This Week in Barrons: 11-24-2019:
Are we there yet?
Are we there yet? Or better phrased: “Did you WANT to lose money?” It’s an important question. A great chef knows when a dish is done, and knows that any changes to the temperature or spices will make it worse. Miles Davis knew when his Kind of Blue album was ‘fully baked’. When I see a mediocre movie, read an unfunny section of Mad Magazine, or receive underwhelming service, I wonder if they decided: “Well, I’m kinda out of time, so I guess it’s done.” That behavior surrounding innovation just reeks of a lack of planning and strategy – think: (a) Marijuana, (b) Augmented & Virtual reality, (c) Autonomous driving, (d) Casino gambling, and (e) Crypto-currencies.
In terms of, ‘Did you WANT to lose money?’ Start by figuring out whether the CEO is either a golfer or a surfer. After all, every golf scorecard comes with a map of the course on the back. Hole placement is a big deal and often causes a strategy session. Golf is an endless journey toward perfection. On the other hand, surfing involves constantly finding your own path – because every wave is unique. To surfers, roadmaps don’t matter including those on how to make money. Surfers are often self-taught through a series of trial-and-error failures – and deliver because they simply have ‘run out of time’. If inwardly you’re a golfer, then rules DO apply, you can grade yourself on each hole (par), and ‘profitability’ is simply a mid-course correction that needs to occur. It’s my belief that Adam Neumann (x-CEO of WeWork) and Travis Kalanick (x-CEO of Uber) were surfers – not golfers.
If I’m a potential employee, I need to find the golfer CEOs and not the surfers. VC-backed winners are worth 1,000 TIMES more than their average investment. I remember the advice Eric Schmidt of Google gave to graduates: “If you are offered a seat on a rocket ship, get on—don’t ask what seat.” Where startups are concerned, picking the right company is far more important than picking the right role. The hard part is figuring out which startup is the rocket ship. VCs make a living out of trying to forecast a company’s success, and the best VCs get it wrong 9 times out of 10 times. Investors can afford those odds because that single winner will more than pay for all of their losers. Employees, on the other hand, can only pick one company – and it’s more expensive for the employee to be wrong. So take the time to assess ‘golfer vs surfer’.
My second point about: “Are we there yet?” is figure out whether the CEO ‘normally’ knows the answer to a question – before they ask it. Lawyers, know that the first rule of cross-examination at trial: “You NEVER ask a question to which you don’t already know the answer.” Comedians always try out their new material in small clubs. And that’s why Elon Musk (CEO of Tesla) should NOT have thrown steel balls at his new Cybertruck’s car windows. Allow me to set the stage. The coming out party for Tesla’s Cybertruck presentation looked like a scene from Blade Runner. There were props, lasers, fire, and mere mortals. https://www.youtube.com/watch?v=9P_1_oLGREM Everything from the design to the font told me that this is the truck of our dystopian future. Do you need armored doors or shatterproof glass? Absolutely, if you’re defending the future of humanity. So when Hanz (chief designer) threw a metal ball at the driver-side front window and it shattered – you could hear Elon say: “Oh my f***ing god”. And when Hanz threw the metal ball at the second window, only to see it shatter – Elon remarked: “At least it didn’t go through the window.” I said when it happened, “Unfortunately, that’s the scene the media will remember.”
Obviously, Tesla’s Cybertruck is ‘not there yet’ – hence its 2021 delivery date. But the presentation did NOT have to go there. The truck’s superlatives did NOT have to include bullet-proof glass. Tesla should NOT be lumped in with WeWork and Airbnb. Heck, WeWork just announced this week that it will start ‘managing properties’ for other landlords in order to reduce the risk of it getting ‘stuck’ with vacant buildings during an economic downturn. Imagine that. And it was no surprise that Airbnb’s COO announced her own retirement AFTER she succeeded in losing $100m last quarter.
Forcing a company to be profitable, making their officers golf rather than surf, and making sure everyone does their homework before the big dance – is really hard. But there’s only one reason they give you ‘big boy pants’ - and that’s for you to wear them.
The Market:
Signs of a dying American shopper emerged in the latest retail sales report, raising questions about the ability of one of the U.S. economy’s brightest spots to keep the nation’s long-running expansion alive. Although headline retail sales recovered in October from a multi-month low, economists pointed to weaker underlying signs. "Overall the report is consistent with other figures that suggest growth is slowing, but not collapsing," James Knightley, chief international economist at ING, said. "Spending should continue to be supported by high employment and rising wages, but the key question is whether it will be strong enough to offset weakness in business investment and net trade? We are nervous given the ongoing global weakness and a sense that the Phase 1 trade deal may not be as broad as initially hoped," he added.
In the market, it’s back to the slow, painful grind higher in the broad market with contracting volatility. Here’s some food for thought: after Apple’s earnings release on Oct 30th, Apple has moved higher by over $20 from $245 to $265. It added another $100B in market cap. $100B may not seem like a lot, but let me put it differently. From just the last 2 weeks of Apple’s appreciation, Apple could buy and give to its employees a Christmas present containing: Uber, Lyft, Pinterest, Peloton, E*trade, the Chicago Bears, the NY Yankees, and still have enough money left over (without touching any of their cash position) to send their entire 130,000+ employees to the moon for a Christmas party. Market purists like to define extremes with the terms like: capitulation and complacency. I prefer to use common sense and insanity to describe the extremes. Either way, we must be getting closer to the insanity end – a lot closer.
As I've been suggesting for weeks, the FEDs have gone all in. James Grant, had this to say about the repo injections: "The FED has embarked on one of the most aggressive monetary policy re-accommodation schemes in history. The FED has done $3 Trillion in repos in the past two months. Just Wednesday night the headline read: “N.Y. FED takes $74.350B of securities in overnight repo op.” When the FED was asked which banks were in trouble, and who needed that much fire power, they responded: “We will tell you in 2 years when we’re required to do so.”
The S&P is almost 100 points higher than its 50-day moving average, and that's a distortion that almost always sees a move lower. In August the S&P fell back down and under its 50-day, got over it in September, plunged down again in October, and has soared straight up since then. The ONLY thing that changed in early October, was the FED beginning their insane repo operations.
Info Bits:
- Cue Tinkerbell and the pixie dust: Disney+ snagged over 10M new accounts in the first 24 hours. Disney’s goal is NOT subscription revenue, but rather to hook you on the Disney lifestyle – movies, vacations, and merchandise.
- Amazon’s Prime Day = $5.8B: Alibaba’s Singles Day enjoyed sales of $38B – outselling Prime Day in the 1st hour.
- No more printers, thanks: HP’s board unanimously rejected Xerox’s offer to acquire it for $27B. The union would save over $1B by combining accounting, sales and just 1 holiday party. But Xerox is 1/3 the size of HP.
- Long term leader commitment… is what causes entrepreneur-led companies to outperform larger publicly traded corporations. (Said Bezos, Gates, & Musk).
- Employees are angry… at Slack ( down 40%), Lyft (-43%), Uber (-35%), Chewy (-36%), etc. They can’t cash in their options with their stocks being down so much. Tough to get people to work harder when they’re angry.
- Kylie cashes out… for a cool $600m to the Coty cosmetics company. Will Kylie get bored and move on? We’ve seen what happens (Snapchat) when she does.
- “Meth, we’re on it!” The South Dakota Dept. of Social Service paid an ad agency in Minneapolis $450k for the ad campaign. I hear WeWork, Uber, Lyft, Airbnb and others were inspired and launched their own: “Losses, we’re on it!”
- Retail Needs Therapy: Home Depot, Kohl’s, and Urban Outfitters are still falling after missing on both the top and bottom line with earnings. Ho-Ho-Ho you guys.
- Change of heart… Trump is no longer motivated to pull the trigger on flavored Juul pods once he saw the numbers on the #IVapeIVote hashtag. Who knew his Achilles heel was the ‘ballot box’?
- Paypal bought Honey… a deal-finding add-on to your browser, for $4B in mostly cash. This allows PayPal to not only compete on the checkout page against Apple Pay but also to become part of the deal discovery process, too.
- Donald Trump’s dinner with Facebook CEO Mark Zuckerberg… had nothing to do with the U.S. not regulating FB in exchange for the company's unwavering embrace of political ads – if that's what you were thinking.
- Kickstarter… is pretty lousy at creating hits, but pretty good when used to reinforce a company’s momentum (as it was intended). Kickstarter’s chances of creating a viral hit that reaches strangers is about one in a thousand.
- $1.5 billion… is what White Claw projects in sales this year. White Claw is a trendy brand of hard seltzer – basically a fizzy, alcoholic LaCroix.
- We’re laying off 2,400 for starters… said WeWork as they jettisoned over 20% of their workforce. Imagine operating a business with 20% too many people. Oh, most of them were probably pilots for the corporate jets.
- Hungry, Hungry Brokerages: Charles Schwab may be in merger talks with TD Ameritrade. Schwab was the first to drop commissions to $0. The process is: you zero commissions - competitors follow - stocks get crushed - make your bid.
- I bet you that… markets will fall by March, 2020 – said Ray Dalio – CEO of the world’s largest hedge fund. He denies it, but that just means he hasn’t purchased ALL of his SPX ‘Puts’ yet.
Crypto-Bytes:
- 2nd Chances: The SEC is reviewing Bitwise Asset Mgmt.’s rejection of a recent bitcoin exchange-traded fund (ETF) proposal. Overturning the rejection would clear the way for potentially the first bitcoin ETF in U.S. history.
- Libra progress: Libra has logged 51,000 dummy transactions in the last two months. Coinbase, Uber, Xapo, Calibra and Anchorage are all in trials. 34 Libra projects are in the works – including 10 digital wallets and an API.
- “In Gosh we trust…” Kenneth Blanco of FinCEN views all stablecoins as falling under his authority. Ken is not a big crypto ‘fan’, but Ken – Don’t you want any crypto-fintech development going on in the U.S.? What happens when the U.S. dollar is no longer the global reserve currency – oops that’s’ foreshadowing?
- Bank by Investor Demand… the Monetary Authority of Singapore, the city-state's de facto central bank, may soon allow bitcoin and ether-based derivatives to be traded on regulated platforms.
- Bitcoin (BTC) traded below… its 200-day moving average. It’s down 18% since this month began. Speculators think that the price movements are due to a Binance / Singapore ‘dust-up’ and/or Chinese Authoritarianism.
- Binance acquires Mumbai’s WazirX: Binance says users of WazirX will soon be able to buy the tether stablecoin with rupees via WazirX, and use them to trade crypto. This gets around the country’s banking ban.
- “Bakkt to the Future(s)”: Bakkt is launching its Singapore-listed Bitcoin futures contracts on Dec. 9. Bakkt Futures contracts will be listed on ICE and cleared by ICE Clear-Singapore.
Last Week: Day by day summary…
- Monday: China threatened to wait until after the 2020 election to further negotiate Phase 1 of the deal. But as the day wore on, that extra money sloshing around our FEDs pockets – continued to find a way into the markets. If they're going to take us ever higher, where do we look next? Intel (INTC) looks like it's going to try to break above some recent consolidation. I could see myself buying a move over 58.80
- Tuesday: In the retail sector, Kohl’s has just announced that it cut its yearend forecast. That's not such a hot thing to report if the consumer is supposed to be doing so well. But then that was backed up by Home Depot lowering its sales outlook after a 3rd-quarter revenue miss. Today could be a ‘pouting’ day, but the S&Ps could drop 60 points and not even get to their 50-day moving average – so let’s be real. For you more active traders, take a peek at little BTG as it desperately wants to break out and over $3.67.
- Wednesday: When you're looking at a market that has risen for all the wrong reasons, every day that isn't "up" is a day to wonder if the bubble has found its pin. This morning the futures are down 85 points, and that’s truly amazing because last night Washington released its statement about Hong Kong and democracy. Basically the US is telling China that it better not squash out the protestors with military violence, and China is firing back saying that the U.S. has no business telling it what it can do with Hong Kong. So this puts another hiccup into the ‘trade deal’. If the trade deal is getting pushed off, then Trump will HIKE tariffs. No one's going to be happy on either side over that. I like holding gold and silver: AG, PAAS and DRD.
- Thursday: It’s Tesla Cyber-Truck night (pictured above). Yee-Haw!
- Friday: They put in a mild down day yesterday, as it seemed like every 20 minutes there was some form of conflicting news about trade and tariffs. On top of all that was the Senate bill saying that the US stands with the people of Hong Kong – which infuriated Xi. With all those plates in the air, the idea of only being down about 50 DOW points is still a victory for the bulls. So, we've had 3 soft days in a row. Were 3 soft days enough of a "correction" and now we're heading higher? Square (SQ) has been moving higher lately, and it is just nearing the area where it would be "filling a gap" on the chart. Back in early August it gapped down $13 dollars/share, and for the last month has been consolidating in a range. If it can get over $68.10, I suspect it will fill the gap and challenge its 200 day moving average.
Weed: “Clean up on Aisle Weed”
- Canopy Growth (CGC)… took a step to reset sales and earnings expectations due to softness in oils and softgels, but expects near-term cash burn to improve.
- Aurora Cannabis (ACB)… now has cash, and that’s a good thing. With the Canadian cannabis continuing to under-whelm across the board, ACB delivered on their cash-flow model. They’re slowing down their capital spending, and their low cost production is prepared to leverage their scale advantages.
- Molson Coors Takes Minority Stake in L.A. Libations MillerCoors, the U.S. business unit of beer giant Molson Coors, announced today it has taken a minority ownership stake in California-based beverage incubator L.A. Libations, a move that gives the beer conglomerate access to a broad portfolio of brands as it moves to expand its play in non-alcoholic categories.
- Dec. 1st… is when the $1.7B adult-use cannabis market opens in Michigan.
- November, 2020… is when N.J. voters will decide marijuana legalization.
- Federal cannabis legalization is inevitable… was the key takeaway from former Deputy Attorney General Jim Cole’s speech at Cowen’s cannabis conference. He went on to clarify that: “Legislation is now needed as administrative actions are not permanent enough to provide the certainty the industry needs. Even the FDA has become noticeably more relaxed and generally less skeptical about medical cannabis trials.”
- Viv & Oak launches a non-alcoholic, cannabis-infused sparkling rosé: Made from California grapes, it will be sold in two dosage levels with one containing 50-mg. of THC (10-mg. a 5-ounce glass) and the other 25-mg. of both THC and CBD (5-mg. of each a 5-ounce pour). Viv & Oak will debut at select dispensaries in California in December and will be distributed statewide by Pacific Expeditors.
- Massachusetts adult-use marijuana sales top $1 million a day: The 33 marijuana retail stores in Massachusetts sold a total of $393.7m in products in the first year of legal adult-use cannabis sales in the state, according to the Cannabis Control Commission. That equates to more than $1 million in sales a day.
- House Judiciary Committee Approves a Bill to End Marijuana Prohibition: This historic vote marked the first time the committee has approved comprehensive legislation to remove cannabis from the schedule of controlled substances and address harms caused by prohibition. The measure won’t make it to the full House until 2020, at the earliest. If the measure passes the full House, the Republican-controlled Senate is seen as a formidable and unlikely barrier to cross before the 2020 elections. However, the bill is being carried into the Senate by California Democrat: Kamala Harris.
- California announces new marijuana taxes effective Jan. 1: High state and local tax rates have been an industry problem that has made legal marijuana businesses less competitive with the illicit market. Unlicensed retailers (paying no taxes) can lure customers with lower prices.
- Edible Arrangements is now selling CBD-laced edibles: As if there could be anything more delicious and calming than pineapples injected with cbd and cut to look like flowers. Ahhhhh.
- A Blueprint for running a Medical Marijuana (MJ) program: As the infographic suggests, in less than a year, Oklahoma’s medical marijuana industry went from nonexistent to one of the largest and most taxwise valuable cannabis markets in the nation. Patient counts have skyrocketed up nearly eightfold from the end of 2018. More than 5% of Oklahoma’s population is now registered as medical cannabis patients, exceeding any other program in the nation. Oklahoma’s industry also is as close to a free-market system as there is in the U.S. What is the secret sauce? (a) There are no caps on the number of business licenses that can be awarded. (b) Doctors are allowed to recommend the product for any condition they deem fit. And (c) municipalities are prohibited from enacting zoning restrictions to prevent dispensaries from opening. Free market capitalism … who knew?
- New York is regrouping to salvage a hemp extract bill… that has been languishing on Gov. Andrew Cuomo’s desk since it was passed last summer. Cuomo is expected to issue a “friendly veto” of the bill, which will enable it to be reintroduced during the budget process next year. The bill would have allowed up to 20 milligrams of CBD to be added to a 12-ounce beverage; however, there were no provisions allowing for food to be infused with CBD.
- Investing in cannabis: Roughly 86% of investors are concerned about a global recession over the next 12-18 months, but remain bullish regarding cannabis. Almost 60% of investors believe that cannabis will continue to grow, despite the general state of the economy. The majority of investors say they would hold or purchase more cannabis stock if it goes lower – with 68% keeping their current position and 27% acquiring additional stock. Today, there has been a 30% drop in investors who have more than $100k invested in cannabis. 88% of investors plan to hold these investments for 1-10 years. 54% of investors said if the SAFE Banking Act was to pass in early 2020, they would increase their investment with 68% also increasing their investment if cannabis was to be federally legalized.
Next Week: Lean long, use small positions, and may the force be with you.
Last year it was hold your nose and buy the dips. Apple was headed to $140, and the media thought that the financial world was finally coming to an end. This year, you need to buy ‘noise cancelling’ Airpods to block out all the nonsense and ride the stock through Christmas. There is also renewed strength in volatile biotech stocks like NBIX and CRSP – both on my buy the dips list. Even select cyber-security stocks like FTNT and PANW are back in vogue and breaking out. In 2019, the S&P crushed hedge funds and stock pickers because Walmart, Microsoft, Apple and JP Morgan continued to lead things higher.
But things are getting dicey. Funds are beginning to watch the FED’s REPO injections and are beginning to ‘game the system’ accordingly. We are so over extended, that for weeks I've been expecting a correction that has never materialized. Something about this market just feels shaky, tired, overdone, and worn out. If it weren’t for the FED’s money, I’d be ‘short the market’. I'm not saying that this lunatic run to all-time highs is over, I’m just saying that right now the jury's still out.
Lately, I've been wondering if Trump was responsible for this impeachment circus. I'm wondering if he pushed everyone into it, because: a) their testimonies will make their positions known, b) the “leakers” will surface, c) it will uncover who’s getting all the Ukrainian aid that seems to constantly disappear, and d) if pressed to go to trial – Trump would get to cross-examine EVERYONE from Adam Schiff on down. Trump could have staged this impeachment, in order to weed-out the scum. I know, that the idea sounds ‘out there’,but I wanted to share.
The best play is still the SPY and DIA ETFs. The SPY and DIA will go higher if the DOW and S&P do. Yes they're expensive. Yes it’s fundamentally stupid, but ‘up is up’. I also like Nvidia (NVDA) over $215, Square (SQ) over $68.10, and the financials (XLF) over $30. Should they be going higher? Of course not. But a trillion here and a trillion there has its effects.
Tips:
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $2.70 / in @ $3.07)
- First Majestic Silver (AG = $10.51 / in @ 10.50)
- Canopy Growth Corp (CGC = $18.41 / in @ $22.17),
- DRD Gold (DGD = $4.13 / in @ $4.20),
- GBTC Bitcoin (GBTC = $9.27 / in @ $10.01),
- Pan American Silver (PAAS = $18.40 / in @ 18.00),
Crypto:
- Bitcoin (BTC = $7,300)
- Ethereum (ETH = $150)
- Bitcoin Cash (BCH = $215)
Options:
- RIOT ($1.49):
o Bot Jan 17, Sold $3 Call / Sold $3 Put / Bot $4 Call for $1.85 CR
o Bot Jan 17, Sold $2 Call / Sold $2 Put / Bot $3 Call for $1.45 CR
o (can only lose money if RIOT falls below $0.70).
Thoughts:
- Disney (DIS = 148.29) is basically releasing its sixth $1B grossing film of 2019, the artfully named: “Frozen 2”. Was “Re-Frozen” taken? It’s designed to capture those extra ‘Home for Thanksgiving’ dollars, and those Christmas toy dollars as well. DIS has settled down after last week’s spike higher on its Disney+ streaming service, but it’s still the strongest relative performer of all the big media stocks. With all of DIS’s revenue streams firing at once, it may have some more room on the upside. Its implied volatility rank is well below 50%, so that points to debit spreads for speculative trades. If you are bullish on DIS, the long call vertical that’s long the $145 Call and short the $155 Call in the Jan monthly expiration is a bullish strategy that has a 64% probability of making 50% of its max 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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Until next week – be safe.
R.F. Culbertson
Until next week – be safe.
R.F. Culbertson
