This Week in Barrons – 11-19-2017:
Leonardo da Vinci's ‘Salvator Mundi’ sold for $450.3m last week.
Thanksgiving is
my favorite holiday of the year. No, it’s
not because of the food – but that doesn’t hurt. It’s because there’s so little of the holiday
to celebrate. It’s a day where all that
is asked of us is to just slow down and say ‘Thank You’. It’s a day to spend some time with friends
and family. Here are a couple ways to
answer some of your mother’s tough questions:
Mom: “So how
much is this plane ticket home costing me?” Virtually nothing compared to what da Vinci’s
‘Salvator Mundi’ sold for last week. The
painting dates back to the 1500’s, and is now the most expensive artwork to
sell at auction – ever. Or you can gracefully
change the subject and remind her that it was reported last week that Russian
‘bots’ used Twitter and Facebook to sway voters in last year’s Brexit election. It seems that the Kremlin had its eyes on breaking up another rival – the
EU.
Mom: “Let us all give thanks.” Make sure you’re thankful for not working for
General Electric. Last week GE cut its
dividend in half, announced a corporate restructuring, laid off a quarter of
its staff, and is probably getting rid of its transportation and lighting divisions.
Mom: “Do you have plans for after dinner?” Be sure to avoid Willow Creek, California –
where they’re celebrating the 50th anniversary of the 59 second
Patterson-Gimlin blurry ‘Bigfoot’ film clip of a bipedal ape creature laying
proof to ‘Sasquatch’.
Mom: “Thanks for buying the turkey.” You can explain that you bought it with
bitcoin using Square. Explain to her
that bitcoin is becoming a lot more mainstream. It's starting to be accepted at legit
businesses like PayPal and CVS. And that
Square even has a Venmo-type payment app that will now allow all of her friends
to buy and sell bitcoin. Then you can
explain that depending upon whom you ask: bitcoin is either in a digital bubble
about to burst, or the biggest thing since the Internet. FYI - more and more companies are tiptoeing
toward the latter.
Mom: “Can you believe the cost of turkey this
year?” You could explain that
it’s not only turkey, but what about the cost of oil and gasoline. And how it seems that the only thing keeping
the U.S. dollar as the global reserve currency is the 1970’s ‘petro-dollar’
deal where the U.S. promised to keep the House of Saud in power in Saudi Arabia,
and to support them militarily – in exchange for Saud's agreement to only sell oil
in U.S. dollars. But American shale players and frackers are creating real
competition in the oil space. Just last
week a new study concluded that China's oil reserves will be depleted by the
end of 2018. Without finding an
alternative source of energy, the study warned that this will undermine China’s
continuing economic growth and challenge the sustainable development of the Chinese
society. So, there's a pretty good
chance that the Saud's are going to be selling oil directly in exchange for
Rubles and Yuans in the near future. If
that plays out, the value of the U.S. dollar will drop – and maybe the price of
turkey along with it.
Mom: “Pretty soon you’ll need gold to buy
anything.” You can let her know
that China and Russia are buying as much gold as they can get their hands on. Ray Dalio (the head of Bridgewater Capital –
the #1 hedge fund in the world) is now the 7th largest holder of all the GLD stock
(a proxy for gold). In the 3rd quarter alone Ray purchased
over $100m of the GLD ETF. You could
argue that he didn't buy physical gold, because buying $100m worth of physical gold
bullion would be a bit of a problem these days. Gold has done nothing for
the past 6 years, so why is a man with this kind of wealth and global
connections suggesting that things could get rocky in the year ahead? Right
now, the crypto currencies are the alternative of choice for a lot of people,
but many may wonder about their staying power in the face of something truly
ugly.
Mom: “So should I buy gold or bitcoin?” You could explain that money is a funny
thing. Something only has value as a currency
if we all agree to use it as a currency.
You can't eat it. It simply sits
there and does nothing. We value it
because of its purity, rarity, and inability to be produced out of thin air. It also needs to serve all the requirements of
money such as: utility, portability, durability, homogeneity, divisibility, malleability,
cognoscibility, and stability of value. The biggest obstacle for any
currency isn’t often technical – it’s political.
Bitcoin has been declared dead more times than most people care to
count, and will continue to be written off long after dissenting CEOs have
conceded defeat and quietly bought BTC. The
common thread surrounding crypto-currencies is that
blockchain is in need of an upgrade. As
new users pile in by the hundreds of thousands, the network is struggling to
contain the strain. In the early days of
bitcoin, few balked at a transaction taking 30 minutes to confirm. But for businesses today seeking to use
bitcoin as a global payments system, that wait seems interminable. Of course, the scaling debate isn’t just
about speed – it’s also about fees. When
Segwit was first implemented back in August, one feature that it hindered was
near-instant transactions for small purchases such as a cup of coffee. Exacerbated by rising fees, bitcoin has become
unsuitable for small transactions. As
the bitcoin network has struggled, Bitcoin Cash with its 8MB blocks has gladly
stepped up to the plate and offered itself as an ideal candidate for fast and
low-cost transactions. With bitcoin fees hitting an all-time high, over 130,000
unconfirmed transactions in the mempool, and some transactions taking days to
complete – bitcoin is searching for a harmonious scaling solution. Critics are calling bitcoin’s increased block
size solution both arbitrary and an approach that simply kicks the can down the
road. Unfortunately, that exact solution
appears to have done the trick for Bitcoin Cash thus far, and will soon be
working for Dash. The alternative for
bitcoin is to implement off-chain scaling such as the Lightening Network. Admittedly, off-chain transactions occur all
the time on bitcoin exchanges without anyone complaining, but formalizing this
into bitcoin’s core would be a different matter. You can tell your mom that until the ‘Church of Bitcoin’ can get its house in order, it
is ‘in fact’ its own worst enemy. But, I’d
still choose bitcoin over gold.
Mom: “Who will eat the cranberry muffins?” You’re probably going to have to swipe left
on those muffins, just like Qualcomm
did on its rival Broadcom after their take-over bid last week. Broadcom offered to buy Qualcomm for over
$100B in what would have been the largest tech deal ever, but Qualcomm said:
‘Come on man, we're worth more than that.'
Mom: “Be thankful for your family.” Unfortunately, Uber’s family got a little bit
smaller last week. A British employment
tribunal rejected the ride-hailing company’s argument that its drivers are
self-employed. The decision affirmed last
year’s ruling, and means that Uber will have to ensure that its drivers in Britain receive a minimum wage and
paid time off. So much for the gig
economy that relied on hand-shakes and ‘at-a-boys’.
Yes, we’re all
probably guilty of whining, complaining, and shouting: ‘Why me?’ once or
twice. But we rarely ask that question while
sitting next to a cancer patient, or someone in a homeless shelter. If we did, we might just ask: ‘Why them?’ Happy Thanksgiving to all.
The Market:
"Some people want
it to happen, some wish it would happen, others make it happen."… Michael
Jordan
This
is the second week in a row that the S&P and the Dow Jones Industrial
Average logged losses. Investors
remained focused on the new (work in progress) tax plan – with the set of
differences between the House and Senate versions becoming a legislative
grind. Until
last week, the market seemed to have forgotten what volatility looked like. Because of its long absence, its reappearance
was tough to recognize. FYI – it should
be noted that the market hasn't seen anything that resembles normal volatility
for some time. The S&P moved by more
than 0.5% on two separate days last week.
That’s the 1st time that has happened since July. The
market has risen in 10 of the last 13 weeks, and hasn't posted a monthly loss
since October 2016.
According to
the National Retail Federation, the estimated number of Americans who plan to
shop this coming Thanksgiving weekend is about 164m. As the
picture suggests, Amazon’s ‘click and mortar’ easy access, is expected to push even
more retailers to the wayside this holiday season. However, the physical
store battle for the U.S. consumer is far from over. Amazon’s market cap makes up about 50% of the
entire S&P retail index. It is up
over 50% this year by adding over $192B to its own market cap. But ‘just when you thought it was safe’, Wal-Mart (WMT) this week announced that sales growth
online and in-store was the strongest it’s been since 2009. Their shares touched a record high on Friday, as
did those of Home Depot (HD). Analysts
see that size will matter when confronting Amazon’s ‘click and mortar’
challenge. Wal-Mart has more than 5,000
U.S. stores and Home Depot has over 2,200.
Their distribution networks will indeed be their lifeline this holiday
season.
This past week several of the world’s largest telecommunications and media
companies have started encircling Twenty First Century Fox to buy a significant
piece their global media and entertainment empire. In addition to Disney, Comcast, and Verizon – other potential suiters
such as Apple and Amazon have begun to surface.
Also, merger & acquisition deals are happening with Meredith considering
a bid for Time, and Discovery acquiring Scripps Networks Interactive. This sudden
surge in merger and acquisition activity, particularly in the media arena, is
being powered by low asset prices, cheap financing, and the prospect of tax
cuts. Another reason that M&A
activity has picked up is because more customers are ‘cutting-the-cord’ /
canceling cable subscriptions and diverting the flow of large advertising
dollars away from these traditional media companies.
Randall Stephenson (CEO of AT&T) said the industry is undergoing an incredible disruption, and singled out
Netflix and other subscriber based services as the culprits. It has everybody rethinking their business
models. And meanwhile, AT&T is in
the process of buying media and entertainment company Time Warner for $85.4B
pending the resolution of U.S. antitrust objections. Even if the transaction gets the greenlight,
the landscape has entered the land of the ‘tech giants’ and who knows where it
goes from there.
In IPO-land, 9 companies went public last week, and raised a combined $1.1B. Of the 9 debutants: 2 firms
priced below their target midpoint, and 2 priced above their range and traded
up 8% and 13%, respectively on their first day. Injectable drug developer Arsanis (ASNS) topped the pack by being up
40% on its market debut.
Last week it was announced that the first
‘weed’ ETF (Alternative Agroscience Fund - ETFMG) will debut on December 26th. This fund is dedicated
to investing in marijuana cultivators and distributors. The day will mark a major milestone for
the mushrooming industry that is still struggling to obtain access to mainstream
U.S. financial instruments (e.g. bank loans).
With the legalization of medical marijuana in 29 states plus DC, and recreational marijuana
in 8 states along with DC – the potential for this marijuana ETF is huge. The industry should bring in $20.6B in
revenue by 2020 – rising from $5.4B in 2015. More states are beginning to see the ‘green
rush’ from the Colorado model that raked in $100m in revenue in its first year,
and $163m in its second. Even if medical
and recreational marijuana sales are skyrocketing in the U.S., the growth is
still in its infancy. U.S. marijuana
companies are experiencing difficulty managing their accumulated wealth because
federally insured banks have yet to do business with the companies’ due to the
federal illegality of weed. Meanwhile,
individual investors who have been hoping to take-a-ride on the exploding
cannabis market can do so now through ETFMG.
In December, the
FED will meet again, and the market has priced in about a 100% chance of a rate
hike. Honestly, as fake and ridiculous
as the FED’s policies have been, if they can't raise rates a measly quarter of
a point with the market at all-time highs and all the pundits telling us life
is grand – then they would look silly if they didn't. Even if their mystical inflation rate doesn't reach
the numbers they want, I can't see them taking a pass on a rate increase. IF they were to pass on hiking, I think the
markets will get tossed into a pretty big funk, the dollar would fall, and precious
metals should soar. Just something to keep in the back of your mind.
For those of you
in the ‘buy the dip’ (BTFD) club, until the ECB stops its QE – the thought of any real market rollover is hard to
imagine. Last week we saw some fund
managers lock in profits, but the ones that are still buying in order to look
good for the year, have access to large doses of liquidity. Even though this market feels heavy, and working under a ‘Hindenburg Omen’ – we
still have synchronized central bank printing.
Without that, it would be easy to say ‘I’m selling out and going short’,
but with it – that money must go somewhere and that includes into stocks.
Tips:
In general, Thanksgiving week is usually a
decent one for the markets. That said,
Friday wasn't the day I thought it would be. After Thursday’s 200+ point blast higher, we
gave half of that back on Friday. That
was a bit more than I had anticipated. I
expected to give back 50 or 60 points, but not 50% - 112 points. For me, that give back stole some of the
thunder from Thanksgiving week. I have
to imagine that these markets are going to keep moving higher into the rate
hike – which I believe comes in December. As I previously mentioned, if our FED doesn’t
raise rates, their credibility will be somewhere south of Baghdad Bob's – so I
do believe we get a one-quarter point December rate increase. I continue to lean long, with one finger near
the sell button.
Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread):
-
Adobe – ADBE (182.24) – Sell PCS, Nov 24th: -180 / +177.5,
$0.27,
-
App. Materials – AMAT (56.49) – Sell PCS, Nov 24th: -55.5
/ +54, $0.29,
-
Boeing – BA – (262.26) – Sell PCS, Nov 24th: -260 /
+257.50, $0.52,
-
Broadcom – AVGO (271.86) – Sell PCS, Nov 24th: -265 / +262.5,
$0.30,
-
Costco – COST (171.12) – Sell PCS, Nov 24th: -170 / +167.50,
$0.54,
- Lam Res. – LRCX (210.47) – Sell PCS – Nov 24th:
-205 / +202.5, $0.37,
-
Micron – MU (46.16) – Sell PCS, Nov 24th: -45.5 / +44, $0.29,
- 2U Inc. - TWOU (63.99) – Sell PCS – Nov 24th:
-60 / +55, $0.60,
- Western Digital - WDC (88.92) – Sell PCS – Nov 24th:
+89.5 / -88, $0.27,
My Crypto-Currency holdings include:
-
Ethereum (ETH), Litecoin (LTC), Bitcoin Cash
(BCH), Bitcoin (BTC), Ripple (XRP), Monero (XMR), Dash (DASH), NEM (XEM), NEO
(NEO), Zcash (ZEC), and OmiseGo (OMG).
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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