RF's Financial News

Sunday, August 13, 2017

This Week in Barrons - 8-13-2017

This Week in Barrons – 8-13-2017:

“What’s coming is a big, self-driving truck that will run over this economy.” … Antonio Garcia Martinez – former Facebook Exec.

Thoughts:

The key is to embrace the right disruption early – after all, you can’t fight innovation. Sounds easy, but the issue is that disruption shows itself in many forms with many false positives. Just the other day I went for a walk through my local mall. As I walked around Macy’s everywhere I looked there were signs saying: "Everything must go…40 - 60% Off." As I made my way around the 100+ unit mall, I saw: closed stores, discount stores, and no people. Don't get me wrong, this place is not an old, dumpy mall. One store that I walked into had just a few lights on and no air conditioning. The icing on the cake was seeing that a plastic-surgery facility had opened up next to the Food Court. Is this the Amazon effect? I don't think so.

E-commerce accounted for 11.7% of total retail sales in 2016 – up 15.6% over 2015. So, if on-line is just 12% of retail, what happened to the mall? I think people simply have less money to spend – which coincides with credit card debit hitting an all-time high last week. Add to that: car sales puking, 3,300 retail stores being closed, malls looking like downtown Detroit, and a stock market closing near its all-time highs – this simply reinforces the fact that the retail buyer is not out there putting their cash to work in the market. It’s our Central Banks printing money, buying stocks, keeping rates technically negative – that have kept this market elevated.

What bothers me is not that our Central Banksters are doing this, or even the rampant fraud and manipulation, what bothers me is that our current financial media personalities are not calling them out on it. Imagine the talking heads saying: “Today’s market is up despite a bad jobs report that showed us creating 395k part-time while losing 54k full time jobs, or despite corporate earnings – which are actually 5% lower than they were in 2015. It’s up because of our Central Banksters and the Swiss National Bank (SNB) that now owns $84.4B of our stock market. In December, the SNB owned $63B in U.S. stocks. In March, they owned $80.3B, and in June $84.4B. The SNB invested $17B in Q1, but only $4B in Q2 – tapering their buying by 80%. Does this ‘tapering’ mean that they won’t continue jamming this market higher? Imagine if the ECB stopped their 103.4B purchasing of corporate bonds?” A narrative like that from our ‘talking heads’ would be insightful. Unfortunately, what we have is simply reminiscent of financial insight from 1999 - remember:

- David Kathman saying: "Just by looking at the financial numbers, you wouldn't think that GeoCities was worth $5B.” http://news.morningstar.com/articlenet/article.aspx?id=1106

- James Glassman & Kevin Hassett writing in Sept. 1999: "Stock prices could double, triple, or even quadruple tomorrow and still not be too high."

https://www.theatlantic.com/magazine/archive/1999/09/dow-36-000/306249/

- David Kleinbard saying in 2000: “Terra Networks Buys Lycos for $12.5B” http://money.cnn.com/2000/05/16/europe/terra/ AND said again in 2004: “Daum Communications Buys Lycos for Pennies at $95m.”

- And then there were Jim Cramer’s winning picks in Feb. 2000: “You want winners – okay – write ‘em down.” He then proceeded to produce a list completely void of winners – which was tough to do even back then.

o Ariba (ARBA) = now out of business,

o China Herb Group (ISLD) = now out of business,

o Exodus Communications (EXDS) = now out of business,

o 724 Solutions (SVNX) = now out of business,

o Inktomi Corp. (INKT) = now out of business,

o Virtus Investment Partners (VRTS) = now down by 80%,

o Surna (SNRA) = now trading for $0.12,

o Mercury Interactive (MERQ) = now out of business, and

o Inspirit Energy Holdings (INSP) – now trading at $0.16.

As you can see, disruptors are as tough to spot today as they were in 1999. But what’s different this time is that these same experts KNOW what they’re saying is bogus because they’ve seen the movie before. But they just continue to play the same old game. It then becomes our job to (a) recognize disruption (i.e. the Tesla electric / autonomous truck), (b) understand the advantages (less fuel & wages), and (c) figure out the cascading dominos (millions of unemployed drivers & more re-charging stations). You need to take it upon yourself to analyze the situation – because it’s neither their job nor their agenda.

The Market:

Well, the markets couldn’t pull off 10 consecutive ‘UP’ days. They probably came up short due to the escalating tensions between the U.S. and North Korea. Specifically, President Trump’s words saying that N.K. has to stop their threats, or N.K. will see ‘fire and fury’ like never before. That statement moved gold and bitcoin higher, and stocks lower. The discussion going on in the Pentagon right now is: Do we go in with conventional weapons, take out his nuke's, and his government – or do we leave it all alone, and wait until he’s a true threat to LA?

I think China summed it up best when they said: “Don't go in first". That is to say, if N.K. fires on a U.S. installation such as Guam, China won't get involved. But, if we start something militarily, they will be forced to step in and defend N.K. FYI, one element that hasn't gotten much press is that N.K. has told the U.S. that they are willing to talk about putting their nuclear program on hold, if the U.S. and South Korea stop their joint military actions. We have refused to stop.

I have to think that over this weekend calmer heads will prevail and the U.S. and N.K. will continue talking. With that, our market could be in for a sharp rise on Monday. The first job for the markets will be reclaiming the S&P’s 50-day moving average – with decent volume.

Eric Peters of One River Asset Management sees a major shift coming and writes: “All previous periods of extreme asset valuation required investors to imagine a vastly different tomorrow – a wildly optimistic future. But today, they expect the opposite. Due to unfavorable demographics and over-indebtedness, investors expect yields to remain flat forever, interest rates low into perpetuity, and inflation to be non-existent. They are using these low rates to justify extreme valuations across other asset classes – causing a disconnect with the real economy. Basically, they want tomorrow to look EXACTLY like today. Bond yields can’t rise – despite every major central bank looking to hike interest rates and exit QE. They expect governments to tolerate historically high levels of income inequality – despite their citizens voting for the opposite. And they expect rising global debts will somehow be supported by declining global growth.” Eric sees a historic reversal, and is getting long volatility.

One way to take advantage of increasing volatility is to buy the UVXY, and another is to buy bitcoin. Bitcoin and other crypto currencies have had some of their best rallies when viewed as a flight to quality. This weekend bitcoin (BTC) made another record by smashing through the $4,100 level. Crypto has tripled in value – year-over-year. As MCC said: “You don’t buy bitcoin (BTC) to make 20% or 30%, you’re not hoping to see BTC go to $5k or even $10k, you’re waiting for BTC to make it to $100k or $500k – so that the risk matches the reward.” If we see additional market adoption of bitcoin, you will see prices in the $100k to $500k range. I would recommend you visit www.coinbase.com and open a bitcoin account. Use www.gdax.com to manage that account, and watch https://www.youtube.com/watch?v=lcCIjIAqM-4 to eliminate all BTC fees.

Crypto currencies are seeing user growth continue to outpace government regulation. They are seeing technical and toolkit advancement (charting, buying & selling spreads, and options) continue to outpace user growth. And are looking for validation (maybe a Russian volumetric block chain test) before going mainstream.

MCC goes on to explain that the crypto-community is run by nerds – who’s reputations are built on code releases. Everyone knows (for the most part) who is working on what and when it will be released. Www.coinbase.com and www.gemini.com are the two most reputable exchanges because they adhere to governmental regulations, and operate within similar arenas as Fidelity or Vanguard. Currently, crypto-networks will not support 300m people making daily transactions, and that’s where off-chain vs on-chain scalability arguments take shape.

Investing in crypto reminds me of those early ‘Internet’ years, and requires that you pick the right disruptor. There is a clear separation between money being thrown blindly at a crypto-dartboard, and investors armed with understanding and the ability to ‘get-er-done’. Some crypto products that I’ll be discussing over the next several weeks and months will be: distributed exchanges (idex), cryptographically verifiable hedge funds (iconomi), untraceable transactions with 0-knowledge proofs (zcash), micro-transactions for browser-advertising (bat), verifiable fair gambling (funfair), file storage reduction services (storj), and distributed computing (golem) – to name a few.

Tips:

When I look at a chart of Bitcoin and see the damage that was done in the market last week, I can only conclude that the world is bullish on bitcoin. A 77% month-over-month growth rate is nothing to sneeze about. And when I look at what’s in front of our markets – North Korea is not the biggest hurdle this market has to climb. After all:

- August is historically the most volatile month, but Sept. and Oct. aren’t great either.

- Margin debt is at historically high levels. If volatility persists, margin calls will begin and selling will beget more selling.

- Market internals are crumbing, with the number of stocks making new lows dwarfing the number making new highs.

- Over th e past 100 years, a year ending in the number ‘7’ has always had a bad late summer and fall.

- And on August 1^st, the DOW Transports began to flash a ‘red’ sell signal.

Global financials (based upon the following chart) are also in a precarious position. Either European junk bonds need to fetch a higher return (which will be difficult given the current negative interest rate climate in Europe), or U.S. Treasuries need to decline in rates (which will be difficult given our FED’s higher interest rate trajectory).

Heading into August options expiration week, the equity markets are showing signs of tiring, especially the small cap index (IWM). Look for Gold and Bitcoin to continue higher while oil consolidates at resistance. Year-to-date the S&P (SPX) is up 8%, the NASDAQ (QQQ) is up 19%, and the Small Caps (IWM) are up 0.7%. The financial sector (XLF) lost 4% last week – leaving it up only 5% for the year. The financials (XLF) and energy (XLE – down 16% for the year) are taking their toll on the overall S&P performance.

Last week we ‘cracked’ outside the expected move on the S&P (SPX) to the downside. This coming week the levels on the SPX are 2483 on the high side, and 2400 on the low side. Consider 2438 as an inflection point. If we begin to move above that level, we should quickly explode to 2450. However, moving below 2438 would lead us very quickly down to 2411 – and cracking below 2400 would cause things get crazy.

If you’re going to sell volatility this coming week, do it in the VVIX or by buying the UVXY. The VVIX options are into their 87^th percentile – so that is clearly the place to sell volatility premium. Some other reasons to play a bounce next week:

- #1 The Put / Call ratio is extremely elevated

- #2 We have had 2 closes outside the Bollinger Bands, and that tells me we are due to revert back to the mean.

- #3 The Russell has come down into its 200-day Moving Average – which tells me that this ‘flush’ has found support.

- #4 And the Yen – when reviewing time and price, should begin to fall and correspondingly move our markets higher.

Recommendations:

- Apple (AAPL) – Buy the Sept 8^th 160 (+1) / 162.5 (-3) / 165 (+2) unbalanced Butterfly for a Credit of $0.76. This has you risking $174 to make $300 with a 73% probability of winning the trade. AND if Apple completely ‘tanks’ – you get to keep the $76 credit.

- Global Bitcoin Fund (GBTC) – Bullish – buy the shares,

- Alibaba (BABA) – Bullish by selling a Put Credit Spread,

- McDonalds (MCD) – Bullish for a run into $165,

- Nvidia (NVDA) – Bullish and looking for support around $150,

- NetFlix (NFLX) – Looking for a Pin around $175,

- Goldman (GS) – Looking for a Pin around $225,

- Simon Prop Gr (SPG) – Looking for a Pin around $160.

To follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting:

<http://rfcfinancialnews.blogspot.com/>.

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, August 6, 2017

This Week in Barrons - 8-6-2017

This Week in Barrons – 8-6-2017:

Mile long lines in front of Amazon’s recruiting centers this week for $10 to $14/hr. jobs.

Thoughts:

Yes Virginia, the 4.3% unemployment number is fake news. I say that because on Friday, we received the latest Non-Farm Payrolls Report that revealed that the U.S. created 209,000 jobs in July. But before you high-five each other, 158,000 of those jobs were created via the fictitious birth-death model. We learned from the Morningside Hill study that 81% of those fictitious Birth/Death jobs are NEVER converted into real jobs. But that still resulted in 81,000 jobs being created in July – right? Well, the devil’s in the details. The report went on to show that 54,000 full-time positions were eliminated, while another 393,000 full-time positions were converted into part-time positions. From my point of view, any employment model that loses 54k full-time jobs and converts another 393k full-time positions into part-time ones is not a good one. Then I wondered, with over 100m people dropping out of the labor force (many wanting back in) and if the above picture is any hiring indication – is there a conclusion here? Looking back over the past 6 months of Non-Farm Payrolls Reports:

For the past 6 months, we are averaging only 62,000 real jobs being created each month. When I add to that number the 300,000 baby-boomers that are retiring each month, that means corporations are NOT filling 238,000 monthly human vacancies. But is there something much bigger at work? For example: If small business is the engine to our country’s growth – are we failing to grow our small businesses? Factually:

- The number of jobs created by businesses less than 1 year old has decreased by almost 50% from the 1990’s.

- With the rate of business formation slowing dramatically, the pace of business closures now outpaces business births for the first time.

- Long-established companies now represent a larger share (over 70%) of all U.S. firms. That wouldn’t necessarily be a problem, except that research has shown that young businesses account for nearly all net new job growth. Older businesses, by comparison, tend to collectively shed from their payrolls almost as many workers as they add.

Millennials have the best shot at leading an entrepreneurial recovery, as by 2020 they will represent the largest age segment of the U.S. population. However, millennials aren’t starting nearly as many new enterprises today as baby boomers were creating when they were the same age. In fact, the rate of business formation by Americans ages 20 to 34 has fallen sharply since 2010. Currently: 51% of entrepreneurs are between 50 and 88 years old, 33% are between 35 and 49 years old, and 16% are under 35 years old. That in part can be attributed to home ownership among millennials (traditionally a prime source of savings and potential collateral) plummeting during the financial downturn of 2008. Also, the ever-growing mountain of student debt has left many young adults without the savings they might have put toward a business venture.

Finally, entrepreneurship education is at an all-time low. Currently, only 4% of the businesses started each year make it into their 2^nd year. 76% of these entrepreneurial failures are directly attributable to managerial incompetence. The good news is that the entrepreneurial climate could be changing – whether our universities want to admit it or not. As SF reported this week, the largest VC in the technology sector (Kleiner Perkins Caufield & Byers) is shutting down its seed-stage investment arm. As other firms follow suit, young entrepreneurs could actually be forced toward the ways of old: learning how to sell to real customers and grow organically – rather than thinking their first step is raising money via pitching to bunches of bankers/investors.

If these employment tasks sound daunting, don’t worry NASA is currently hiring a Planetary Protection Officer – salary up to $187,000. The job description includes: “making sure humans don't contaminate planets, moons, and other objects in space, and to help prevent any alien microbes from spreading to Earth.” I hear Will Smith is updating his resume.

Markets:

“Market bubbles are everywhere.”… Allan Greenspan

The Bank of International Settlements (BIS) warned on June 24 that markets have become “irrationally exuberant – as a result of a riskier FED on a diet of high liquidity, inflated asset prices and depressed market rates.” FED chair Janet Yellen has also noted that stock market valuations look rich by historical standards, and that the FED is going to begin to ‘start selling down’ its balance sheet with more details to follow in September. To complete the trio, ECB President Mario Draghi also signaled that Eurozone risk has shifted away from deflation, leaving bonds to look expensive. So three warning shots were fired, leaving me to assume that this most recent lunge forward in stock prices is creating the necessary headroom when the FED shifts from buyer to seller.

We're extended, and we’ve gone over a year without a 3% wiggle. This week we saw: auto sales decrease across the board, credit charge-offs rise sharply, and tax receipts (profits) come down 5% since the second quarter of 2015. Wells Fargo continues to be a story within itself, and to reinforce the mass amount of dishonesty that must breed within that banking culture. I have never seen a major company so dishonest, so disrespectful of corporate integrity, and so criminal with their customers. Last week, in addition to defrauding and stealing from a few million people via fake accounts and made up charges – they admitted to yet another ‘error in judgment’ as another 800,000 more bank customers were improperly charged for auto insurance. Tim Sloan, the new CEO of Wells Fargo said (in typical, insulting banker speak): “We need to take responsibility for our mistakes.” What Tim should do is jump on his corporate jet, take his $25m salary, and spend the next 20 years knocking on customer doors and apologizing to every single person Wells Fargo has ripped-off – all the while also offering to do their dishes and clean their bathrooms.

Next week will bring us over 30 S&P companies reporting earnings with Amazon’s August 11^th report looming overhead. Friday will bring us the latest in inflation numbers, and the path toward the FED shrinking their $4.2T treasury bond and mortgage-backed securities portfolio will be delivered in September. I’m looking for another rally to new highs starting later in the week, but only if the SPX (2,476) remains over 2,450. If we see a strong break below 2,450 with follow-through below 2,440, then we should conclude that the top has been made, and a multi-month pullback toward 2,300 has begun. I expect the pullback to set up the next rally phase toward 2,600 in 2018.

Tips:

Above is a condensed chart of the largest winners and losers within the DOW – year-to-date. The chart displays how many points the stock itself gained, and its corresponding point contribution to the DOW’s rise to new highs. Last week the S&Ps (SPX = 2476.83) and the NASDAQ (QQQ = 143.65) did a lot of nothing. The financials (XLF) are holding up the S&Ps while Apple (AAPL) continues to support the NASDAQ. Although ‘big tech’ and the Russell (IWM) are moving lower, if the XLF can remain above 25 – then the SPX has a clean shot to make it to 2,500. However, if the XLF and AAPL start to roll over – they could cause some serious sell-side activity. If Apple (AAPL) breaks down – look at buying the August 11^th QQQ Strangle for $0.41 = (Buying the 141.50 Put and the 145.50 Call for $0.41).

What’s scary to me is that many of the natural market correlations are breaking down. For example: the financials are rallying AND the bonds are rallying. This doesn’t make sense because as bonds rally – interest rates fall. Falling interest rates go directly against the FEDs initiatives and also are bad for financials. So, having both rally doesn’t pass the ‘smell test’ and beaks a natural correlation. Another example is that money managers are buying junk bonds (HYG) and Argentinian debt (that has defaulted more times than I care to count) before buying Ford – a stock that is paying a 5.5% dividend. This warped ‘search for yield’ is distorting a lot of natural market correlations.

Stocks to watch:

FAANG:

- This week Apple’s (AAPL) earnings propelled the DOW to breach the 22,000 mark. Apple also announced that production of the iPhone8 is on schedule and slated to launch in September. It also plans to release a new version of its smartwatch by the end of the year that will be able to perform many tasks without needing an iPhone to be in range.

- Amazon (AMZN) and many competitors are set to present their earnings next week. Video is one of Amazon’s biggest investments, and is expected to exceed Netflix's spend (NFLX) for the year.

- Facebook (FB) is seeing rising advertising revenues pushing its stock price closer to the $175 mark. The social media giant will soon begin to sell a home-based video chat device – with a laptop-sized touchscreen and built-in smart camera technology.

- Netflix (NFLX) is battling for supremacy with Amazon in the lucrative market of India. The online streaming service will air two new original TV shows that will cater to local viewers. One of the new series, "Again" is a supernatural female-led detective series set in New Delhi. Marisha Mukherjee (of ABC’s ‘Quantico’) will be the writer of the show.

- Google (GOOGL) shares were down most of the week. Although their second-quarter revenue grew by 21%, the cost to get that revenue grew by 28%.

Biotech:

- Flexion Therapeutics (FLXN) is developing a long-lasting corticosteroid injection (Zilretta) that may significantly improve pain in patients suffering from osteoarthritis of the knee. Once FDA approved (expected on Oct. 6), FLXN patients would shift to quarterly corticosteroid shots as treatment to avoid pain and to eliminate knee replacement surgery.

- Keryx Biopharmaceuticals (KERX) received FDA approval on Auryxia for use in chronic kidney disease patients on dialysis. FDA will soon analyze (decision by Nov. 6) if there is a possibility to use the med in patients who are not on dialysis. If approval is granted, Auryxia's sales could exponentially increase.

Weed:

- Cara Therapeutics (CARA) is a marijuana stock, but is also a painkiller in chronic kidney disease patients with uremic pruritis. Cara is planning to meet with the FDA very soon to discuss the design of a pivotal phase 3 trial that could begin prior to year's end.

Recommendations:

- American Express (AXP) – Bullish with financials (XLF) strong,

- Alibaba (BABA) – Bullish with a run into earnings:

o Sell the August 11^th– 147 / 149 Put Credit Spread, or

o Buy the August 18^th – $150 straddle,

- Nvidia (NVDA) – Bullish, with a run into earnings,

- Amazon (AMZN) – Bullish, has come down and running into earnings,

- YY Inc. (YY) – Bullish, with run into earnings, and

- D.R. Horton (DHI) – Bullish, with a run into earnings.