My Email Bag:
1. NFTs: To quote SG: “A non-fungible token (NFT) is a digital treasure chest.” It’s like a Pokémon card, an original Picasso, or the actual cell of a Disney animated film. NFTs are designed to be the one and ONLY reality in a digital world. You either own it – or you don’t. Owning a Pokémon Charizard card doesn’t mean you own every card, the royalty stream, or anything other than that card itself. People can look at images of the Pokémon Charizard all day long without compensating you, because you simply own the original trophy – not the idea. So, what’s the Big Deal about NFTs? Great question. NFTs are digital tokens (the same way as Bitcoin is a digital token) – except there’s just one. One of these tokens may reference a video of a basketball shot or an oil painting. It’s simply a token authorized by the person who made it to be the one and only. For example: the NBA has already sold more than $200m in video clip highlight NFTs. The Big Deal is that people are beginning to purchase and actively trade NFTs; therefore, we need to come up-to-speed quickly on this new asset class. AND it’s the single, greatest revenue stream for artists in the last 100 years!
2. The rhythm of your day: I noticed the other day that things ‘just felt off’. I was dragging - didn’t come with my ‘A-Game’. If you work in an office or on an assembly line, your timing and daily rhythm are often given to you. But while we’re working from home, it only makes sense to take control, listen, and notice our own patterns – so that we can work WITH them and not against them. For example: we know that high school students perform better when the school day starts later – so why are schools still opening at 7:55am? If a workout at noon makes your afternoon more productive, why are you doing it at 5am? If you need a positive voice to start your day, why not organize a daily call that does just that? To become more productive, you need to understand your own rhythm. When is it best for you to work on mindless chores vs creative ones? When should you schedule meetings that challenge your intellect vs those that require patience. And then there’s SLEEP – another topic for another day.
The Market:
Unpacking the SPAC… Per R. Fradin, there has always been an interesting group of smart, experienced, connected, retired people who do not want to work full time. In the past, these people would have taken a part-time job with a PE firm. The PE firm would pay them a little bit of money to help as BOD members on deals. In those deals, the PE firms would retain 95% of the upside – while the semi-retired exec. did over 80% of the work and 95% of the value-add. That process worked because it was HARD to raise all of the money that PE firms needed, and that money gave them the power over the retired exec. in the relationship. Enter the SPAC… where the role of capital raising and deal sourcing is basically valueless. With those elements in tow, you hire your own bank, do your own roadshow, and (in the end) you’ve effectively replaced the PE firm completely. So now the retired executive can be more equitably compensated for the value that he adds. The ‘old way’ of the PE firm getting most of the gains is just that – the ‘old way’. Individual-led and Firm-led SPACs have tons of deal flow and capital. The entrepreneurial company can have more influence, greater control of the PIPE, and get a far larger share allocation vs the ‘regular’ IPO. The SPAC is simply a financial vehicle that puts the control BACK in the hands of the entrepreneur / corporation.
InfoBits:
- Pokémon turns 25… Oh, how time flies when you’re: Catching Them All.
- DraftKings revenue more than doubled YoY… but it spent 80% of its revenue for the year on marketing. DraftKings LOST ~$1B for the year. Double wow.
- Airbnb cut all marketing during the pandemic… but magically regained 95% of its site traffic without any marketing spend. Airbnb doesn't need marketing because "it's both a noun and a verb".
- Square officially launched Square Financial Services. It will offer FDIC-insured deposit accounts and loans to small businesses that have historically used the company for payment processing.
- PayPal is in the process of buying Curv for about $250m. Curv is a tech firm that powers the secure storage of cryptocurrency.
- Twitter needs to beat Clubhouse… so it announced the opening of its live audio chat rooms, known as Twitter Spaces, to Android users.
- Robinhood the trading platform… plans to file for an IPO this month
- Kohl’s added at least 2M new customers in 2020… thanks to its Amazon returns service. Come for the returns – stay for the jeggings.
- Merck will help J&J… scale production of the J&J one-shot COVID vaccine.
- GM extends production cuts… at three of its car plants because of the global chip shortage – Chip-Pocalypse.
- Disney will close 20% of its physical stores… to focus on ecommerce.
- Oscar went public and fell like a rock. It needs "gigification" as its core customer does not have employer insurance.
- February’s jobs report exceeded estimates… creating 379,000 new jobs.
- Toro (the lawn-mowing giant) is acquiring Left Hand Robotics… a builder of outdoor lawn mowing and snow removal robots.
- ThredUp, a marketplace for 2nd-hand clothing… has filed for an IPO.
- Washington Prime Group (owner of +100 shopping malls)… is filing for Chapter 11 bankruptcy protection.
- Honda is the world's first carmaker… to sell a vehicle with Certified Level 3 autonomous driving technology.
- The 30-Year mortgage rate… topped 3% for the first time since July.
- Amazon is in talks… to carry many NFL games exclusively on Prime.
- Saks Fifth Avenue is spinning off its e-commerce biz… raising $500m from Insight Partners at a $2B valuation to expand its luxury online shopping abilities.
- Reddit has appointed Drew Vollero as its first CFO. Drew led Snap’s IPO preparations when he served as CFO from 2015 to 2018. Fair warning.
- President Biden named Tim Wu to the National Economic Council… making one of Big Tech’s most outspoken critics part of the Biden team.
Crypto-Bytes:
- Goldman Sachs is relaunching its crypto trading desk… starting with bitcoin futures and maybe a bitcoin ETF. Institutions are betting that bitcoin surges to $75,000 and $100,000 by June.
- Cardano (ADA) became Feb’s best-performing crypto asset… following a hard fork that allowed users to create tokens that run natively on-chain.
- Citi says Bitcoin is at a “tipping point”… and could one day become the currency of choice for international trade.
- Kings of Leon will be the 1st Band to release an album as an NFT… with tokens that unlock special perks, including limited-edition vinyl, front-row seats to future concerts, and audiovisual art.
Last Week:
Monday: The new stimulus bill has been approved, and JNJ got approval for their brand of COVID vaccine. I don’t know any more than Cleopatra whether this bounce will last. We have a new month, which means some upside. We have gobs of stimmy money, with some ending up in the market. I’m wondering if we see a bounce in gold and silver – and they buy GDX and GDXJ.
Tuesday: Well, the Feds are definitely playing in rate land. They’ve reduced rates and held them steady. However, a Bank of America indicator just fired that is saying we have created a market top. The last time it fired was the market top of 2007, and we fell for a year and a half after that. If you're a brave soul, you could try the LRCX May $585 calls. Yes, they're $50, but it was so close to a breakout yesterday. On the lower end of the scale, I like VISL the company. They just announced a new $4m contract with the Dept of Defense. Keep an eye on them.
Wednesday: So far this week, after a blistering run higher in the 10-year rate – it backed off and ground to a halt. For the past 2 days it simply sat there, almost like it wasn't trading. The 10-year usually swings around during a normal session, but it ain’t swingin’. The ADP report just told us that we gained 117K jobs in February. A couple names you can watch today are FUBO, and PLTR, but ONLY play if the market doesn’t roll over. There's a rumor that tomorrow Fed Chair Powell is going to announce a new policy approach that ‘controls’ the yield on the 10-Year. I’ll believe it when I see it.
Thursday: The initial jobless claims are in and yet another 745K people needed initial time unemployment benefits. Am I still to believe that the economy is on fire? It seems Fed Chair Powell did NOT announce any sweeping policy changes on the 10-Year, and that instantly sent the 10-Year from 1.4 to 1.54%. Stocks rolled over 10 minutes after he was done talking. The NASDAQ and S&P are now red for 2021. The high flyin’ techs are getting creamed. Their P/E's are between 40 and 70, and could have a lot further to fall. This is a real sell off, and the FED is cool with letting it continue for a while and wash out some of the froth that THEY created. The S&P is now over 100 points below its 50-day. The DOW is 400 below its 50-day, and the IXIC (NASDAQ) is under by 700. It reminds me of last March. Don't get too brave – there’s real damage being done.
Friday: After falling 300 on the NASDAQ and 200 on the DOW and 25 on the S&P, they're driving everything bright green. So, was today the bottom, or are we seeing a dead cat bounce after wicked selling? Markets love to put lipstick on the pig when it's weekend time. Volume is strong, suggesting that at least a short-term bottom is in, but one day does not a trend reversal make. I'm going to want to see what Monday brings us before I try getting brave in here.
Marijuana:
If you’re trying to identify companies that will take cannabis by storm, watch the CBD space because it’s ripe for national brand-building. CBD products are currently being sold in all 50 states. CBD products can be transported across state lines – allowing companies to use the same brand in all markets. CBD products have the ability to work with national retail chains. And most importantly, CBD is at a tipping point when it comes to mainstream acceptance and adoption. “CBD” itself is a brand known to most consumers; therefore, brands with “CBD” in their names have an advantage. Post-COVID, CBD will be touted as more of an active ingredient – basically the NutraSweet of health and wellness. CBD brands that possess a physical presence will be the ones to watch as it will allow them to transition into cannabis more evenly.
The Trojan-Horse in the THC space – is the edibles arena. Vertical integration (owning the supply chain) is no longer necessary and often times a drag on earnings. McKinsey identified the threats of vertical integration as: “complex, expensive and hard to reverse”when it comes to CBD and cannabis. In February, MedMen (a well-known vertically integrated multi-state dispensary operator) announced a move away from growing and producing cannabis products. MedMen announced that they will specialize in a more limited group of activities and partner for the remaining pieces – giving them a clearer path toward scalability, profitability, and national brand recognition.
Traditional mechanisms are currently thwarting national brand-building in the cannabis space. But given the push toward widespread legalization, visionary companies are looking at healthcare and other existing distribution channels in order to get their products in front of the retail customer. The issue with all of the existing distribution models is that they are: (a) mostly 3-tier’d solutions, (b) require significant value for money, which (c) necessitates scale in order to be the low-cost-provider. The companies that solve the medical and retail puzzle will (most likely) be acquired by one of the existing CPG behemoths. So, judge these new cannabis companies by not only their come-to-market efficiency, but also their distribution effectiveness.
Next Week: Volatility is a-Rockin’…
Markets:
- Highs to lows and back again! On just Friday, we moved 120 S&P points in one day. 120 points was the expected move for the WEEK, and we accomplished that in one day. The other irony of this market place is that we finished the week slightly higher in the S&Ps than we began it (3811 to 3841).
- Bond volatility… We are seeing expansive ranges and volatility (the likes of which) we haven’t seen in the past 3 years. In the S&P futures (where institutions go to mitigate risk), we are seeing upwards of 3m contracts being traded in a day. This type of volume often precedes capitulation and calm. Currently Bond (TLT) volatility is equal to that of the S&P – so it’s the Bonds (and the interest rates) that are driving this market and NOT the equities.
- Nasdaq gets downright squirrelly… because (this year alone) we’ve had a 70% move higher in interest rates. In the 10-Year Treasury, we’ve moved from 0.5% to 1.55% in 7 months.
Credit markets have severe issues:
- Repo troubles resurface… and are most easily shown via a chart of the SRVIX (Interest Rate Swap Volatility Index). SWAP volatility is exploding higher. Normally people would look at the VIX to get a sense of S&P volatility. The SRVIX is effectively doing the same thing on the Bond side. We have not seen these types of levels (+77) in the past 3 years. In fact, we need to bring the SRVIX down under 70 to restore calm and order to our credit markets.
- Do NOT get in front of this move… Until credit markets can heal themselves, do NOT Buy the Dip in this marketplace. Nobody knows why SWAP volatility is this high – and until it calms down … tread lightly.
The Tesla Effect: Tesla is down over 30% from its high, and has much more control over the tech marketplace than people give it credit for – because of its weight ($600B) and implied volatility (100%) within the S&Ps. Tesla is moving our markets more than Google, Amazon or Apple, and ETF’s (such as ARKK) are imploding due to Tesla.
Reversing the rotation:
- Financials are ready to feel the wrath of bonds! I think we’re going to see a reversal in the tech vs financials trade next week. I’m looking for bonds to catch a bid and interest rates to decline – which will cause the financials to decline and a bid to come back into TECH.
- Energy will likely go down with banks. Over the past weeks our markets have sold the Russell small caps and Nasdaq, in favor of energy. Energy is up 40% year-to-date. If you’re looking for a SHORT… ENERGY is the one.
Will volatility subside?
- Volatility will subside when the SRVIX goes below 70. If we can get the SWAP volatility below 70, that will allow our bond markets to relax, rates to subside a bit, and calm to return. Watch the SRVIX.
SPX Expected Move
- Last week’s EM = 124.68, and although we moved 120 points in a day – we did not exceed the expected move.
- Next week’s EM = 99.57 I think we will either touch the upper (3,942) or lower edge (3,743) of the expected move next week … or both. Get ready to rumble because we’re in the hands of the bonds.
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $48,800 / in at $4,310)
- Bitcoin Cash (BCH = $500 / in at $170)
- CLOV Healthcare (CLOV = $7.84)
o Sold Mar. $12.50 CCs for income
- CTI BioPharma (CTIC = $2.97)
o Sold Mar. $3 CCs for income
- Ethereum (ETH = $1,500 / in at $310)
- Grayscale Ethereum (ETHE = $15.10 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $43.80 / in @ $9.41)
- Hecla Mining (HL = $5.89)
o Sold Mar. $6 and $7 CCs for income
- Hyliion (HYLN = $12.74 / in @ $0.32)
- Infinity Pharma (INFI = $2.69)
o Sold Mar. $3, $4 & $5 CCs for Income
- Inovio Pharma (INO = $9.19)
o Sold Mar. $14 CCs for income
- Opko Health (OPK = $4.22)
o Sold Mar. $5 CCs for income
- Peabody Coal (BTU = $4.02)
o Sold Mar. $4 and $5 CCs for income
- SOS Limited (SOS = $6.50)
o Sold Mar. $5 and $7.50 CCs for income
- VisLink Tech (VISL = $3.05)
o Sold Mar. $5 CCs for income
- VivoPower (VVPR = $7.62)
o Sold the August $12.50 CCs for income
Thoughts: PLUG is the company with a plan to generate hydrogen and turn it into fuel cells to replace batteries in electric vehicles, among other things. A year ago, it was $3 and now it’s 16x that price – following a massive post-earnings sell-off. Global corporate interest is what’s fueling its higher price, but it has liquid options and 100% implied volatility (IV). PLUG’s OTM calls are trading at a significant premium to equidistant OTM puts, indicating that the market sees risk to the upside. If you think that the greening of the world will help keep PLUG from sinking, and that it might actually rally in the next few weeks – consider a bullish trade. Shorting the $35 Put in the April expiration is a bullish strategy that has an 88% 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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