted blockchain commentator Gary Gensler.
- Analysts are bullish on bitcoin’s prospects to test all-time highs of $20,000… though many foresee a period of consolidation in the coming weeks.
- Ray Dalio (founder of the world’s largest hedge fund)… said: “Governments will seek to outlaw Bitcoin if it becomes material. Governments will use whatever teeth they have to break bitcoin’s back.”
- Bitcoin broke above $16,000, and is only 17% off its all-time high. It’s now up 123% on a year-to-date basis, and has gained nearly 50% so far this quarter.
- European CB Pres. Christine Lagarde has a ‘hunch’ there will be a digital euro in 2 to 4 years. “A EU-wide digital currency will facilitate cross-border payments. It will not be a substitute for cash, but rather a compliment.”
Last Week:
Monday: Pfizer came out this morning and said their vaccine has a 90% efficacy rate, and everyone and his brother is celebrating the end of COVID. The flip side of this is that tech has rallied on the ‘stay at home’ stocks (Zoom, Peloton, Netflix, etc.) – does that mean life goes back to normal? Really? An entire industry was built around the idea of isolation, containment, PPE, and now all of that means nothing? I can't bring myself to buy anything in here, it's just too crazy. Yeah – gold and the miners are getting hammered. Evidently getting a COVID vaccine, means that all of our monetary issues go away.
Tuesday: Just so you know, Pfizer has a vaccine that worked on 94 people. The total sample size was 43,358, but only 94 contracted COVID. It bothers me that (like Moderna) it doesn't inject you with dormant virus, but rather plays with your body's DNA. Today, we have a plethora of Fed heads yakking about this or that. It’s been very tiring holding the metals lately – but crypto is catching a nice bid.
Wednesday: The CEO of Pfizer sold $5m worth of his stock Monday - interesting. The FED is saying (to anyone who will listen) that “the stock market is NOT overvalued.” Isn’t that nice of them? The biggest bubble market of all time, probably exceeding the Japanese market of the 80’s, and they believe that it’s not overvalued. The only play I’m seeing is probably the QQQ’s. If they’re going to keep the techs going, the Q’s have no choice but to move higher. If price is a problem (because they’re expensive), you can play with the XLK, which is the straight technology ETF.
Thursday: The rotation is in effect, out of the DOW and back to tech. If that plays out, we'll probably want to snag some XLK and see if we can grab some quick money. FED J. Powell is speaking this afternoon so that should help us out there. I will take the XLK over 121.66 but it will have a short leash. A couple of J. Powell’s comments:
- "We are looking into a digital currency, but currently have no plans to issue one."
- “We will be recovering to a different economy – one with more technology.”
- “The crisis is accelerating a lot of technological change.”
- “We have not yet made a decision on a digital currency – BUT – we are committed to evaluating the costs and benefits of having one.”
- “We will approach the question of a digital currency with care – due to the impact that it may have upon the U.S. dollar.”
Friday: About the only thing I got right this week, was suggesting that we'd have volatility. Today I’m watching NETE, but there is some confusion about its earnings date. It hit a high of $8.67 today. It's been as high as $20 in August, and $15 in September. There are rumors of a merger happening, and I simply saw the chart as a technical play. I would take some over the morning's high if it gets there, but I won't bet the ranch. AAPL is red, MSFT is up 50 cents, and TSLA is red. Cruise lines are up, and NVDA is down big. I think it means we have a very uncertain market, that's got FED hopes and money on one side, and the glaring prospect of Biden’s 6-week lockdowns on the other.
Marijuana…
- The results of the ballot initiatives clearly showcase that support for adult-use marijuana legalization is supported by a majority of Americans. In 2021, I expect to see a lot of positive activity at the state level. I personally see the THC market challenging that of alcohol in a lot shorter timeframe than anyone currently estimates. I think we will begin to see cannabis-focused CPG companies. CGC has launched a new Quatreau sparkling water brand in Canada, including one version with only CBD and one that also includes a limited amount of THC.
- Last week voters in New Jersey, Arizona, Montana, and South Dakota legalized recreational cannabis. On Friday NJ Governor Phil Murphy named Diana Houenou as chair for the state’s newly created Cannabis Regulatory Commission. On the same day, state legislators introduced a bill providing the framework for a recreational market and the transition to it. The goal is clearly to begin selling as soon as possible. While it will take at least a year to license and open new stores for recreational purchases, existing medical marijuana dispensaries could immediately transition to selling to anyone of legal age. In New York, governor Andrew Cuomo again reiterated his commitment to legalizing cannabis in the Empire State in 2021.
- Multistate marijuana giants Verano and AltMed are merging, creating a 14-state operator. Verano Holdings will acquire Florida-based Alternative Medical Enterprises (AltMed), creating one of the largest cannabis companies in the U.S. with 44 retail locations in 14 states.
Next Week: “Rotations, Risk, and Reality Lost”
This past week has delivered: constant sector rotations, a redistribution of risk, and traders not thinking clearly – producing a warped sense of reality. I’m seeing huge compressions of implied volatility, simultaneous with wild price movements, and an explosion in COVID cases to the point that closing down economies is back on the table. That should give us a real opportunity to be a net ‘buyer’ of implied volatility (Iron Condors). Everybody saw the rotations, but there is substantial reality loss in here when Microsoft, Caterpillar and the Russell (IWM) are all close to all-time-highs in an environment that is far less than certain.
Volatility Compression: The actual price movement in the market place, has been ripping the heads off of the expected move calculations. We are doing these wild moves while the volatility index (VIX) is moving lower. Strategically, you don’t want to ‘sell options premium’ in a marketplace that is experiencing wild sector rotations and large variations in price. Right now, the options marketplace is still not doing a great job at handicapping risk, and as long as that exists – the correct options trade would be to ‘buy’ an Iron Condor and NOT ‘sell’ one.
Monsters of Tech:
- This could either be a buying opportunity or the beginning of the end. Look at Microsoft in terms of how far it’s moved, the large price swings, and how low the implied volatility is surrounding the underlying stock. MSFT is experiencing its lowest implied volatility ranking since the onset of the COVID virus.
- The Nasdaq (QQQ) is sitting near the lower edge of its expected move. The S&Ps (SPY) is sitting at the upper edge of its expected move. And the Russell (IWM) is blowing thru its expected move to the upside and hitting all-time-highs.
- I see this as a buying opportunity of implied volatility in MSFT. That is to say buy an Iron Condor on MSFT – and put your wings – one standard deviation out from the current price. The same trade can be done in the XLE and the IWM.
IWM all-time highs and it’s still smashing thru its expected move.
- I’m currently long, but I’ll be getting out of my long position on Monday. We are experiencing a ‘crash’ in the IWM to the upside. There are explosive moves, on lower than expected implied volatility.
- There is no fundamental reason why the ‘small caps’ should be at an all-time-high. I realize we have vaccine news, but it’s the small caps that are currently being bailed out left and right. Without a fundamental argument as to why the small caps should be at an all-time-high, it’s my view that the risk is to the downside; therefore, I’m going to exit my long positions in IWM early in the week.
XLE = Is energy on the road to recovery?
- I’m long some individual companies within the energy sector, but the XLE is ripe for a pullback. The thought of a vaccine had all of the airline stocks humming last week, but when the dust settles – the sector is in over-bought territory.
CAT is at all-time highs.
- Just like the IWM and the XLE – buy the volatility by purchasing an Iron Condor. CAT begs the question: How did this stock get this high – because its revenues and earnings have been declining. Its implied volatility has been crushed, and it makes sense to buy an Iron Condor to profit from any wild move higher or lower.
SPX Expected Move:
- Last Week = $91.54
- Next Week = $82.39 ($9 less than last week). I think it’s moving the wrong way.
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $5.49 / in @ $4.60 = up 19%),
- Canopy Growth Corp (CGC = $24.43 / in @ $22.17 = up 10%),
- CTI BioPharma (CTIC = $3.43 / in @ $3),
o Selling Dec. $3 covered calls…
- EXK Gold (EXK = $3.70 / in @ $1.53 = up 142%),
o Selling Dec. $4 covered calls
- GBTC Bitcoin (GBTC = $17.96 / in @ $9.41 = up 91%),
- Hecla Mining (HL = $5.33 / in @ $2.36 = up 126%),
- KL Gold (KL = $45.11 / in @ 26.85 = up 68%),
- New Gold (NGD = $1.85 / in @ $0.82 = up 125%),
o Selling Dec. $2 covered calls
- Pan American Silver (PAAS = $33.02 / in @ $13.07 = up 153%),
o Selling Dec. $38 covered calls
- Hyliion (HYLN = $22.33 / in @ $0.32 = 6,878%).
Crypto:
- Bitcoin (BTC = $16,250),
- Ethereum (ETH = $470),
- Bitcoin Cash (BCH = $260)
Thoughts: Take a peek at Fisker (FSR). It’s an EV play and is starting to get noticed. It has some resistance at the $18.20 area, but if it punches through that, this could be a $25 stock in a heartbeat. Keep an eye on it and be safe!
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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