This
Week in Barrons – 10-15-2017:
"A champion is afraid of losing. Everyone else is afraid of
winning." – Billie Jean King
“In numbers too big to ignore…”
If
we’re judging by the numbers, last week was a pretty bad week for Harvey
Weinstein. He proved that sexual
harassment does exist in Hollywood. Last
week model Cara Delevingne joined the ranks of notables such as: Ashley Judd,
Angelina Jolie, Jane Fonda, and Gwyneth Paltrow accusing Harvey of sexual
harassment. Last week he was also (a) fired
from his own company, (b) accused of rape by 3 women, (c) caught on an NYPD audio
tape trying to lure a woman into his hotel room, and (d) his wife left him. When Ben Affleck heard the news, he said it
made him ‘sick’ – right before getting called out by actress Hilarie Burton for
groping her. Hopefully this signifies a
turning point as to how this type of behavior will be dealt with going forward.
If
we’re going by the numbers, I don’t know why the University of North Carolina
is proclaiming its entrepreneurial ‘StartUp-UNC’ program a success. They say that their expertise and guidance has
helped UNC students, faculty and staff launch 60 new businesses and non-profits
since 1999. Doing the math:
-
60
businesses launched over 28 years = 2 per year (below average).
-
UNC
has 30,000 students = 1 business launched per 15,000 students. (This is well below the 1 per 1,000 student
average. Carnegie Mellon launches 2 per
1,000, and Stanford launches 15 per 1,000.)
With their staff of 8 and over $1m annual
budget, they’re spending $500k to launch each business. Heck, cut your staff, hold a contest, and
give away $500k to the top 2 winners. And
make it a condition of the win that they locate in N.C. Situations like UNC only serve to cement my belief
that: (a) there is too much money out there supporting entrepreneurship, (b) it’s
driving bad decision-making, (c) it’s pushing the quality of entrepreneurial
education downward, and (d) it’s producing diminishing returns for job
creation.
Uber (numerically) is quickly approaching
its day of reckoning. Thanks to MJP for
recognizing that the ride-hailing company faces at least 5 criminal probes from
the U.S. Justice Department. They lost
London – their largest customer. Authorities
are asking questions about whether the company violated price-transparency
laws. And officials are separately
looking into the company’s role in the theft of Google’s (Waymo) trade secrets.
Numerically, the Girl Scouts lost a little this
week when the Boy Scouts of America agreed to remove the ‘No Girls Allowed’
sign from their clubhouse. The Boy
Scouts say the move reflects what modern families want. The Girl Scouts say that this is merely
a ploy to boost the Boy Scouts' declining membership numbers. Either way, I think Round 1 goes to the Boy
Scouts.
By the numbers, Tesla will need to produce
between 100,000 and 200,000 Model 3s in the second half of 2017 to support CEO
Elon Musk’s investor promise. They spent
over $1B in cash in Q2, accumulated over $20B to date in liabilities – to produce
only 260 Model 3s to date. To slow their
bleeding, Tesla fired hundreds of employees last week – triggering people to start
selling their Model 3 reservations. It’s
only a matter of time until Wall Street does the math.
Last week Bitcoin surged to over $5,850 per
coin, and Mr. Jamie Dimon (CEO of J.P. Morgan (JPM)) commented in anger – the 2nd
stage of grief. I’m convinced that the 5
stages of grief (denial, anger, bargaining, depression, and acceptance) are
part of a framework that Mr. Dimon is using to allow himself to live with the
upcoming loss of the U.S. Dollar as the global reserve currency. He broke his silence to insult Bitcoin
investors and call them “stupid for paying the price”. He proclaimed that although people will
profit because they will sell their Bitcoin to later investors at a higher
price (‘greater fools’) – the end result will definitely be a crash.
Unfortunately, JPM’s own CFO Marianne Lake
went as far as to praise blockchain technology on their earnings call, and say:
“We are open-minded for digital currencies that are properly controlled and
regulated.” JPM even invited Bart
Stephens (co-founder of Blockchain Capital) to speak at their offices in San
Francisco with fund managers and clients.
“There’s a lot of hypocrisy and
ignorance going on within Jamie Dimon," said Mr. Stephens. "I would encourage Mr. Dimon and others
to do some homework. Bitcoin is not a
fraud, and is not a Ponzi scheme. It's a
robust technology that is going to impact multiple industries. Don't discount it." Citigroup’s CFO John Gerspach came out positive
on the digital currency sector, along with Goldman Sachs’ Lloyd Blankfein. Bitcoin’s 30% rise on the week speaks for
itself.
But why does Bitcoin even matter? While on the surface China loves building
"Everyday Low Prices" merchandise for Walmart, and Russia continues
to play nice despite being blamed for everything from interfering in our election
to taking over Europe; both nations know that the real war is economic.
Currently, the U.S. Dollar is our global reserve
currency. If you want to do international
business, more times than not you must convert your currency into dollars and
then ledger those dollars on the U.S.’s Society for Worldwide Interbank
Financial Telecommunications system (SWIFT). SWIFT enables financial
institutions to send and receive financial transactions in a secure and
standardized environment. Russia knows
all about SWIFT because when we leveled sanctions against them, we blocked
their use of some of the SWIFT abilities – creating real economic hardships
within their country. China realizes
that SWIFT threatens them the same way, and that was their impetus in helping
us contain Kim Jung un. The Chinese and the Russians have been concerned
about our SWIFT monopoly for years, and have recently decided to accelerate the
implementation of their backdoor system.
China has been developing a way for
nations to sell oil to them using yuan, and then immediately converting those yuan
into gold. In a nutshell, it's a gold
backed yuan oil futures contract. That
has caught the eye of the U.S. because our global currency status is built upon
OPEC (especially Saudi Arabia) only selling oil in U.S. dollars – creating a constant
global demand for U.S. dollars. We know that China buys oil from Russia without
using U.S. dollars. And Russia (who has
been stung multiple times by U.S. economic sanctions) has built a transactional
work around. According to Jim Rickards,
the head of Russia’s central bank, Elvira Nebiullina has reported to Vladimir
Putin that: “In the past there was a threat of us being shut out of
SWIFT. We have updated our transaction
system, and if anything happens with SWIFT – all SWIFT-format operations will
continue to work. We have created an
analogous (back-up) system." According
to Jim, Russia's development
bank (VEB) and several Russian state ministries have teamed up to develop
blockchain technology. “They’ve created a
fully encrypted, distributed, inexpensive payments system that does not rely on
SWIFT or the U.S. to move money. This
has nothing to do with bitcoin per se, but rather uses a blockchain technology
(often referred to as distributed ledger technology - DLT) platform that can
facilitate a wide variety of transfers - possibly including a new Russian-state
cryptocurrency backed by gold." The common thread for both
China and Russia is: (a) getting away from U.S. dollar, and (b) using gold for currency
support.
Shortly, China will compel Saudi Arabia to
trade oil in yuan, and that will affect the U.S. dollar. "As soon as the
Saudis accept the yuan, then the rest of the oil market will move along with
them," said Carl Weinberg, chief economist and managing director at High Frequency
Economics. China (since passing the
U.S.) has become the world’s most
dominant global player in oil. Saudi
Arabia must pay attention to its largest customer. According to Carl: "That will remove between
$600B and $800B worth of transactions from the dollar. That will lead to stronger Chinese demand,
whether it's securities or its own goods and services. It is a growth driver for China and that's why
they want this to happen."
On the surface, nations need to get along so
that international trade can take place smoothly. But like any organization, they keep their
friends close and their enemies closer. Military
tensions surrounding North Korea, and supply and demand considerations over oil
have accelerated the moves by Russia and China to implement their own backdoor,
blockchain, digital currency solutions. The
good news is that often in these early days of a solution set – you can gauge a
solution’s necessity, capability, and availability by its price action. If last week’s 30% rise in Bitcoin’s price is
any indication, things are indeed moving quickly. Maybe President Trump is right, this is just the
“calm before the storm.”
The Market:
In Texas Hold-Um, there are approximately
170 different 2-card hands that you can be dealt. But only 10 of those hands will get you into
a winning position. Therefore, the overall
market and your specific entry points are often just as important as your particular
holdings themselves.
Factually:
-
The top
10 digital currencies (Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash,
NEM, Bitconnet, NEO and Monero) make up 90% of the entire crypto economy. The others will be judged by their ability to
partner with the top 10 players, and/or to innovate themselves into a ‘must
have’ situation.
-
Japan
enshrined bitcoin as legal tender, in an apparent bid to become the global
center for the next wave of financial technology (fintech).
-
The CPI (a measure of inflation) came in at a
calm 2.23% per year.
-
The S&Ps
are on pace to register their longest ‘quiet’ period in over 20
years. It hasn’t experienced a 3% decline
since Nov. 7, 2016.
-
Watch Health Insurance Innovations (HIIQ),
because it’s one stock that
may benefit from Trump’s recent executive healthcare order urging regulators to
stop capping the duration of short-term plans at 3 months.
Investor optimism remains
high as every major equity index is at or near historic highs. Year-to-date the S&P is up by 14%, the
Nasdaq 23%, and the Dow Jones is up nearly 16%. Wall Street is pointing to the first
synchronized global economic uptrend which should be good for markets these
coming weeks. I suspect that along with the
uber-trillions that are sloshing around the globe from our friendly Central Bankersters
and sovereign wealth funds, there will be a ‘year-end money grab’ to look
forward to. For example: you're a major hedge fund, and you haven’t trusted
this market because you know that it’s simply rising on liquidity and not on
basic fundamentals. So, you have not
been fully invested. You’ve been waiting
for the big correction and it just hasn’t come.
Now that it’s October, you only have 3 months to make up that lost
ground. Is it possible that you will
throw caution to the wind, and just dive into the deep end? Absolutely it’s possible, and we're probably
seeing some of that as we speak. With that in mind, you can make the case
that this market continues to ‘melt-up’ into December – ignoring any and all
things nasty. North Korea and Iran? Forget about it. Lousy housing sales and other economic date? Ignore it.
But ever-rising markets make seasoned
investors nervous. Bank of America’s
David Woo said: “We find it difficult to
reconcile the record low volatility in financial markets at the moment with
growing political risk in Washington and geopolitical risk in Asia. There are many reasons why we are living in a
different world than the one we used to know and we would caution against
relying too much on history for forecasting the likely outcome of these risks.”
If the Iran bickering calms down, I have to
think that they’ll continue to press these markets higher. No, it’s not organic growth, low
unemployment, or solid fundamentals.
When there are trillions of dollars sloshing around the globe looking
for a home, some amount of those will come home to roost in the market. Until the Central Banksters stop printing, it’s
hard to experience a correction much less call a top.
Just
remember that none of this market action is ‘normal’. This market charges ahead, but for the wrong
reasons. No one seems to think that it
can ever go down again. But they thought
that back in 1999, and again in 2007.
Don’t think it in 2017. None
of us know which final snowflake will start that avalanche. Have a
great day – and a better week ahead.
Tips:
BTC:
Another fork is coming. Last time, people sold prior to the fork
and jumped back in within a short time span of the successful split. This
time, people are buying prior to the fork, in order to benefit from the new
coins. This is looking like a crowded
trade. Nevertheless, the next target is
$6,197 – with support at $5,000 and a sell at below $4,800.
ETH:
Ethereum is on the verge of breaking out of the range. After 4 false breakouts, I’ll wait for Ethereum
to end the day above $354, making a move to $400 very possible at that point.
LTC:
Litecoin is one
of the few altcoins that has shown strong buying support. It recently broke above its overhead
resistance at $57.72. My target is $71,
and my stop loss remains at $50.
To say that many banks want ‘nothing to do
with Bitcoin’ is an understatement. SZ
brought me the following discussion that was picked from an active PNC
(Pittsburgh National Bankcorp) blog. The
PNC customer recounts: “I've had a banking relationship with PNC Bank for 15
years, and I just got a call to verify unusual activity. He asked me to confirm a couple transactions
then asked ‘For what purpose are you buying Bitcoin’? I refused to divulge the purpose, and the
bank’s representative threatened to close my account. I told him I wouldn't answer, and he then
asked ‘What are you going to do with the Bitcoin’? I again told him I wouldn't answer. He then informed me that his security team
told him they would ‘exit the relationship with me’ if they didn't get a
satisfactory answer.” Non-visionary
banks will view digital currency as a threat to their existence, while others
will view it as an opportunity to gain more of your trust and business. It’s up to us to sort out what type of
relationships we want going forward.
Be prepared for interest rates to remain low
for the next 3 years, and look no further than the chart below to understand
why. Low interest rates allow the U.S.
dollar to remain low – driving sales and corresponding stock prices higher because
our products are less expensive overseas.
Recommendations:
Bullish: (Sell PCS = Sell
a Put Credit Spread)
-
Autodesk (ADSK =
119.63) – Sell PCS – Oct 20: +114 / -116, $0.30
-
Boeing (BA = 260.74) – Sell PCS – Oct 20: +252.5 / -255, $0.60
-
DBV Technologies (DBVT = 47.48) – Sell PCS – Oct 20: +10 / -15,
-
Gilead (GILD = 81.17) – Sell PCS – Oct 20: +78.5 / -80, $0.30
-
Ionis Pharma (IONS = 59.1) – Sell PCS – Oct 20: +54.5 / -55, $0.45
-
Jr. Gold Miners (JDST = 51.22) – Sell PCS – Oct 20: +46 / -47, $0.20
-
Lumentum (LITE = 57.7) – Buy Fly – Oct 20: +55 / -57.5 / +60,
-
Gold Miners (NUGT = 35.26) – Sell PCS – Oct 20: +32.5 / -33.5, $0.25
-
Restoration Hdwr (RH = 80.08) – Sell PCS – Oct 13: +72 / -73, $0.20
-
Nasdaq ETF (TQQQ = 121.03) – Sell PCS – Oct 20: +113 / -115, $0.25
-
Sina (SINA = 116.59) – Sell PCS – Nov 17: +97.5 / -100, $0.50
-
Semiconductor (SOXL = 129.60) – Sell PCS – Oct 20: +118 / -120, $0.30
-
VIX Futures (SVXY = 103.66) – Sell PCS – Oct 20: +98 / -99, $0.20
-
Ultra-Semi (USD = 109.90) – Sell PCS – Oct 20: +101 / -102, $0.13
-
Wynn (WYNN = 142.33) – Sell PCS – Oct 20: +138 / -143, $2.14
-
XL (XL = 41.51) – Sell PCS – Oct 20: +38 / -39, $0.11
-
YY Inc. (YY = 93.22) – Sell PCS – Oct 13: +84 / -85, $0.38
My Crypto-Currency Holdings
Include:
-
Bitcoin (BTC), Ethereum
(ETH), Litecoin (LTC), Dash (DASH), Digix (DGD), MaidSafeCoin (MAID), Metal
(MTL), OmiseGo (OMG), PIVX (PIVX), Patientory (PTOY), Steem (STEEM), and NEM
(XEM).
To 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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