This Week in Barrons: 12-6-2020:
COVID Lesson #1: Shopping is NOT Buying.
Just about everyone over the age of 15 buys stuff – but that’s not SHOPPING.
- Shopping is the act of imagining what you want. It’s the thrilling but risky hope that this ‘new thing’ might be better than you dreamed.
- Shopping is a cultural activity with its own style and approach that varies according to who you are and where you live.
- Shopping is a relatively new sport, with trillion-dollar industries built around it – mostly ‘under the radar’.
- Shopping causes everyone to re-examine their relationship with money and debt, as it has turned consumer credit from a convenience into a trap.
- Gift cards, garage sales, and self-storage units barely scratch the surface on how many layers we’ve built up around our commitment to shopping.
- Shopping in small doses can produce happiness, but it does NOT scale. More stuff is NOT a substitute for the things that we truly want or need.
COVID Lesson #2: What Working from Home (WFH) has taught us:
If you’re in a healthy organization led by a leader who actively works on building social capital – employees under WFH conditions are:
- 60% more likely to respond quickly to requests,
- 3 TIMES more likely to give each other the benefit of the doubt,
- 3 TIMES more likely to put the organization’s needs before their own, and
- 2 TIMES as likely to take the initiative to solve problems – rather than waiting to be told to do so.
However, in weak organizations with leaders who fail to lever social opportunities – employees are:
- 40% more likely to do just the minimum required to keep their jobs,
- 4 TIMES more likely to respond slowly to requests,
- 4 TIMES more likely to assume the worst in everyone else, and
- 3 TIMES more likely to put their own interests ahead of the organization’s goals.
The Market:
COVID Lesson #3: Somebody’s got it wrong…
A friend of mine from Chicago wrote me the other day to tell me that a beautiful, new Starbucks adjacent to Wrigley field was shutting down. It was a corporate decision. It’s scary because Wrigley Field real-estate is not cheap, and closing a premier Starbucks location is making a much bigger statement. It’s saying that sports, inner-city activity, consumer spending, and an estimate on a return to normalcy – is not going to happen anytime soon. This location probably cost a few million to build and lease. To shut it down means Starbucks, (that should have a pretty decent handle on consumer trends) has a very different timetable for ‘We’re back’ than the stock market. The stock market along with SBUX is trading at record highs. The stock market is anticipating a positive economic explosion (a spending boom) accompanied by an unstoppable support mechanism for today’s equity prices. Either Starbucks corporate is making a mistake, or its stock price is too high. I guess we’ll find out soon enough who is right, but this is a disconnect. My 1st takeaway is: This is what makes fundamental analysis so questionable in a FED controlled market. My 2ndtakeaway is: Nobody knows nuttin’.
COVID Lesson #4: Small businesses often can’t get out of their own way…
When a small business delivers a lousy customer experience, the person in charge learns about it virtually instantly. Customers start to leave, visitors bounce, and complaints roll in. Customer retention costs 90% less than customer acquisition, so it’s expensive to lose a customer. In a small company, the person with the ability to make a fix happen – is often the one who hears about it first. Therefore, a well-run small business should NEVER lose a customer. Which causes me to ask ‘Why’ - every time I hear that ‘retail’ small businesses are losing out to ‘big box stores’.
In a big company, the front-line person responsible for retaining the customer – often has other priorities, and is rarely rewarded for communicating bad news. It’s often more important to please the boss, go to meetings, and keep the numbers on track – than it is to fix what is only beginning to break. “Suits” don’t spend time perusing stores, delivering merchandise, or answering technical support calls. Big corporations continue to value customer ‘acquisition’ over ‘retention’ – and that’s the small business advantage. Honestly, nobody buys a $70,000 Tesla to save on gasoline. But everybody buys one for the fantastic customer experience before and after the sale.
InfoBits:
- Dr. Fauci says: “Closing the bars and keeping the schools open will mitigate community spread.”
- Salesforce is cementing its Slack-quisition... worth about $28B. Salesforce is desperate for growth, and Slack’s sales are growing twice as fast they are. Unfortunately, both saw a slowdown from the previous quarter.
- Tesla mania has turned into EV froth… and it is above my pay grade to judge or cast aspersions, but at this point – only Tesla can beat TSLA.
- Moderna is up over 55% this week… and could be on track to begin vaccine distribution to front line workers and those at-risk by the end of December.
- GM sold its equity stake in Nikola... and NKLA tumbled 27%. GM also ditched its plans to invest $2B in e-truck maker Nikola, and will no longer be producing its Badger pickup. #Oopsy
- DoorDash plans to IPO for a whopping $32B valuation.
- Lion Electric (the Canadian electric truck and bus maker)… will go public via SPAC with Northern Genesis Acquisition Corp. = $1.9B valuation.
- FB’s next billion could mean business... as it ramps up its ability to advertise but also sell e-commerce products. Unfortunately, the only purpose of advertising is to cause action, and action only happens when there’s trust. Trust will be FB’s Achilles heel.
- Airbnb is looking to IPO in December… with a $35B valuation. If that comes to fruition, Airbnb’s value will have doubled during a global pandemic.
- Donald Trump wants Facebook, Twitter… and other social media sites to be held legally liable for the way they police their platforms.
- View (a maker of smart glass for buildings)… will go public via a SPAC with CF Finance Acquisitiion Corp II = $1.6B valuation.
- Uber completed its $2.6B acquisition… of the on-demand delivery company Postmates. Uber cut 23% of its workforce, and may sell its self-driving business.
- Elon Musk would consider… leveraging Tesla’s $554B market cap to buy a legacy automaker – but only on friendly terms.
- Self-driving robo-taxis are a reality in China. It's not a flying car yet, but we're getting closer.
- Zoom - you're only as valuable as your customers... and all of those free ZOOM users (students, teachers, etc.) are costing real money to keep those classrooms open.
- Sephora moves into Kohl’s… right after their arch-rival Ulta Beauty moved into Target with the same "Inception Retail" model (store-within-a-store). Beauty is an anchor product. Anchor products are things that you use and buy routinely – like meds, dog food, and makeup.
- If you needed an excuse to break quarantine… McDonald’s is bringing back the McRib. The McRib was last seen 12 years ago. The McRib only has 480 calories, so I can eat at least 3 of them without giving my cardiologist a call.
- For the first time since at least 2015… there is not one NYC zip code in the top 10 most expensive in the U.S. The wealthy and mobile are leaving NYC en masse – resulting in NYC housing prices falling by 19% YoY.
Crypto-Bytes:
- After nearly three years of waiting… Bitcoin investors celebrated BTC’s all-time high last week. By moving 40% higher in November, it broke its previous high from December 2017.
- Ripple (a blockchain payments firm)…is selling 1/3 of its stake in MoneyGram.
- MicroStrategy revealed that Coinbase was the platform… that executed its $425m BTC buy.
- Google searches for “Bitcoin”… are at their highest level since June, 2019.
- Larry Fink (BlackRock CEO = $7.4T AUM) … said that crypto could possibly “evolve”into a global market asset. Larry really – it’s the #1 performing asset of the DECADE. #YaThinkLarry
- PayPal CEO Dan Schulman said… “The time is NOW for cryptocurrencies.” Separately, Mizuho Securities surveyed PayPal users and found that 65% would use bitcoin as a currency at PayPal's 28m merchants.
- Visa will support the issuance of a USDC stable coin credit card… which could go live in 2021.
- While we continue to debate the Digital Dollar… China is rolling out its own Digital Yuan. Goldman Sachs estimates that over 1B people will be using the Digital Yuan within a decade, and I think that’s an understatement. I believe that everyone who’s using fiat currency now – will be using digital/crypto versions of these fiat currencies within a decade. My only question is which digital currency we will use? If we want the Digital Dollar to be in the top of that list, we had better get behind the existing ones and support the issuances of new ones.
- The U.S. Treasury wants to watch digital asset innovation… as it could upset the balance of the current financial system. Our Treasury’s recent report highlighted how other Central Banks are using their digital currencies as a way to “Enhance their global standing, and enable faster payments.” Is it just our own Government that thinks paying on time and without FEES is a BAD THING?
Last Week:
Monday: We all know where the market "should" be, but I continue to lean long. I’m looking at OSTK and TRNE for some covered call possibilities. If you pull up a chart of the S&P, you see some disturbing technical developments. The stochastics are rolling over and just about to cross. The MACD has retreated, moving toward the 0 line. We've lost the 3,600 level on the S&Ps. The problem however is that we've seen this a thousand times in the last few years, and just like magic – the levitation machine kicks in. I haven't sold anything, and simply picked up some TRNE / covered call action along with a little more BTC & ETH.
Tuesday: Ms. Becky Quick on CNBC actually said this morning: “The DOW is indicated to open about 320 points higher, but no one seems to know why. Maybe it’s the hope of a stimulus." Honestly, we're approaching peak stupid. NLS is a chart play that looks interesting. It just held over its 50-day, the stochastics are curling up, and the MACD is rising. NNOX is a tech company with a new spin on X-rays. It's getting a ton of attention, and has the ability to move in big chunks.
Wednesday: ECB Martins Kazaks said an expansion of the institution's emergency bond-buying program by $603B would be "reasonable". Jefferies raised its 2021 outlook as it sees a “perfect backdrop” lifting the S&P 500 15% from here. What “perfect backdrop”? COVID’s forcing 1/3 of businesses to close. We’re looking at trillions in new debt, and no stimulus for the people. All that matters is Powell and his money machine. I’m looking at: AAPL > $125, INTC > $49.80, AMD > $96.35, and LMFA over $0.81.
Thursday: The Feds say we're in the midst of a serious recession. This morning we learned: (a) 3M is cutting 2,900 jobs, Exxon is cutting 1500 jobs and Conoco Philips is eliminating 500 more jobs, (b) New Jersey estimates that 1/3 of all shuttered businesses are "gone" for good, (c) 712,000 more people have filed NEW unemployment claims – BUT (d) we are at all-time market highs. Even the best writers for the old TV series: ‘The TwilightZone’ couldn't come up with such a bizarre situation.
Friday: The jobs number is out, and they say we developed 245K jobs with the unemployment rate falling to 6.7%. Well, the October jobs number was +645K, so this number sucks. We expected 450k jobs to be added and we got half that, AND the only reason the unemployment fell was because people are leaving the workforce in droves. Things are not good out there on Main St. I’m liking KRO over $14.50, because the stochastics have crossed and the MACD went positive. Another one I like is: DDOG, as it’s over its 50-day, the technicals look good, and I'd take a shot over $99.65.
Marijuana… and a little alcohol…
- You can smell MJ LEGAL comin’ a mile away… In a landmark vote, the U.S. House of Representatives passed legislation decriminalizing and de-scheduling cannabis – removing it from the Controlled Substances Act. The MORE Act clears the way for full legalization, and allows for the taxation of cannabis. The bill is the first legislation of its kind to pass in either chamber of Congress, even though the Senate is unlikely to pass it.
- Marijuana consumers are turning to higher-priced flower… a signal that MJ users are increasingly willing to spend more money on their ‘high’.
- The future of the MORE Act… will depend on the January 5, 2021, U.S. Senate runoff election in Georgia.
- The United Nations accepted a WHO recommendation… to remove cannabis from Schedule IV of the 1961 Single Convention on Narcotic Drugs.
- The EC said that CBD derived from the entire hemp plant… is not a narcotic, thus open for trade among member states.
- The alcohol industry regularly tries to obscure booze’s cancer link. But public health groups are demanding label warnings to give consumers clarity. Health warnings will get approved along with THC for beverages.
- Heineken us cutting about 14% of its workforce.
- Brewers have poured 50% less beer this year than last.
- The current stimulus plan offers $908B in aid… with nothing going directly to bars & restaurants.
- In 2023, Bacardi will start using bottles made with Nodax PHA. These new bottles will biodegrade within 18 mos. in compost piles, landfills, and the ocean.
- Citizens and Governors are outraged… and are filing lawsuits to kill statewide marijuana legalization ballot initiatives even in states that gained voter approval in November.
Next Week: “Economic Bad News = Market’s Good News”
- Everything’s Good News: Last week we had a horrific jobs report, news of upcoming ‘stay at home’ lockdowns, and ridiculously low volume – and the market bought into it causing the latest ‘spurt’ to the upside in the SPX & IWM.
o The volume / liquidity inside the S&P is incredibly low – in fact below that of half-days for holidays.
o Therefore, my liquidity concentrations continue to grow – with the options order flow moving several stocks, and those stocks moving the market.
o Tesla (TSLA), GE, MU, CAT are those specific underlying stocks – where the options order flow is driving their success.
o After months of doing little or nothing, the bond market took center stage and is seeing some fairly vicious sell-side activity. This is moving rates higher – potentially too far and definitely too fast. For example, from October’s 0.6% rate in the 10-year to today’s 1% rate, is a significant rise far beyond any ‘positive drift’ like in the stock market.
o This is causing an upward bias to the financials (XLF) – until rates begin to get ‘out of hand’ (which will stall everything). WATCH if we go above 1% on the 10-year rate (TNX) or break under 170 on the bonds (/ZB), because that’s where things will get exciting in a nasty way.
- What’s working and what’s NOT:
o Micron (MU) – huge gamma squeeze that is over = sell & take profits.
o Tesla (TSLA) – looking for it to return to normal.
o Intel (INTC) – similar to MU – the move is over – sell & take profits.
o Goldman Sachs (GS) – buy-side January Iron Condor – still working.
o Caterpillar (CAT) – took off my buy-side Iron Condor – sell & take profits – may want to look at the short side here.
- Should I be long this market? I prefer the ‘Covered Call’ strategy … which is where you purchase the stock / and sell either In-the-Money or close to In-the-Money calls against it. And when the stock moves higher – you will be called away.
o Small Caps (IWM) – still long but getting nervous.
o Energy (XLE) – have a covered call – that will be called away in 2 weeks.
o Marijuana (MJ) – have a covered call – that will also be called away.
o Energy (XOP) – same as XLE w/ covered calls
o Ford (F) – selling ‘In-the-Money’ covered calls @ $9
o General Electric (GE) – same as above – it’s doubled in weeks = too far too fast.
- SPX – next week’s expected move:
o Last Week = $70.49 … Actual = $61 move.
o Next Week’s Expected Move = $64.56
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- CTI BioPharma (CTIC = $3.26),
o Selling Dec. $3 and $4 covered calls for income…
- EXK Gold (EXK = $3.47 / in @ $1.53 = up 127%),
o Sold Dec. $4 covered calls
- GBTC Bitcoin (GBTC = $23.22 / in @ $9.41 = up 147%),
- Hecla Mining (HL = $5.18 / in @ $2.36 = up 119%),
o Sold Dec. $5 covered calls
- Hyliion (HYLN = $18.03 / in @ $0.32 = 5534%).
- New Gold (NGD = $2.02 / in @ $0.82 = up 146%),
o Sold Dec. $2 covered calls
- Pan American Silver (PAAS = $30.58 / in @ $13.07 = up 134%),
o Re-Sold Dec. $34 covered calls
Crypto:
- Bitcoin (BTC = $19,100),
- Ethereum (ETH = $590),
- Bitcoin Cash (BCH = $280)
Thoughts: Last week FED officials said: “The U.S. is in a very deep recession.” So, if we’re this far into a deep recession, how on earth can we be at all-time market highs? Even CNBC had one of their talking heads lamenting the fact that some of these companies have P/E’s of 245, 380, and even 427%. On what planet should a company have a P/E ratio of 427%, and have analysts saying that they are still a buy? Only on the planet of: “Free FED Money”. I don’t like it – it feels slimy. We’re so 1999’esque over extended. I know that these bubbles can go further than you think, but they do end. As long as the Central Banks are still on board with money printing – markets must go higher. The more debt they create – the higher the market goes. Please, make sure you’re making your own informed decisions. Don’t believe everything inside of an earnings release or a Government economic report. Our FED can’t see any inflation, but paper towels that were $12.50/case are now $24. I guess our FED doesn’t buy paper towels. Please: “Make it while you can,” because: “This too shall pass.”
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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