This Week in Barrons: 2-16-2020:
E-Mail Bag:
How do I get my company on everyone’s short-list? The advertising term is called: Unaided Awareness. If I asked you to name a brand of sneaker, and you came up with Nike – you’re not alone. Unaided Awarenessis the ability to name a member of a category without having to choose it from a list. It’s tempting to want to be the ‘Nike’ of your category. Unfortunately, Unaided Awareness is NOT a useful goal. Most business decisions are not unaided, but rather made with a fair amount of consideration. Word-of-mouth is more important than being on everyone’s short-list.
Why do I always get the worst clients? You do know that’s a trick question – right? Yes, clients may be misguided, selfish or lazy, but if we only had great opportunities working for insightful clients – then important work wouldn’t be scarce. Part of our job is to educate the client and keep them from doing something stupid, short-term and/or self-centered. There are 2 secrets to doing great work: (a) persuade the client to let you do great work, and (b) get better clients. You will get better clients as soon as you act like the producer who deserves better clients.
When I agree to work on a project, is there an intro-list we can both use? Yes, maybe this will make your life easier:
- Always answer emails within a day.
- Pay all invoices before they’re due.
- Every interaction is OFF the record – unless agreed upon otherwise.
- If you’re not sure – ask.
- Don’t miss deadlines.
- Sprint at the beginning – not at the end.
- Don’t compromise because you’re running out of time.
- Spend NO TIME casting blame after something fails.
- Budget – Decision-Maker – Timeframe are the 3 key design questions.
- If it’s not working – say so with specificity and kindness.
- Expect to pay a lot – but expect to get more than you pay for.
How do I play this market? Referring to MH’s post: “Calm, plants the seeds of crazy.”
1. If markets never crashed – they wouldn’t be risky. Without risk – markets would get expensive. And when markets get expensive – they crash.
2. When economies are stable – people become optimistic. When people are optimistic – they go into debt. And when people go into debt – economies becomes unstable.
3. The ‘Fasten Seatbelt Light’ should never be turned off.
The Market: …
Last week, Bitcoin continued to increase in USD value and eventually eclipsed the $10,000 threshold for the third time in the asset’s history. Although this is the third time Bitcoin has crossed $10,000, it feels much different than the prior two times. Each of the past events were during hyperbolic growth, and the $10,000 milestone was merely a blip on the radar. That isn’t what is happening this time. Bitcoin has been trading between $7,000 and $9,000 for the last few months. It has slowly been grinding higher. It feels more sustainable and natural this time. And it leads me to believe that $10,000 will end up meaning a lot more this time. There’s something psychologically magical that comes with a $10,000 Bitcoin.
But $10,000 is still 50% lower than its all-time-high in USD terms. And after all, Bitcoin is an overly simple concept. There is a fixed supply of Bitcoin, and as long as demand continues to increase, then the price of one Bitcoin must continue to rise. On the supply side, there will be 1,800 Bitcoin created and dispersed to miners every 24 hour period until roughly the beginning of May, and then the number will drop to 900 Bitcoin per day. There are 2 demand assumptions, and one is quantitative while the other is qualitative. The quantitative assumption is that as more people learn about Bitcoin, there will be some percentage of those people that will opt-in to owning Bitcoin. This leads to a measurable increase in Bitcoin demand. The qualitative argument is that the continued chaos, political instability, and economic uncertainty in various geographies around the world suggesting won’t reverse itself any time soon.
Although the price grinding up is more healthy, I don’t think it is going to play out that way. Markets are too irrational. Humans ultimately make up these markets and humans are incredibly irrational, emotional, and greedy. As Bitcoin crosses $10,000, many people are tweeting and FOMO is beginning to set in during private conversations with friends and family. All early signs point toward another bull market. A market that will probably look and feel similar to past bull markets for Bitcoin. The upside will be asymmetric. As the price starts to rapidly increase, more people will become interested. They will start to buy Bitcoin, and the price will accelerate even more. Rinse ‘n repeat.
I think the top of the parabolic rise in price in BTC will be approximately 18 months after the halving. The 2021 calendar year will bring the big fireworks. We have about 22 months to watch if the rest of the bull market / parabolic growth cycle plays out. The big thing is that people need to be patient, and put together a financial plan. Your plan doesn’t need to be perfect, and your plan can change going forward. Just don’t go into a potential parabolic growth period with zero idea of how you are going to manage your wealth. There are a lot of people who got burned in 2017’s bull market – even though the asset went up 20X in a single year. Be responsible. Be prepared. Bitcoin is an animal unlike anything the finance world has ever seen before. When it is ready to move, it can melt people’s faces off.
Info Bits:
- $165M home and no real estate broker: Jeff Bezos avoided a broker while purchasing his new $165m L.A. home. Jeff found the house he wanted, located the owner, and made the owner a $165m offer. Simple as that. Meanwhile, I found $10 in a pocket of my jeans, and it made my day.
- A British Airways flight notched a record speed, making it from New York to London in just under 5 hours (2 hours earlier than scheduled).
- It was all a dream... Casper stock has fallen 28% since the mattress icon went public. A month ago, Casper was valued privately at $1.1B, and Friday it was worth $346m as a public company.
- IBM is moving to Slack: Slack shares jumped 15.62% when it was announced that IBM (and their 350,000 employees) will become Slack’s largest customer.
- Amazon has hired Sony chairman Mike Hopkins… to lead its video efforts. Hopkins spent the last 2.5 years with Sony, and was previously the CEO of Hulu.
- Convertible notes… were once the province of founders who weren’t sure how to value their companies. Now, established companies that have already raised priced rounds are beginning to use them.
- T-Mobile and Sprint are hooking up on Valentine’s Day: A federal judge approved the $26.5B planned merger of the two phone companies.
- The CDC is preparing… for the coronavirus to “take a foothold in the U.S.”
- The world’s biggest phone show… is no longer taking place this year, after the coronavirus threatened to throw into chaos.
- U.S. federal prosecutors charged Huawei… with racketeering and conspiracy to steal trade secrets. The new charges accuse Huawei of a decades-long effort to steal intellectual property from 6 U.S. tech companies.
- A real estate 5G play: The Real Estate ETF (XLRE) is up 7.06% YTD and makes all-time highs virtually every other day. While rates are low and the XLRE pays a dividend, the real reason it’s up is because it contains: SBAC – a cell tower operator, CCI – a cell tower owner, and AMT – another cell tower owner. It’s a 5G play and that’s how momentum works.
- Half of all college debt holders (4.4m)… have not paid ANY of their owed principal. Per SF, some are emboldened by Sanders’s and Warren’s ploy of making college free, and have started a movement to default on the debt.
Crypto Bytes:
- Ethereum Follow Up: The recent divergence between Ethereum and Bitcoin could be with us for a while. HL’s chart of the Ethereum to Bitcoin ratio makes it clear that the long ETH – short BTC play is breaking out. Help yourself.
- Weed watch: Vermont regulators will track hemp production on the Ethereum main net in partnership with cannabis supply chain startup Trace.
- In a Galaxy Digital – far, far away… the crypto merchant bank founded by Michael Novogratz has laid off 15% of its workforce.
- Let it go, Let it go: Banking giant JPMorgan may soon merge its Quorum blockchain project with ConsenSys, the Ethereum-focused software developer and investor. Huh, I thought JPM didn’t believe in crypto?
- Spinoff benefits: It seems that enterprise blockchain is a catalyst for further spending at IBM. Every client that spends $1 on blockchain – spends another $15 on the IBM cloud. Huh, I thought IBM didn’t believe in crypto?
- Bank backing: Wells Fargo is backing blockchain forensics firm Elliptic with a fresh $5m investment. Wells told me that they didn’t believe in crypto.
- Black Swans: The U.S. Intelligence Agency is advertising for a post-doc researcher to study what would happen if the dollar lost its status as the world’s reserve currency. Who knew that crypto may replace the USD as the global reserve currency – I’m guessing that JPM, Wells, and IBM knew.
Last Week:
Monday: 3 out of 4 FANGs are at all-time-highs. TSLA is up on rumors that Google might buy them for thousands per share. Cats are sleeping with dogs, and things have gone insane. If our FED is going to keep pushing this thing, please be careful if you buy anything. A reversal could hit at any time considering the news flow about this virus. I’m watching TGT over $117.25 – to see if it tries to fill their gap. FFIV is also on my radar now that their technicals are improving, and it looks like it's ready to make a bounce. A move over $126could drag me in. A couple more things popped up my radar: PETS, IQ and RAD have all broken out. With PETS, I'd wait for a pullback. IQ has earnings in a couple weeks, so a move over $25.50 gets me in. With RAD, a move over $14.50 is worth a shot. Be careful, this market is walking on eggshells.
Tuesday: When's the last time you saw a major market cap stock like MSFT go parabolic? I haven't seen anything like this since 1998 and 1999. MSFT gained almost $5 yesterday and is indicating $2+ so far this am. This is NOT normal. In 6 sessions, MSFT has gained over $20 a share. I realize that we’re in MSFT, but right now were’ in a place where any kind of ‘norms’ of investing have been thrown out the window. Every fiber of my being suggests this is going to end badly, but the question is when. I'm not even going to bore you with the virus news. Yes there are more official infections and more deaths. This has outpaced SARS in a big way, and has done it in a month. Maybe they’re jamming this market higher because they know there’s a massive disruption coming. I still like RAD over $14.50. One that looks interesting in here is MET, and a move over $53.05 could be a good entry point.
Weed:
- Where can you get a BS in CBD? Colorado State University of course.
- If Bernie’s elected… he’s vowed to legalize cannabis on his 1st day in office.
- Connecticut Legislators… filed an adult use cannabis legalization bill.
- Vermont’s House Committee… approved an adult use retail legalization bill.
- One month after Canada announced Cannabis 2.0: We are seeing much higher ‘out-of-stock’ conditions for edibles and ingestibles. Pricing seems to be a key driver of consumer demand. Lower priced offerings are generally selling out first in all categories. Clearly it’s price, then function, and then flavor.
- Demographics of the marijuana smoker:
o Men are more likely to smoke than women.
o 18 to 29 year olds are the most likely age group to smoke marijuana. They are twice as likely as ages: 30 to 64, and 7X as likely as over 65.
o Liberals are 6X more likely to smoke marijuana than conservatives, and twice as likely as moderates.
- Kentucky advances medical cannabis legalization bill: A Kentucky House committee approved a bill that would legalize medical cannabis sales.
- Chris Hollod… wants to be known as one of the most active angel L.A. investors in the alternative alcohol / consumer packaged goods space.
- Let me be blunt: Canopy Growth reported better than expected earnings and the stock rose 13.37% last week. But, it’s still down 63% from its 2018 highs.
Next Week:
Given the U.S. holds 20 patents on the coronavirus (CorID-19), a couple theories that have surfaced are: (a) it was leaked by accident in China, (b) it was released on purpose to crush the Chinese economy, or (c) it was released by China itself to help cull some of its older population. Everyone wants to believe that this was a tragic mistake. My take is that that this bug is running wild through Asia, and there are at least 10X more deaths and infections than have been reported. The coronavirus (CorID-19) is not contained, and isn't just the flu. You don't put 400m people on lockdown for the flu. You don't have trucks driving through streets spraying aerosols to kill bacteria and viruses for the flu. You don't nail people's doors shut or create enormous fake hospitals (without medical staff) – for the flu.
The CorID-19 has awoken many people to the fact that our supply chains are going to be disrupted. Auto makers are shutting down production lines because they have no parts. Airlines are laying off flight crews and suspending airplane orders. Shipping companies (especially sea-freight) are sitting idle. The Baltic Dry Index is at historic lows. Over 60% of our drug manufacturing and medication finishing is located overseas – with China and India accounting for over 40% of it. What happens if you're one of the millions that need a constant supply of life saving drugs that are produced in China? We've relied on ‘just in time’ supply chains for so long, there's no great back-up-plan to supply meds to millions. If I needed meds to stay alive, (a) I’d certainly be asking my pharmacist where else I could find them, and (b) I'd be asking my doctor for prescriptions in order to ‘stock pile’ what's currently available.
The CorID-19 has awoken many people to the fact that our supply chains are going to be disrupted. Auto makers are shutting down production lines because they have no parts. Airlines are laying off flight crews and suspending airplane orders. Shipping companies (especially sea-freight) are sitting idle. The Baltic Dry Index is at historic lows. Over 60% of our drug manufacturing and medication finishing is located overseas – with China and India accounting for over 40% of it. What happens if you're one of the millions that need a constant supply of life saving drugs that are produced in China? We've relied on ‘just in time’ supply chains for so long, there's no great back-up-plan to supply meds to millions. If I needed meds to stay alive, (a) I’d certainly be asking my pharmacist where else I could find them, and (b) I'd be asking my doctor for prescriptions in order to ‘stock pile’ what's currently available.
But, "How on earth can the market keep moving higher, when it's clear that coronavirus is disrupting economies around the world?" The answer resides within the world’s central banks – but honestly, what choice do they have? For years, central banks have created QE programs, stimulus programs, printed trillions of dollars, bought stock, and for the past few months provided liquidity of over $75B per night just to keep the wheels from coming off. Remember, these overnight repo operations started long before this virus scare, and you don't do $75B a night in repos if things are good to start with. So even BEFORE the virus scare, this global financial mess was an epidemic in and of itself.
I think the central banks of the world (if possible) are going to let the markets correct and blame it on the virus. I think they’re pushing as hard as they can, so that as more and more bad news comes out, they've got some headroom. I think they would rather see the market fall from 30K to 20K, rather than 20K to 10k. Central banks are desperate. You just don't take rates negative, and pump hundreds of billions a month into a normal marketplace / economy without being scared. Debts are so large that they can’t be repaid, and with the virus – it’s worse. For a hundred years, we've been told that we need the FED. If we crash while they’re in control, the crowd will want their heads. I remember Greenspan saying: “Markets can remain irrational, longer than you can remain solvent.” He was right at least once.
Tips:
Think of… buying some XLRE along with more XLU (utilities ETF).
Top Equity Recommendations:
HODL’s:
- Aurora (ACB = $1.58 / in @ $3.07),
- First Majestic Silver (AG = $9.60 / in @ 10.50),
- Canopy Growth Corp (CGC = $22.13 / in @ $22.17),
- DRD Gold (DRD = $6.39 / in @ $4.20),
- GBTC Bitcoin (GBTC = $13.21 / in @ $10.01),
- Microsoft (MSFT = $185.35 / in @ $145),
- Pan American Silver (PAAS = $22.42 / in @ $18.00),
- Utility Index (XLU = $70.39 / in @ $67.10)
Crypto:
- Bitcoin (BTC = $10,250),
- Ethereum (ETH = $275),
- Bitcoin Cash (BCH = $445)
Thoughts on GOLD: China saying that the coronavirus will be contained by spring has helped pull FXI up and away from the abyss. FED chair Powell is saying the economy is steady as she goes, and that has left bonds directionless. The gold ETF (GLD) has been stuck in a range for the past month. With our FED’s no action and China’s insatiable demand for gold, GLD might stay range-bound for the next few weeks. While GLD’s implied volatility rank is only 25%, there’s enough premium in its options to be interesting. If you think GLD will stay in a range, the short iron condor that’s long the $143 Put, short the $145 Put, short the $152 Call and long the $154 Call in the March monthly expiration as a neutral strategy that collects a credit 1/3 the width of its strikes, and has a 71% 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
