This Week in Barrons: May 16th, 2021
Paying for Time vs Outcomes?
Sometimes the Rule is: You don’t have to finish, but you do have to start.
Sometimes the Rule is: You don’t have to start, but if you do, you have to finish.
When building personal habits, Rule #1 works. You don’t have to run all the way, everyday – but you do have to get out of the house and start running. However, when you’re making promises to a group and trust matters – Rule #2 definitely applies.
Are you compensated via Rule #1: based upon your number of starts (participation trophies), or via Rule #2: based upon your finishing move = results? Coming out of a WFH (work-from-home) environment, we will begin to see more compensation packages structured toward outcomes rather than time / participation. 40% of knowledge workers are demanding a more open work environment that includes WFH; therefore, be ready for more compensation structures being based upon results. My question is: Are knowledge workers ready to get paid on: commission, profit-sharing, or a price-per-piece? Will it be okay if a worker dramatically increases their own productivity through outsourcing? Will it be okay if workers decide to skip ZOOM meetings, communicate via shared docs, and use the time to go on walks, exercise, and/or think about the next breakthrough? You will see organizations begin to rethink how success is evaluated, and implement employee performance models that are focused on results and accountability – rather than “butts in seats.” While the process is important, the end result is truly what drives an organization. 4 elements to keep in mind:
#1 – Define a specific set of metrics… that accurately measure results. That includes: deadlines, numbers, output, and accountability.
#2 – Encourage open and empathetic communication: As our lives continue to blur – seek to understand, before asking to be understood.
#3 – Avoid continuous check-ins: Very few managers own-up to micro-managing, but the vast majority of employees feel differently. “You do the math.”
#4 – Provide instantaneous & actionable feedback: Speed captures markets. Today’s methods of communication allow for instantaneous results, understanding, trust, and innovation.
The main benefit of a results-focused workplace is the culture that it creates. It will be easy for companies to come up with formulas for compensating results. It will be more difficult to properly measure and reward forward-looking innovation.
The Market:
Crypto ‘Mainstream-ification’ is here... and it goes far beyond just Bitcoin.
- 14% of the US population now invests in cryptocurrencies, and that number will double by December, 2021.
- YTD, Bitcoin has gone up 100%, and Ethereum is up over 300%.
- 67% of U.S. adults who DO NOT own crypto are ‘crypto curious’.
- 60% of people who DO own crypto rate their knowledge level as ‘low’.
- PayPal is letting users shop at 26m merchants with crypto.
- In January, Bitcoin made up 70% of the total $1T crypto market. Now, Bitcoin makes up less than 50% of the $2T crypto market.
- Our FED continues to warn us that asset prices are vulnerable to significant declines, BUT it continues to print and inject hundreds of billions per month into the markets – even with 18% inflation staring it in the face.
We are BROKE… but don’t take my word for it. This short 10-minute, CNBC interview with Stanley Druckenmiller (one of the greatest traders of all time) should convince you:https://www.youtube.com/watch?v=ScAeHsXIUqI. His predictions are playing out in real-time as the U.S. dollar weakens and inflation moves higher via copper, lumber, Bitcoin, and Gold. Mr. Druckenmiller said: “I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances. Our FED’s attempts to bury interest rates and buy trillions in bonds – despite a booming economy could revoke the dollar’s world reserve currency status. If they do all of this – risking our reserve currency status, and an asset bubble blowing up – so be it. But I think we ought to at least have a conversation about it.” I personally am not betting against (Pittsburgh’s own) Stanley Druckenmiller when he says he likes the 3 C’s: Commodities, Cash (not U.S. Dollars), and Crypto!
“You can’t handle the truth” about inflation. Our FED (when it’s too late) will normally respond to market pressure and raise rates. There’s a reason the market is called a leading indicator. For more than a decade, commodities and emerging markets were market dogs while tech ruled the roost. The tables have turned, as investors are no longer willing to pay 30 to 50x Sales – for growth. The money that’s seeking ‘yield’ has moved into crypto. It’s interesting that crypto is viewed as a hedge against the FED, inflation, and our government’s deficit. Bitcoin is here to stay as a rare asset. I don’t see why Ethereum’s (ETH) value cannot exceed Bitcoin’s (BTC) since all of the interesting apps and use cases are being built on the Ethereum platform.
InfoBits:
- +17%... is how much the median sale price of an existing U.S. home rose (YoY) in March. Just another inflationary sign – that our FED says doesn’t exist.
- Uber scored record quarterly bookings… because they’re a food delivery company now. Uber Eats is more than 60% of Uber's business.
- Airbnb doesn’t do room service… but is worth more than Marriott & Hilton combined.
- Trulieve acquired Harvest Health & Recreation… for $2.1B. It’s the largest U.S. marijuana transaction to date. The combined entity will operate in 11 states, with 22 growing and processing facilities, and 126 medical and recreational cannabis dispensaries.
- US job openings hit a record high… but who wants a job when you can stay home, collect checks, and trade stonks?
- Like a bad download… Colonial Pipeline is the largest fuel pipeline in the U.S., and it was cyber-hacked. Colonial’s 5,500-mile system carries nearly half the gas and diesel consumed on the East Coast.
- Inflation, is it temporary or trend? Economists always err on the side of ‘temporary’, and inflation is almost always ‘trend’. This will cause our FED to hike interest rates – which will make bonds and savings more attractive – which will dampen growth and earnings – and there goes the stock market!
- Hertz, the bankrupt car rental company… just struck a deal to come out of bankruptcy with a $7.43B valuation.
- Colonial Pipeline paid the hackers lots ‘o money… contradicting reports earlier this week that the company had no intention of paying an extortion fee to help restore the country’s largest fuel pipeline. Money talks and __ walks.
- Alibaba had its first quarterly operating loss since it went public… after Beijing slapped a record $2.8B fine on it for abusing its market position. Huh?
- Jobless claims checked in at 473,000… below Wall Street’s estimate.
- Softbank (the giant behind WeWork, Uber and Alibaba)… posted the highest profit ever for a Japanese company = $46B profit in 2020. That’s double the previous record set by Toyota, and $5B more than Google in 2020.
- The CPI and PPI came in hot… at 0.9% and 0.6% per month respectively. But our FED says that there is no inflation.
Crypto-Bytes:
- Elon suspended the ability to buy a Tesla with Bitcoin. Musk tweeted the decision after voicing his concerns about the increasing use of fossil fuels for Bitcoin mining. He also said that Tesla will not be selling any Bitcoin.
o Factually, prior to Musk’s tweet: 19,259 new BTC ($963m) moved onto exchanges for sale. This is NOT a coincidence, and likely reflects TSLA along with others selling their BTC – prior to his tweet.
o Elon’s tweet initiated a cascade of long liquidations, but institutions stepped in and bought the fear trade.
- ETH traded above $4k… for the first time in its history. Year-to-date ETH returns are +300% versus +100% for BTC.
- UBS is planning to offer digital currency investment products… to affluent clients – similar to JPM & Citi.
- Goldman Sachs joined the crypto craze. The bank created a crypto trading desk - again. The bank did a complete 180 from its claim last year that crypto isn’t an asset class.
- Block.one launched a $10B subsidiary… that will build out a cryptocurrency exchange to launch this year. Investors include Mike Novogratz and Peter Thiel.
- Palantir Technologies… plans to accept bitcoin payments.
- Ether went over $500B in value on Wednesday… making the decentralized network more valuable than JPMorgan ($480B) and Visa ($496B).
- The SEC hinted that the “highly speculative” and volatile bitcoin market… may not be ready to support an ETF.
- MoneyGram will debut cash-for-bitcoin trades at 12,000 locations… after linking up with bitcoin ATM firm Coinme.
- eBay said that it will allow NFT sales… on its digital marketplace.
- Internet Computer (a new token) was launched Monday… to handle smart contracts – putting it in direct competition with Ethereum. It’s now worth > $45B.
- Binance is under investigation by the IRS and DOJ: The news frustrated CEO Zhao who tweeted: “So much FUD. A pain for some, an opportunity for others.”
- Tesla fans are feeling cheated by Elon Musk… and are asking: Why now, and What changed? #DontBuyTesla is now trending.
- Facebook is revamping Libra… to address money-laundering concerns.
- There are now fewer Bitcoin whales (holders of over 1,000 BTC)… but holders of between 100 to 1,000 BTC are increasing.
- Coinbase’s quarterly revenue tripled to $1.8B… from the previous quarter, and profit 4X'd as crypto prices skyrocketed.
Last Week:
Monday: The inflation trade is in vogue. Pick a stock attached to lumber, oil, copper, etc. and it should go up: FCX, MUR, LBRT, WY, and DBC. One that I’m watching is RIG over $4.05. It survived the COVID oil crash, and is cheaply priced. The NASDAQ’s 50-day is 13,536, and they’ve been defending that level all day. If the NASDAQ loses its 50-day for the close, it will cause more selling. Our FED continues to say they don’t see enough inflation. Hey, their oath doesn’t cover telling us the truth.
Tuesday: Remember when our FED wasn’t buying everything? Then I would have said: “This market is going a lot lower.” But today, you never know where the buyers are coming from. The U.S. job openings report (JOLTS) was just released and it showed 8.1m job vacancies, and the vast majority without applicants.
Wednesday: Even though our FED just can’t seem to find any inflation, the CPI (consumer price index) rose 0.9% MoM. So, even with the doctored data, there’s at least 9% annual inflation – which translates to about 18% in real numbers. I'm watching LBRT over $14.55, and MUR over $21.73. The S&P and DOW are still way above their 50-day moving averages, and at some point, traders are going to start thinking about buying the dip. Tomorrow is the PPI (producer price index). Because the S&P got within 7 points of its 50-day moving average, if the PPI isn’t horrid – then today may have been the capitulation that traders were looking for. Materials will continue to be in play. Honestly, the cure for high prices – is high prices. There is a point where people will decide not to buy, but we are not there yet. It’s an ugly market, in an ugly economy, with ugly things going on. Don’t let emotions get the best of you.
Friday: I'm watching the miner HL, and interested when it gets over $7.50. We had 2 consecutive days of the NASDAQ falling 9%, and S&Ps still held their 50-day moving average. Since April 29th, the NASDAQ only put in consecutive ‘up’ days once. This Thursday and Friday we did it again. If we move up Monday, it will break the mold, and we could be headed back to challenge the highs. But if Monday is a red day, then we need to think that this was just a big fat bounce and not sustainable.
Crypto 101… just a couple basics…
Per SG, cryptocurrency is a terrible name. Crypto is normally associated with spies and secrets. And currency is generally associated with a country / nation, with a treasury, and banks.
Tokens are often sold in amusement parks – where you would buy a bunch to go on a ride. If you operate one of the rides, you collect the tokens which you can exchange for a different sort of value – probably currency. If people need tokens and they’re scarce, they go up in value. If people think that tokens are going to up in value, they might buy them in anticipation. And the things that people do to get tokens can range from simply buying them with paper money (fiat) to exchanging them for goods and services. If a lot of people own tokens, those people are likely to do things that make their tokens go up in value. Thereby, an ecosystem is born.
What is the Blockchain? The Blockchain is a database. But unlike most databases, it is not controlled by any single entity and it is NOT easily rewritten. Instead, it’s a ledger – a public, permanent, examinable database. You could use it to record transactions, and because it’s public and non-controllable – it could replace a lot of ‘middle-man tasks’ everywhere. Facebook and Google both have databases that are proprietary and worth hundreds of billions of dollars. Both companies have spent the last 20 years making the Internet less open and its users more influenced by their database’s suggestions.
- Reason #1 for the Blockchain: a public database could lead to an open, resilient, kinder, and more market-focused network.
- Reason #2: Tokens and decentralization mean that it’s possible to build open source communities where early contributors and supporters can benefit over time. No one OWNS these communities, and the communities themselves will work hard to serve their users – not the capital markets or other short-term players.
Imagine a blockchain / token project – on the order of Wikipedia. Contributors would earn tokens as they built it, participated in it, and supported it. The entire decentralized project would go up in value over time. The holders of tokens would receive either a dividend or would have the ability to sell their tokens. People could contribute in a multitude of ways – creating more variations surrounding the same underlying database.
The distributed nature of the blockchain (not existing on any one server), combined with this novel way of funding and contributing means that the network effect may bring powerful and different elements to the forefront – ones not driven by greed.
Now, it’s far from perfect. The reason the blockchain matters is that it is an agent of change. And when agents of change show up, it behooves us to understand them now – rather than being forced to deal with them later.
Next Week: Do We Buy the Dip, or Sell the Rip?
Market Update:
- Inflation Fears: In a week where the S&Ps were being tossed around by hundreds of points, Friday had the SPX pull back just inside its expected move. No matter how much we fret about inflation, we’re still trading inside of a range.
- A week of Volatility: We saw a 3-day spike in the VIX (volatility index) that went from 17 to almost 30 and back down to 19. But it was the VVIX that went ballistic and hit 150. It eventually settled down to 117 (still above our 110 ‘duck-n-cover’ line), but the damage had been done. Be careful out there. 40% daily moves in either volatility index tell me that RISK is becoming difficult to quantify. For the VVIX to hit 150, there was significant pain due to the number of call options being traded at ridiculously high prices. The VVIX only hit 150 and above – 5 other times in its 10-year history. So, this past week was both significant and alarming.
- Is the spike in Volatility over? What has me scratching my head is that the volatility futures never flipped over. That is to say the near-term volatility never exceeded longer term volatility, and with the spike in the VVIX – I would have expected an inversion. Therefore, I’m hedging any directional exposure – because I believe that the volatility is NOT over.
Sector Rotations are DONE:
- Correlation grips hold: Look at any heat map and you’ll see that we’re back to an entire marketplace moving in unison – both upward and downward. Markets have always needed correlation in order to achieve capitulation, and this week we got that in spades.
- All asset classes are now moving in unison… including bonds and commodities. Bonds rallied at the end of last week, which drove interest rates lower. It was weird that financials (who do not like lower interest rates) went up anyway. The financials are the glue holding this marketplace together, and they’re moving almost completely counter-intuitively. Something just doesn’t feel ‘right’.
- What doesn’t feel right?
o The volatility futures never inverted.
o All of the asset classes are moving in unison.
o Nobody ‘felt the fear’ of the market sell-off.
Trade Ideas:
- #1 = IWM: I’m looking for the small caps to break out of their range, and move dramatically one way or the other over.
o Short-term, I want to be on the buy side of a shorter duration Iron Condor.
o Long-term, I want to be on the sell side of that same IC / IWM trade.
- #2 = Wells Fargo (WFC), Citi (C), and Bank of America (BAC): If we fade, it will be the financials that will fall hard and fast, and these are my top 3 shorts.
- Home Depot and Lowes: The home builders (XHB) were smoked this week, and both HD and LOW look dicey. They have earnings coming up – so I backed away from those trades.
- #3 = Intel: I’m looking for INTC to move higher in the short term.
Markets Moving Forward: I don’t think that our FED will support the equity markets any longer because they would like the inflation discussion to go away. One way to eliminate the inflation rhetoric is to let the markets fall. Knocking 20% off the S&P’s will immediately impact consumer demand and immediately calm inflation fears.
SPX Expected Move:
- Last Week’s EM was $61, and we closed within $2 of the lower level. Given the heightened volatility, next week’s EM is $79, and we’ll see every bit of it.
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $48,400 / in at $4,310) & buying
- Bitcoin Cash (BCH = $1,250 / in at $170) & buying
- CTI BioPharma (CTIC = $2.18)
o Sold May $3 CCs for income
- Electramericcanica Vehs (SOLO = $3.26)
o Sold May $4.50 CCs for income
- Express Inc (EXPR = $3.23)
o Sold May $3.50 CCs for income.
- Ethereum (ETH = $3,900 / in at $310) & buying
- Grayscale Ethereum (ETHE = $36.80 / in @ $13.44) & buying
- Grayscale Bitcoin Trust (GBTC = $39.43 / in @ $9.41) & buying
- Grayscale Trust (GDLC = $44.30 / in @ $39.75) & buying
- Hyliion (HYLN = $8.55 / in @ $0.32)
- Infinity Pharma (INFI = $2.72)
o Sold $3 CC’s for income
- Iridex Corp (IRIX = $7.49)
o Sold May $7.50 CCs for income.
- Hecla Mining (HL = $7.56 in @ $7.50)
- Litecoin (LTC = $310 / in @ $191)
- Peabody (BTU = $6.52 / in @ $4.45)
- Sandstorm Gold (SAND = $8.31 in @ $6.90)
o Sold June $8 CCs for income.
Thoughts:
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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