I believe it ends when the COVID pandemic is over and the global economy recovers. Those two things won’t necessarily happen at the same time. There is a wide range of recovery scenarios and nobody really knows how long it will take. But at some point, economies will recover, there will be price inflation in consumer goods and wages, central banks will tighten the money supply, and interest rates will rise. Asset prices will be readjusted and markets will hit the brakes – when interest rates start to rise.
Your guess is as good as mine as to when that will happen. It could be later this year, in a few years, or longer. A lot of damage has been done to the global economy and it is unclear how quickly it can recover. The chart I watch is the 1-Year Treasury bill. When the 1-Year yield gets back above 2%, we are leaving the easy money era.
The Market:
Penny-stock traders have been around for years, but now it’s a whole new world due to COVID. When the COVID lockdowns hit, we created millions of unemployed bored people. Some started investing, buying a lot of shares of something – just to try and make a couple bucks. Current demand for penny stocks and OTC (over-the-counter) trades is at an all-time-high. Just 9 months ago there were over 200 stocks listed on the major exchanges under $1. Last week, there was 1. Our ‘WFH’ population has created a demand for the cheap stuff like never before. Couple that with regular companies being so insanely priced, and they’re the only obvious choice. Heck for $3,000 I can buy 1 share of Amazon, or I can buy 1,000 shares of SOS (a week ago). If AMZN goes up, how much can I make in a month – maybe $300 on my 1 share. But SOS went from $3 to $12 = netting $9,000 in a month. Not bad for ‘working-from-home’.
I’m not telling you to rush out and purchase $50k in penny stocks, but I am saying that this environment is ripe for speculation and it’s at a fever pitch. You still must do your homework, and some charting services (especially the free ones) often won’t examine the low-value / OTC names. This is the first time that I have ever endorsed looking into stocks under $10, but now the landscape warrants it. That’s why you’ll find a lot of ‘low-priced ideas’ inside of the TIPS section. It’s not because I’m married to them for 5 or 10 years, but rather I’m dating them for 30 to 45 days.
InfoBits:
- Elon Musk invited Vladimir Putin… to join him for a conversation on Clubhouse. The Tesla and SpaceX CEO said in Russian: “It would be a great honor to speak with you.” Putin has deemed the proposal interesting.
- Oh, the irony… Fossil fuel powered machines are spraying deicing compounds (made with fossil fuel) on wind turbines (made using fossil fuel ingredients) – so that we can re-start green energy that has stopoed working when it’s cold.
- SpaceX… closed on $850m last week at a valuation of $74B.
- Amazon has acquired Selz… a startup that helps entrepreneurs sell products online. The deal signals Amazon’s continued focus on third-party sellers as it faces potential competition from Shopify.
- Zillow is acquiring ShowingTime… to automate the showing, scheduling and management processes for real estate agents and agent associations.
- Warren Buffett has added Verizon and Chevron… to Berkshire Hathaway’s investment portfolio.
- U.S. consumer sentiment… FELL to a 6-month low in February as Americans grew more pessimistic about their financial outlook.
- Restaurants and hotels have borrowed… more than $18B under the Paycheck Protection Program (PPP). That’s also 18% of all the dollars available – making the hospitality industry the leading borrowing sector.
- Goldman says that the retail investor is: “Too big to ignore”: With the rise of commission-free trading, everyone from J.P. Morgan to Citi is racing to offer retail investing – Goldman is late to the party.
- Google Maps will let you pay for public transportation and parking… through its app – but you must use Google Pay.
- Tesla prices dropped… on some models between 2.6% and 4.8% last week.
- Robinhood CEO Vlad Tenev offered an apology… for his company’s decision to curb trading in some stocks on January 28 – including GameStop.
- Sam Adams parent Boston Beer’s profit… more than doubled from 2019, as Truly spiked seltzer continued to drive growth.
- Google's Waymo is testing its robo-taxi service… on employee volunteers in San Francisco.
- Second City (the comedy theater)… was sold to the ZMC group for about $50m. Strauss Zelnick (who heads ZMC) is also CEO of Take-Two Interactive – the video group behind Grand Theft Auto.
Crypto-Bytes:
Bitcoin vs Gold: As AP says: “While the chart is clear that gold is losing and Bitcoin is winning, that doesn’t necessarily guarantee causality”. What I can’t tell you is how long gold bugs will hang on while they watch the digital store of value gain market adoption. Ultimately, everyone capitulates. However, a real sign of stubbornness is watching the market, and related data, tell a story that is impossible to ignore. But those same holders could still be sending stamped physical letters. While entrepreneurs, investors and financial institutions keep trying to figure out how to participate – Bitcoin just continues to march higher and produce block after block of transactions. It’s now processing $15B of on-chain transaction volume per 24 hr. period. That’s on par with a $5T annualized rate, which is about 50% of Visa / MasterCard. Bitcoin will eventually eclipse those payment networks. It’s just a matter of time.
- SEC Commissioner Hester Peirce (the crypto mom)… wants a well-defined crypto regulatory regime. She even thinks that U.S. capital markets are ready for a Bitcoin exchanged-traded product.
- If you missed Bitcoin brushing over $55,000 & $1T in market cap… it may be time to tell your friends and/or yourself: “I told you so.”
- The Osprey Bitcoin Trust (OBTC)… announced the beginning of its trading via the OTC markets. The trust boasts a shockingly low 0.49% management fee compared to GBTC’s 2% annual fee.
- MicroStrategy is proposing over $600m in convertible notes due in 2027. They will use the proceeds to buy Bitcoin. They already have $3.5B in $BTC.
- BlockFi (who lends money to cryptocurrency holders that don't want to cash out)… is looking to raise $150m ahead of launching a credit card.
- Only 5% of business executives surveyed by Gartner… said they intend to invest in Bitcoin as a corporate asset this year. “You can’t fix stupid.”
- Robinhood will enable crypto withdrawals and deposits: The intent was announced via tweet, but no timetable given.
- Bitcoin is a trillion-dollar asset… up from $178B a year ago.
- Crypto exchange Coinbase was recently valued at $100B… in advance of its upcoming IPO. Coinbase could go public at a higher initial valuation than any other U.S. tech company since Facebook.
- Lately I have been mesmerized by: https://live.hedgehog.app/. I find myself staring at the digital symphony of numbers of all the blockchain tokens. I feel I’m lagging in this new digital financial world, but on a mission to catch up.
Last Week:
Tuesday: This weekend GATA (the Gold Anti-Trust Action Committee) was going over SLV's custodial reports and found issues with sourcing the silver back up to the fund. So, the price of SLV is NOT directly related to the price of the metal. Isn’t that illegal? They go on to say: “This could lead to volatile price movements in [SLV] shares that are not directly correlated to the price of silver.” In other words, the price of SLV is now whatever the managers want it to be. This could lead to massive short squeezes like we saw with GME, or the physical price of silver could double and the SLV only go up 20%. It’s your gov’t criminals at work. Buy the metal – not SLV. I’m watching PINS over $89.70, ACST over $1.20, and HNRG > $2.20.
Wednesday: I’m watching MP for a move over 41.75, and UUUU to see what it does. CBAT wants to go, and I could see taking it at 8.68. Another thing to consider, is that with all the electrification coming, we're going to need stupid amounts of copper – so FCX still makes sense in here.
Thursday: The NASDAQ has used its 21-day exponential moving average as support – since last November. If the techs are going to sell down, that 21-day is getting close. The S&P is also not looking so healthy. It has lost the 8-day EMA, the stochastics are crossed and moving lower, and the MACD is inches away from crossing the flat line and heading lower.
Friday: After a red day yesterday, Janet Yellen (the old cookie lady) told the world that "more stimulus is needed" and the market responded. I guess one red day is all she can stomach. LOAC has been struggling for months to get over $13.50 and hold. I like LOAC > $14.25. DBX has bounced off its 21-day, and might be willing to try and get to that tough $25 level.
Marijuana & Alcohol:
Alcohol: Nielsen says “Alcohol needs to: Reduce, Return and Re-imagine”.
- Reduce = The number of on-premise establishments in operation this year will be lower than in years past. In addition, menus have downsized, creating more competition for suppliers and distributors. There's also been a reduction in paths-to-purchase. You’re no longer getting bartender recommendations, eyes on tap handles, or people gazing at the back bar. You're pretty much relying on what's on the menu, and what your server is recommending.
- Return = Consumers are still split on remaining home or going back on-premise. Demand within younger people is certainly there. What will return are: smaller groups and continued reliance on delivery and to-go orders.
- Re-imagine = Consumers are going to require a low-cost option that can be incorporated into to-go cocktails that help to raise margins for operations.
MJ:
- In New Jersey… cannabis legalization can’t get out of its own way.
- In Minnesota… recreational MJ got through the first legislative committee.
- Adult-use legislation… faces strong Senate opposition, as Republicans seem opposed to taking up the measure this year.
- Verano Holdings Corp. (VRNO)… is set to begin trading after closing the reverse takeover of Majesta Minerals Inc. and the merger with Alternative Medical Enterprises.
- 5-time NBA All-Star Chris Webber and JW Asset Mgmt. announced… a $100m private equity cannabis fund that will invest in companies.
- The average retail price for smokable recreational marijuana… in 4 Western states continued to increase 17% (on avg.) throughout the coronavirus pandemic – thanks to record demand.
- Investing in HempFusion (CBDHF)… may be a way to capitalize on CBD’s popularity. Proposed FDA changes could have ‘Big Pharma’ looking at potential M&A or investment opportunities in CBD to hedge their bets.
- Why are things moving all of a sudden?
o The dam of federal prohibition in the U.S. is breaking. Each week more states are detailing plans for legalization. The new balance of power at the federal level is also fueling hopes of widespread reform. At the very least there’s a sense that open access to traditional banking for cannabis businesses will be resolved this year.
o Secondly, cannabis companies are reporting stronger earnings and greater financial stability. CGC’s shares have quadrupled in value over the past year. Aurora’s (ACB) earnings beat expectations, further bolstering evidence of a general turnaround.
o Thirdly, after the recent craze over Gamestop, #WallStreetBets’ subreddit targeted Tilray and Aphria, which they considered undervalued given their recent merger agreement. Tilray jumped 50% while Aphria rose 10%. Like Gamestop, their gains were temporary – but once again showed the power of the retail trader.
Next Week: The Great Gamma Unwind…
On the Surface = Status Quo: In the last 2 weeks, markets are basically unchanged – moving from 3885 to 3906 on the S&Ps. If you have either sold premium (as an options strategy) or covered your stock positions by selling calls – you should be doing well in a sideways moving market.
Under the Surface = Dramatically Rising Interest Rates: Our Bond market is where the action is lately, and it’s contributing to the movement in the Russell and to the unwinding of the Gamma Trade.
Bonds Continue to Decline – Sending Rates Soaring: Whether you’re looking at Bonds (/ZB = 30-Year = more retail trading) or at Notes (/ZN = 10-Year = more institutional trading) – we have been declining on fairly heavy volume.
How far has the 10-Year rate gone YTD? The decline in Bonds and Notes directly correlates to a 46% rise in interest rates (TNX = 10-Year Treasury) since the beginning of the year. Has the rise in interest rates actually hindered any markets? Certainly not housing, homebuilders (XHB), and/or the financials (XLF). But the velocity of this move that has people worried.
Where is the critical juncture? If these bonds continue to see the ‘wild’ sell-side activity that they’ve seen over the past 2 weeks, then it will break-the-back of the financials and stall out the economy. At which point the FED would step in and put in place YCC (yield-curve-control) in order to bring the bonds ‘back in line’. But what will happen along with that – is a fairly dramatic sell-off (because there is no longer a zero-interest rate environment). It will trigger ‘statistical arbitrage’ where everything will be “sold first and ask questions later” – again breaking-the-back of the financials.
What if bonds continue to sell off? That will immediately hurt technology and every other stock that is: ‘priced to perfection’. What if the bonds reverse and start to rally? That will absolutely hurt the financials, and will spill over to take down the S&Ps. The only satisfactory position for the bonds right now – is for them to ‘mellow out’ and move sideways for a while. I cannot find too many scenarios where I can be bullish on the financials moving forward.
TIP #1: Take a bearish position inside of the financials = XLF.
The Great Gamma Unwind: Markets are decidedly different than they were 3 to 5 years ago. Coming into the financial crisis, banks had huge trading divisions that would take substantial trading bias in the overall marketplace.
A little Dodd Frank with a side of Volker: In the last 5 years, banks have abandoned their biased stance, and have become bona fide hedgers. This means that they try and equally manage their risk to maintain a delta neutral position. The big banks are no longer taking directionally biased risk in the index products.
The Gamma Squeeze = Market Neutral: Under Dodd-Frank / Volker Rule, banks and market making firms are required to dynamically follow the market and maintain their market neutrality. This (for example) causes them to buy more stock as the retail trader continues to buy Call options (100 shares = 1 Option purchased).
The Great Gamma Unwind: If / when the bonds continue to fall, watch for the market to turn, and the retail trader to start buying Put options. This will trigger the banks / market-makers to SELL stock, and we will begin to unwind the Gamma trade and take the ‘elevator down’.
Why does this matter? It matters because Dodd-Frank does NOT cover the bond markets. The big banks / market makers are taking huge directionally biased positions inside of the treasury products (/ZN and /ZB) – and this should impact the S&Ps in very short order.
SPX Expected Move: Last week’s expected move (EM) was $57 and we touched that level on Thursday. This coming week I’m seeing a $74 expected move and I suspect we will touch (if not exceed) the limits there as well.
Tip #2: Watch the /ZN, the /ZB and the TNX (Treasury Rates). If rates continue their same velocity higher, look for the Great Gamma Unwind to begin.
Tip #3: Invest in non-correlated assets / aka crypto-currencies.
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $57,600 / in at $4,310)
- Bitcoin Cash (BCH = $720 / in at $170)
- CTI BioPharma (CTIC = $3.29)
o Sold Mar. $3 CCs for income
- Ethereum (ETH = $1,950 / in at $310)
- Grayscale Ethereum (ETHE = $22.09 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $56.70 / in @ $9.41)
- Hecla Mining (HL = $6.09)
o Sold Mar. $6 and $7 CCs for income
- Hyliion (HYLN = $18.07 / in @ $0.32)
o Sold Mar. $19 CCs for income
- Infinity Pharma (INFI = $3.81)
o Sold Mar. $3, $4 & $5 CCs for Income
- Inovio Pharma (INO = $13.95)
o Sold Mar. $14 & $15 CCs for income
- Opko Health (OPK = $4.83)
o Sold Mar. $5 & $5.50 CCs for income
- Osprey Bitcoin Trust (OBTC = $24.50)
- Pan American Silver (PAAS = $32.49 / in @ $13.07)
o Sold Mar. $34 CCs for income
- **Silver Elephant Mining (SILEF = $0.352 / in @ $0.37)
Watching: OCX ($6.32), ETM ($6.26) and LXRX ($7.72).
Thoughts: FCX … Less than one year ago, Southern copper (SCCO) was $25, and today it’s $70’ish. Most of the best known have run a long way already. But FCX is still somewhat affordable in the $37 range. With 10-year rates rising, there’s been a shift from some of the tech names, into more basic ideas such as energy & commodities. Will this change? It depends on those rates. The FED is not ending any of their bond buying and ‘accommodative stance’ any time soon. Currently, it’s micro caps, big name materials, and industrials that are getting the love.
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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