This Week in Barrons: 6-21-2020:
“Now that’s a Good Idea.”
I can’t even begin to count the times that I’ve used that line. I always follow it with: “And what happens next?” I then I repeat that line about 100 more times. Why? Because after every good idea, there are at least 100 required steps of iteration, learning, adjustment, innovation, and effort. Now, starting with a bad idea is a complete waste of time and energy. But not committing to the 100 steps that are required – is a complete waste of a good idea. We put a lot of pressure on our ideas to be perfect because we don’t want to face the reality that it’s the 100 steps AFTER the idea that are going to make all the difference. Every organization you can point to is built around an idea that wasn’t original or perfect. It was the effort, investment, and evolution that made the difference. That is what makes the entrepreneur special. Well, that and the entrepreneur’s ability to ignore the word: “NO.”
Unfortunately, there isn’t any single-best-way to build a company. Growing an entrepreneurial company is like putting together a jig-saw puzzle. The only real constraint is that the pieces must fit together perfectly. You can’t carve an extra notch here, or cut a hole there. It won’t work, and no one will have the time and energy to figure out why – because they will be on to the next: ‘Good Idea’.
I’ll always remember a quote by MS: “Ideas are worth eight tenths of a cent – about a dime a dozen. But the effort and care that it takes to bring one to adulthood – now that’s priceless. Remember, anybody can make a baby – the magic is in the parenting.”
The Market:
Remember the movie: ‘Major League’. It celebrated its 30th anniversary without me a while back. So, I’m playing a little catch-up baseball here as I pull some quotes from ‘Major League’ that tend to describe this market perfectly.
“Uh-oh, I don’t think this one’s got the distance.” Sorry Quibi, but honestly your demise was predictable. To my knowledge, there’s never been a successful media-tech firm founded by people in their sixties. The young brain is crazy, creative, and willing to work 100 hour weeks. People in their sixties are not blessed or cursed with those same elements. Most sixty-somethings are decent leaders and great mentors, but often spend too much time looking at themselves in the mirror. So to hope that the sixty-something C-level people at Quibi could navigate the winding roads of media-tech let alone hit a hanging curveball – was wishful thinking. Say: “Hasta la vista … baby.” (oops wrong movie).
“My arm feels like Jell-O right now.” Just keep throwin’ strikes Ricky because the only thing workin’ in this market are the winners. At the end of the week, just like over the past 3 months – the winners kept on winning. The winners of the 2020 COVID tape are the biotechs, and companies that have been able to leverage exceptional brands and technology into the teeth of this market’s insanity. For example, all of the following are at all-time-highs: Zoom +257%YTD, Peloton +79% YTD, DataDog +129% YTD, Amazon +45% YTD, Spotify +55% YTD, Teladoc +140% YTD, DraftKings +293% YTD, and yeah the ‘Monsters of Tech’. Hey: “Smoke ‘em if you got ‘em,” but just know that it “only works ‘till it doesn’t.”
“This guy threw at his own kid in a father-son game.” The competition is so fierce, you can’t trust anybody in this market. Did you hear about two 10-year old kids who (after watching their dads trade), put down Fortnight and traded 10 shares each of Hertz (HTZ) in their dad’s account. Empowered by how easy it was to make 10% on their $250, they quickly spread the word to other 4th graders. All of them started opening tens of thousands of Robinhood accounts with their fake id’s, perfect credit scores, and hacked Equifax approvals. They then borrowed tens of millions of dollars to trade on margin and ultimately changed the speculative dynamics of the entire market. They even bought options on margin and speculated with futures using the brokerage firm’s money. In one grand show of force, 10 days ago they crashed the market, and Ferris Bueller’d it so their parents would never find out.
Unfortunately, not all of that was true. I wish there were millions of kids who were interested in finance. I wish I had given my kids access to a few dollars of my trading account back when they were 10. They would have definitely learned about risk vs reward. Taking a risk should never be about hoping you don’t get caught. A risk-reward solution is always based upon facts – never intuition. Our free markets and competition allow you bypass the ‘cruise-control’ button and follow your kids. For once in your life you get to say: “I’ll have what she’s having.”
Unfortunately, not all of that was true. I wish there were millions of kids who were interested in finance. I wish I had given my kids access to a few dollars of my trading account back when they were 10. They would have definitely learned about risk vs reward. Taking a risk should never be about hoping you don’t get caught. A risk-reward solution is always based upon facts – never intuition. Our free markets and competition allow you bypass the ‘cruise-control’ button and follow your kids. For once in your life you get to say: “I’ll have what she’s having.”
InfoBits:
- NASCAR: banned the confederate flag, displayed a pride flag, allowed protests during the national anthem, made a #BTM vehicle, and eliminated gun company sponsorships. “Never in a billion years did I think NASCAR would be handling racism better than any other sport.”
- Big Tech has no choice but to… enter the fields of healthcare and education. These are the only two sectors that offer the margin dollars required to meet investors’ growth expectations.
- “My suspicion is that… colleges are holding out hope of in-person classes in order to keep enrollments high. If they were forced to tell the truth, many students would decide to take a year off – which would send college finances into a tailspin,” wrote Susan Dynarski a Univ. of Michigan economist.
- “Many professors are wary of returning to the classroom… fearful that the health risks may be too high,” said Prof. Clara Burke of CMU.
- 57% is Instacart's share… of the US online grocery market in April. That eclipses Walmart, which plunged to around 25%.
- 45% is DoorDash's share… of the food delivery market. Their #1 status is even more solid after Grubhub decided not to combine with Uber Eats.
- Cannabis side-hustle... Scotts Miracle Gro’s sales surged as WFH'ers stocked up on its gardening and lawn care products. Scotts' Hawthorne division really hit a homerun by helping producers grow weed with water (no soil needed).
- Downward dog ate my earnings... as Lululemon fell 8% after they reported a 17% quarterly sales plunge.
- SoftBank… is nearing a deal to sell part of its stake in T-Mobile as part of a broader effort to liquidate roughly $41B in assets.
- Walmart is acquiring… tech and IP from CareZone. CareZone makes it easier for people to manage multiple medications.
- Nikola’s founder said… “Our $60,000 electric Badger pickup is going to compete directly with the top-selling Ford-150.”
- PG&E plead guilty to 84 counts of manslaughter… for sparking California’s deadliest wildfire, on the same day that a separate judge said he would clear the way for the company to exit bankruptcy.
- Facebook CEO Mark Zuckerberg announced… that the social network will allow its users to turn off seeing political ads – although he didn't state when.
- HL predicts… Netflix will buy Peloton – otherwise Apple will. And, if Square goes up another 50% while Twitter continues to stall, they will combine and Jack will get his way and become CEO of one company
- Zoom confirmed that it will offer everyone end-to-end encryption... So why would I ever use MSFT Teams again?
- McDonald's hiring of 260,000 people this summer… is definitely a golden opportunity.
- First-time claims for unemployment insurance… totaled 1.5m last week. Workers receiving any kind of benefits totaled 29.1m. This was the 13th straight week that claims have totaled above 1m.
Crypto-Bytes:
- Ethereum’s Vitalik: “We expected cryptocurrency to normalize and become more like the stock market. What happened was that the outside world went crazy and the stock market became more like cryptocurrency.”
- View from the Banks: JPM acknowledged Bitcoin’s continued out-performance on a volatility-adjusted basis. It also found that liquidity on the major crypto exchanges was more resilient than for traditional equities and/or gold. So Jamie Dimon, are you saying that Bitcoin is no longer a fraud?
- Institutional interest… in CME Bitcoin options increased more than tenfold last month. Growth in CME futures also points to interest by institutional investors in trading regulated bitcoin derivatives products.
- FED Chairperson J. Powell said… “The idea of a digital dollar should be taken seriously, and this is something that the central banks have to design because the private sector is not involved in creating the money supply.” Which begs the question J. – why aren’t you doing it?
Last Week:
Monday: COVID is making its second wave of attacks, and cases are spiking higher. The DOW is indicated to open over 600 points lower, but there is some support at the 2933 area, and then at the 50-day = 2903 level. The power of our FED’s manipulation of this market is amazing. At 11pm last night the DOW futures were down almost 1,000 points, and then before noon today – our FED came out and said that they would buy$250B in individual corporate bonds which forced the S&P’s green. The S&Ps went from being 2.5% down to close UP on the day. That’s only the 3rd time in 10 years that it’s happened. This market wanted to go down, but our FED said nope – not today. So, we need to be careful. We may pull off a green victory, but it's not coming easily. I could see taking some SEED over $7.56, and CWH over $26.
Tuesday: Yesterday we were blood red and our FED saved us. Every time this market dips, the FED comes rushing in and buys the market higher. I’m hearing rumblings of an infrastructure bill being worked on at the White house. Let’s keep an eye on: X, NUE, CAT, and VMC. Coronavirus cases continue to infect about 20,000 people in the U.S. every day – although that national figure masks what’s occurring locally. Scott Gottlieb’s only question is: “Can we keep this from getting out of control. This virus wants to infect a very large portion of the population. We’re on the cusp of losing control of those outbreaks in certain parts of: Arizona, Houston, Austin, and Florida right now. We’re seeing doubling times now falling under 10 days. These areas only have a week or two to try and get these actions under control.”
Friday: Today is a Quadruple Witching expiration. This only happens 4 times a year. Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December. So Quad Witching expirations often get pretty violent – showing sharp, and fast up and down moves. If you’re playing, be sure to be cautious.
Weed:
- Any news on CBD? COVID-19 gives the FDA enough cover to continue its slow and deliberate approach on CBD, and perhaps leave the ‘tough stuff’ to Congress or to the next administration. The FDA has remained relatively quiet on CBD regulation since its March report to Congress on potential pathways for allowing CBD in food and dietary supplements. The March FDA report to Congress didn’t offer any new guidelines on CBD, and instead repeated the agency’s concerns over potential safety risks of currently marketed CBD products and other problems with mislabeling and contamination. The FDA stated that due to the lack of scientific information, it cannot conclude that CBD is generally recognized as safe for use in human or animal food. The FDA plans on delivering another report to Congress this summer after performing a sampling study of the current CBD marketplace to determine the extent to which products are mislabeled. However, a bill was introduced on January 13th by House Agriculture Chairman Collin Peterson (D-Minn), H.R. 5587, that would require the FDA to regulate CBD as a dietary supplement. It likely faces an uphill battle in the Senate – but we’re going to need to replenish our tax coffers somehow. While there has been a lack of urgency at the FDA on developing any new guidelines for CBD, there has been no slowdown of enforcement actions against unscrupulous manufacturers.
- Illinois’ recreational cannabis market… set a new record in May with transactions totaling more than $44m for the month.
- High Times will now acquire… only 10 properties in California from Harvest Health – totaling $67.5m.
- Rapper and actor Method Man is launching a cannabis brand… with the goal of increasing African American ownership in the industry. The company will supply cannabis to 4 dispensaries owned by African Americans in California.
- In 2020, licensed U.S. Hemp acreage… has fallen 9% from 2019, but grower numbers have increased by 27%.
Next Week: Massive Ranges … Minimum Movement … Stay Focused.
The overnight moves are massive. So I guess we all better start waking up at 3am and trading the futures – yes? Honestly, we all know what’s going on overnight – and that’s not healthy market price action. We continue to be bid-up overnight, and sold-off during the day – to the tune of about 50 S&P points every day. As a trader, you can’t complain about the range. In terms of total activity, we popped higher early in the week, and that’s where we stayed.
The ‘Monsters of Tech’ will not die: FB + APPLE + AMAZON + GOOGLE + MSFT aren’t going go away. If the S&Ps are going to move lower, it must be done on the back of technology. If you believe in a big move lower – then you need to be in it BEFORE it happens because nobody will allow you in the move – during the move. Tech is extremely extended. Heck, both MSFT and AAPL both have market caps of over $1.5T. But – it’s been that way for a while. This is where options can be used to dramatically minimize risk.
Thought-provoking Positions:
- VIX: There’s a great opportunity in the VIX. I believe between now and September we’re going to see a spike in the VIX (volatility index). I think the VIX will remain above $20; therefore sell the September monthly $20 / $15 Put spread (delta .05 / delta .01) to finance the buying of the $65 to $100 (delta .20 / delta .07) Call spread. Do this trade for ZERO dollars out of pocket.
- WMT: Mid-July is when online and retail sales are going to start to get hit – because ‘free money’ will be coming to an end. There will be an impact to the bottom-line economy. If you don’t like shorting Wal-Mart, you can buy August XLP - $65 (delta .80) Puts instead.
- FB and AAPL: Apple is currently the single-most important component of the DOW. It’s the new Boeing. +20m unemployed just can’t afford new Air Pods – payment plan or no payment plan. Use the same strategy as above – buy the September, in-the-money (Delta .80) Puts.
You have to see this – to believe it: All of the big tech stocks (QQQ, MSFT, AMZN, AAPL) are hugging the upper edges of their expected moves. While, everything else: financials (XLF), emerging markets (EEM), energy (XLE), small caps (IWM) etc. – is moving toward the lower end of their limits. I’m looking for the overall market to effect the QQQ (Monsters of Tech) this week – and to move them thru the lower edge of their expected move.
This coming week... the market is expecting a $126 move in the S&Ps – so let’s get ready to rumble. I think every trader wishes that the big action that’s occurring overnight – would occur during the day. But the good news is – we’re still seeing massive, 2 standard deviation moves on a regular basis. ALL of the volatility products (VVIX and BONDS) are pointing toward more risk. This may be summer trading, but the volatility is here to stay.
Tips:
A couple ideas:
- CAT: Caterpillar has a tendency to follow the S&P; however, it is often incredibly explosive. I believe the downward action begins as the end of the ‘retail free money’ arrives (mid to end July). I’m buying August, in-the-money $150 Puts.
- CSX: Planes, trains and automobiles – CSX offers me similar exposure as CAT only with much lower volatility. I’m buying the August, in-the-money $85 Puts.
- XHB: With +20m unemployed and the bank hiatus on collections coming to an end, the home builders index isn’t looking great. I’m buying the September, in-the-money $53 (delta .77) Puts.
I'm a back-spreading maniac: Back-spreads allow you to participate in only the large (over 1 standard deviation) moves. I believe that in ROKU and in August we find a unique offering: (a) buy the $110 Puts and sell the $125 Puts, and/or buy the $115 Puts and sell the $130 Puts. Both can be done for a decent credit of $2.40.
HODL’s:
- First Majestic Silver (AG = $8.63 / in @ 9.15 = down 5%),
- Yamaha Gold (AUY = $5.03 / in @ $4.60 = up 9%),
- Canopy Growth Corp (CGC = $17.33 / in @ $22.17 = down 22%),
- DRD Gold (DRD = $12.65 / in @ $3.82 = up 231%),
- GBTC Bitcoin (GBTC = $10.31 / in @ $9.41 = up 10%),
- GOLD (GOLD = $24.49 / in @ 27.20 = down 10%),
- Hecla Mining (HL = $2.85 / in @ $2.36 = up 21%),
- KL Gold (KL = $38.28 / in @ 26.85 = up 43%),
- NovaVax (NVAX = $64.75 / in @ $7.24 = up 794%),
- New Gold (NGD = $1.12 / in @ $0.82 = up 37%),
- Pan American Silver (PAAS = $26.79 / in @ $13.07 = up 105%),
- SPY = in the July 2020 Strangle = $164 Put – sold the Call side.
Crypto:
- Bitcoin (BTC = $9,400),
- Ethereum (ETH = $230),
- Bitcoin Cash (BCH = $235)
Thoughts: Summertime, and the trading is easy. Market’s sluggish, when the temp gets high. OK, I’m no Gershwin, but he wasn’t an options trader either. Despite all that’s going on in the world, gold (GLD) has been trading in a range for the past two months. After a sharp rebound in April after an equally sharp crash in March, GLD hasn’t made a meaningful move in a while. As much as we may think that equities will move lower – the FED has their back, and if all the excitement is already baked into GLD’s price, why shouldn’t GLD just oscillate in its range? That lack of movement has pushed GLD’s implied volatility lower, but it’s still high enough to make GLD’s options interesting short premium candidates. If you think that GLD might trade in a range for the next few weeks, the short iron condor that’s long the 155 Put, short the 157 Put, short the 172 Call and long the 174 Call in the July monthly expiration is a neutral strategy that collects a credit 1/3 the width of its strikes, and has a 70% 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
