This Week in Barrons: 12-20-2020:
COVID Lesson #10: “Hey bro, I can see the future.” If you want to see the investing future, look no further than the crypto arena. It’s global, operates 24/7/365, allows anyone to buy, sell, or hold anything, and you can send assets anywhere as long as you have a crypto wallet and a browser / phone. There are no other requirements.
Crypto is also innovating in areas like: lockups, vesting, and governance. Crypto lockups are becoming longer, but are allowing for small amounts of early and regular liquidity. In governance, crypto has seen a number of communities make significant changes in areas like token supply, inflation rates, and technology roadmaps.
The changes are coming – whether the equity markets like them or not. In a crypto world, it’s straightforward to tokenize equity securities and trade the tokenized version. I suspect that will be a reality – sooner rather than later. It will also introduce arbitrage opportunities and put even more pressure on the equity markets to adapt.
For regulators, the global nature of the crypto market is a challenge – especially for those that stood in the way of innovation (U.S.A.). For example, why are the wealthy the only ones allowed to invest in startups? Is it just so we can keep them wealthy? Crypto doesn’t abide by national boundaries, and certainly not U.S. rules. Honestly, crypto innovation will happen even when jurisdictions (like the U.S.) are slow to embrace and intentionally hostile toward outside-financial innovation.
The Market: Bro, Bitcoin is Bodacious…
COVID Lesson #11: “The Killer B’s … Bitcoin and Biotech”. Bitcoin and Biotech have both done incredibly well in 2020. Bitcoin has risen from $8,100 to over $23,000, and I’m still not selling. All of the excess supply has been absorbed, the psychological level of $20k has been broken, and we’re ready to trade based upon functionality and availability. I could argue about the fundamentals but we won’t because it’s only the price that matters. COVID delivered Biotech’s their right to shine. In hindsight, the Biotech breakout was foreshadowed by the vaccine, and Bitcoin’s due to the amount of money our FED is using to prop-up our ‘Too-Big-To-Fail’ stocks.
COVID Lesson #12: “Holy S!@#$, FireEye got hacked!” FireEye, the go-to cybersecurity firm for government agencies, suffered a major hack from “a nation with top-tier offensive capabilities.” The hackers themselves came in through software offered by network-monitoring company: SolarWinds. Put-in perspective: (a) SolarWinds is used by hundreds of thousands of orgs, government agencies, and most Fortune 500 companies. (b) The hackers also stole FireEye’s complete hacking toolkit. (c) The hackers have been living with us (under our noses) for over 6 months. And (d) they’ve had access to all data from social security systems to our defense, top-secret documents. Honestly, what did we think was going to happen when all of our President’s top ‘appointments’ were based upon ‘friendship and loyalty’ versus merit and qualifications.
InfoBits:
- Paying it forward: Over 900 cars paid for each other's meals at a Dairy Queen drive-thru in Minnesota. So fess-up, who’s the one who broke the chain?
- Reddit has acquired Dubsmash… a video platform that competes with TikTok.
- Electronic Arts is acquiring…. the British game studio Codemasters.
- Roblox (a gaming company) is acquiring… digital avatar startup – Loom.ai.
- Rise of Everywhere Else: The fact that the Bay Area is losing talent is ‘burying the lead’. What’s more important is: The Rise of Everywhere Else. Silicon Valley will make up less than 20% of all VC deals in 2021. But rather than worrying about Silicon Valley, celebrate the rise of tech entrepreneurship everywhere else.
- Silver Lake and Thomas Bravo… the owners of SolarWinds (the hacked software),sold millions in stock just days before the intrusion was revealed.
- Uber was issued a $59m fine… by California for refusing to hand over sexual assault data.
- Facebook told employees… they’re developing a tool to summarize news articles so users won’t have to read them. Also, a neural sensor to detect people’s thoughts, and translate them into actions.
- AST Systems will go public… via the New Providence SPAC at a $1.8B valuation. ASTS’s technology allows phones to connect to satellites – making 5G available everywhere.
- The Supreme Court will hear the NCAA’s appeal… that found the NCAA guilty of unlawfully limiting compensation for collegiate athletes. SCOTUS now holds the future of the NCAA in its hands. If upheld, it will give students & coaches unlimited compensation for autographs, jerseys, and endorsements.
- BarkBox (subscription dog supplies)… is going public via SPAC for $1.6B.
- Coca-Cola will cut 2.2K jobs worldwide.
- Autonomous vehicle company Aurora Innovation… sent job offers to 75% of the Uber Advanced Tech employees. Those in Toronto didn’t make the cut.
- The DOJ’s lawsuit against Google is moving along… a tentative date for the case to begin was set as: September 2023.
- Bumble (a dating app where women make the first move)… has filed for an IPO. The offering is for February and could come around Valentine's Day.
- Poshmark (a reseller of second-hand clothing)… has filed its IPO prospectus after racking up over $30m in profit over the past two quarters.
- Consolidation in the digital media sector is increasing… as BuzzFeed and Group Nine Media explore deals to buy competitors or go public via SPAC.
- The SEC charged Robinhood with deceiving customers… about how their stock trading app makes money, and their failure to deliver the promised best execution of trades. Robinhood agreed to pay a $65m civil penalty.
- Facebook took out full-page ads… criticizing Apple’s privacy changes that will make it more difficult for them to poach our personal data. So FB, you’re pissed because Apple is trying to keep ‘my data’ = ‘my data’? #ThankYouApple
Crypto-Bytes: It’s a good year to be a Bitcoiner.
- Bitcoin popped… and cracked over $23,775, the US Dollar dropped to its lowest level since April 2018, and Coinbase decided that it’s going public.
- Bitcoin, DeFi and Ethereum 2.0... the biggest trends in crypto began to move the global needle as: funds bought billions in BTC / ETH as inflation hedges, and institutions are discussing data decentralization. #ChangeIsPainful
- Drawn down: The amount of ether (ETH) available on exchanges is at its lowest point in two years.
- Open the flood gates… JPMorgan analysts say MassMutual’s recent $100m BTC buy could be foreshadowing a coming wave of institutional demand.
- The Chicago Mercantile Exchange (CME) announced… it will launch an ETH futures contract in February 2021. It’s building on the success of bitcoin futures and options which has become synonymous with institutional trading, and on the growing class of “ether-first” corporate traders.
- Crypto checking: New York-based Quontic Bank has become the first FDIC-insured financial institution to launch a bitcoin rewards checking program.
- Massive buy… Core Scientific has purchased over 59k state-of-the-art crypto miners, tripling its mining set-up in three southern states.
- Amex invests... in the white-hot institutional platform Falcon X – and its $3B in monthly transactions.
Last Week:
Monday: This morning, Google business services, mail, and YouTube all went down worldwide – but the futures could care less because vaccines are shipping, and it looks like they might agree on a $900B stimulus plan. A couple charts that look attractive are: SURF and SNE. SURF did well out of the gate, and I think you can take it here, but I’d really like to see a first hour pullback. ‘A’ is looking interesting $120.24. DQ is looking at either a quadruple top break-out, or a quad failure in the making.
Tuesday: The futures are again up sharply. Do we get back what we lost yesterday - maybe? The FOMC starts their two-day meeting today, and the day ahead of their results is usually a green day. I’m liking SURF over $10.74. Another SPAC is bringing the Blade helicopter company public through EXPC. Blade's claims that in the next 24 months, they're going to have a fleet of electric copters. Watch EXPC.
Wednesday: Today, nothing really happens until after the FED makes its move = 2:30pm. I don't think the FED will say anything materially different than they normally do. Retail sales didn't make the estimates, and that’s bad. But given retail sales would be considered a "fundamental" – markets will blow that off. I’m liking DQ > $57.10, and FLUX > $13.50. Powell and FED just extended 0% rates to 2023, will continue their $120B / month of bond buying, COVID is a worry – but they can do more if needed. My opinion is that you lean into this for as long as it lasts. Names I like are: PYPL, DQ, AVGO, CHWY, PENN, PTON, and BLNK.
Thursday: I’m shocked that the futures are up – after the initial jobless claims came in at a whopping 885,000. Almost 1 million NEW people filed for unemployment benefits, and yet our futures are green. All that matters is that the FED is printing money. We're visiting FOMO land, so I’m leaning long and looking for something interesting to buy. I love the metals, but for 25 years the metals have been manipulated and beaten down – I’m almost scared to mention them. I’m making sure that the metals have sustainability, but definitely have: AUY, EXT, NGD, and PAAS on my radar.
Friday: Today is quadruple witching which means it’s the sort of day where we could cross the red/green divide several times – and go nowhere. A lot of things are still moving like it’s 1999. CSIQ broke out of big congestion in the $45 area, and I like it over $46.71. This market’s moving higher until it doesn’t, and there are only a few select people on the planet who know when that is.
Marijuana… It will be all about the beverages, but don’t take my word for it.
Cannabis Consolidation Continues… Tilray and Aphria are combining to form the largest pot company in the world. The new company will keep Tilray’s name, and will trade on the Nasdaq. The new Tilray will be focused on:
- Geographic FOMO: Canna companies don't know where / when global legalization will strike – so they’re planting weed wherever the green light shines.
- Ameri-Canna: Aphria needs to expand outside of Canada. Tilray's U.S. biz gives it nice exposure to the American market as more states are legalizing.
- Euro-Canna: As European countries legalize medical marijuana, Tilray and Aphria can combine their Euro-production facilities to scale and distribute faster.
Sippin’ away on THC: Tilray and Aphria are also combining their beverage businesses. Aphria acquired SweetWater Brewing Company for cannabis-infused beers like "420 Strain IPA". Tilray partnered with AB InBev (Bud-wiser) for some CBD and THC drinks which have yet to make it very far. These "beyond the leaf" products are destined to be the products that allow weed to go mainstream. Their goal is to grow the SweetWater Brewing Company portfolio, and expand Manitoba Harvest (a purveyor of hemp and CBD products / edibles, etc.)
Honestly, this is freshman year... nobody’s done much, but the class is getting a lot of attention. Even after Tilray’s and Aphria’s stocks jumped on the news, their combined market value is just under $4B. [Boston Beer (maker of Sam Adams) is worth over $10B.] Together, Aphria and Tilray do less than $700m in sales / yr. – which is less than Juul’s 2018 sales. Canna companies must consolidate while they wait for legalization.
Next Week: Buybacks for Banks are Back.
The FED (in a surprise move) released the 2nd round of bank stress test results – directly following the market’s close on Friday.
- Following the announcement, the XLF immediately ripped higher by +4% - signaling an upcoming rally inside of the financials on Monday. That rally will drive a tremendous amount of the trade for the upcoming holiday week.
- JPM jumped post-announcement, and will be a main beneficiary of the results.
- In terms of bank buybacks, during Q1 of 2021, both dividends and share repurchases will be limited to an amount based upon income over the past year.
- What was disconcerting was that on a hum-drum day, the financials (before the announcement) were trading 3 TIMES the normal volume and were trending 6 TIMES as many Call options to Put options. Ya think someone leaked the news?
- The only question for Monday is whether capital will rotate out of tech into the financials. The ‘Monsters of Tech’ haven’t done anything since September, and as a trader – YES, I would expect a rotation ‘out of tech’ and into the financials.
Will the rotation into Financials on Monday morning, be enough to keep a sustainable bid under the S&Ps going forward?
- The S&Ps have rallied since September, solely on the back of the financials – because tech has done nothing.
- No, I don’t think the financials can carry this market higher by themselves.
Tesla’s wild SP500 inclusion ride.
- On Monday morning, Tesla (TSLA) will be included in the S&P 500.
- As we know, the reason for Tesla’s rise has been due to the buying of call options, and almost 1.6m TSLA Calls were purchased on Friday alone.
- 2.5m options contracts were traded in TSLA on Friday * 100 shares / contract * $700 per share = $175B worth of ‘ONE STOCK’ was traded on just Friday. That is the most ‘notional value’ currently being traded in any one stock.
- With the amount of capital flowing thru TSLA and with it being included into the S&P 500 – it WILL be the leader of the entire S&P starting Monday.
- Never before has a company been added to the S&P – with such a high market cap – trading so much notional value every day – with 83% implied volatility.
- You need to look no further than the last 10 minutes of trading on Friday to see the power of Tesla == It gained $33.09 (5%) in 10 minutes.
- Diversification is contracting into 6 or 7 products that are driving order flow.
- Will Tesla’s inclusion into the S&P mark it’s top?
IPO Options Warning:
- Do NOT trade DoorDash (DASH) and Airbnb (ABNB) options as: (a) they are trading with incredibly wide bid/offer spreads, and (b) they’re trading in nickel increments. Wait for a better market maker.
VIX Opportunity in the coming weeks:
- With only 3.5 days of trading in the coming week, you should see the volatility subside a little bit. But the VVIX (the volatility of the volatility index) is still above 110 – so there’s plenty of action to be had.
- Look at selling a $20/15 Put spread (out in February) and use that credit to finance the purchase of a $35 / 60 Call spread in the same month.
SPX Expected Move:
- Last Week-- 85.99 (expected move)
- Next Week-- 54.67 – due to the shortened trading week … but watch out for the large Monday BID under the market due to the FED’s stress test results.
- I don’t believe that volumes will be down due to the holiday week – given the COVID / WFH environment has been with us for over 9 months now.
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- CTIC ($3.53),
o Sell Jan. $3 and $4 covered calls for income
- DM ($16.07),
o Sell Jan. $15 ITM covered calls for income
- ETHE ($20.15 / in @ $13.44 = up 50% (in a week)),
- GBTC ($29.48 / in @ $9.41 = up 213%),
- HYLN ($17.92 / in @ $0.32 = 5371%).
o Sell Jan. $16 or $17.50 ITM covered calls for income
- IPOC ($12.08),
o Sell Jan. $12.50 (soon to be ITM) covered calls for income
- Pan American Silver (PAAS = $33.48 / in @ $13.07 = up 156%),
o Sell Jan. $35 or $36 covered calls
- Watching: AUY, EXK, HL, and NGD.
Crypto:
- Bitcoin (BTC = $23,100),
- Ethereum (ETH = $650),
- Bitcoin Cash (BCH = $310)
Thoughts: Is it just me, or does the market seem a little too complacent? Everything’s at all-time-highs despite: higher oil prices, relatively high interest rates, and stimulus talks dragging on. The market is banking on the success of a COVID vaccine, whose relief will likely take months, and won’t be soon enough to save a lot of the closed businesses. So, how much higher can the market possibly go? The VIX has rallied a bit over the past couple of weeks after bottoming out in early December, but if the market does hiccup and sell off – the VIX should rise even more. That’s why if you’re at all bearish on the market, then consider a bullish strategy in the VIX. If you think that the VIX will stay off its lows, then shorting the $20 / 15 Put spread – and buying the $35 / 60 Call spread in the February expiration is a bullish strategy that has an 89% probability of making 50% of its max potential 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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