This Week in Barrons: 7-19-2020:
The ‘The Hacked Tweet heard Round-the-World’:
This could have been 1-million times worse. Twitter is at the very heart of breaking news, government policy, and market-moving communications. President Trump's account wasn't hacked, but this breach makes you wonder – why not? Imagine the market and political response if the hackers had sent:
- A tweet from Trump declaring war on a country,
- A tweet from Elon saying he's quitting Tesla,
- A tweet from Uber and Bezos saying Amazon is acquiring Uber, and/or
- A tweet from Biden and Kanye saying they're running together.
We must believe that the hack was orchestrated. And, if Twitter is vulnerable – we best rethink the security surrounding most of our systems. To be clear, this wasn’t just someone stealing your email password, your finger print and/or your facial rec. image. This got so deep – so fast that it even took Twitter hours just to block the compromised accounts. Because of this, various public figures / companies have quit Twitter as their go-to platform for breaking announcements. That will hurt metrics, ad sales, and profits.
Twitter believes that the attackers targeted and successfully manipulated specific employees – and used their credentials to access Twitter’s internal systems, including getting around multiple two-factor authentications. The hackers accessed tools only available to Twitter’s highest level internal support teams – in order to target 130 Twitter accounts. For 45 of those accounts, the attackers were able to initiate a password reset, login to the account, and send tweets. For 8 of the accounts the attackers took the additional step of downloading all of their account information including complete tweet histories. For all 130 accounts targeted, the attackers were able to view personal information including email addresses, phone numbers, etc.
According to the Hackers, this entire event began with a teasing message between two individuals screen named ‘LoL’ and ‘Kirk’ over the online messaging platform Discord. Kirk wrote LoL saying: “Yoo bro. I work at twitter. Don’t show this to anyone. Seriously.” Kirk then demonstrated to LoL that he could take control of valuable Twitter accounts by initiating various things that would require insider access to the company’s computer network. LoL (well known in the hacker community) decided that Kirk did not actually work for Twitter, but did have access to Twitter’s most sensitive tools. This knowledge allowed Kirk to take control of almost any Twitter account, including those of former President Barack Obama, Joseph R. Biden Jr., Elon Musk and many other well-known figures. Kirk’s hacker reputation grew as he was able to quickly change the most fundamental security settings of any Twitter user name and send out confirmation pictures of Twitter’s internal dashboards. Since the attack, Kirk and his 20 BTC profits ($180k) have gone dark.
What’s the difference between a hacker, a professional, and a lucky amateur? The difference between the 3 has more to do with resolve and intent than skill set.
- The amateur creates and contributes unfiltered. They love what they do. They create because: they can, it helps someone else, and makes them feel good.
- The professional shows up even when they don’t feel like it. They understand the market, the customer, and what they’re worth = ‘It’s just business.’
- The hacker is a professional who doesn’t care. The hacker has been beaten up enough times that they are emotionally disconnected. They have a short-term view, and execute without regard for cultural impact or long-term prospects.
Two questions we should ask ourselves: (1) Which of the most powerful (or most powerful ‘to be’) leaders of the world, hired the hacker who fired the: ‘The Hacked Tweet heard Round-the-World’? And (2) When is the next one coming?
The Market:
As businesses begin to go bankrupt at alarming rates (5 publicly-helds just last week), I’ve become more intent than ever on: Following-the-Cash. I learned the hard way that: “Cash makes no enemies.” How companies manage their cash is often indicative of their success and longevity. You can:
- Build a product where receipt of cash comes months before shipment of product.
- Build a product where your customers pay frequently and up-front, but you pay your vendors relatively infrequently and in arrears.
- Charge a service (or membership) fee up-front to offset inventory costs and lower margins.
- Or you can try the ever impossible balancing act of marketplace based payouts and receivables using financial incentives (on both sides).
Companies that are able to innovate around their working capital cycle are ones that I pay close attention to. The businesses that get it right see faster compounded growth, and have more resilient business models. Efficient growth creates fewer outside capital requirements. The real benefits of efficiency come from: communication, community building, connections, and the combination of ideas. When people deprive others of communication for any reason – they’re not helping themselves. The ‘restricted communication’ model succeeds less than 1% of the time – but when it succeeds (to its credit) it does so exceptionally well.
According to most reporting, we should be seeing an exodus from the equity markets over the next 2 to 3 weeks. Money will begin to move from liquid equities into more private assets such as property and precious metals. COVID has reconfirmed diversification as a ‘must have’, with ‘assets you can touch, depreciate, and increase in value’ coming into prominence. This timing also corresponds with the ending of various governmental distribution payments, and an added boost to inflation. People point to a post-1990 Japan and a post-2008 U.S. to prove our lack of inflation – but that was when our banks refused to lend. This time, our government is bypassing the banks and sending money directly to the customer – generating a quicker response and also price inflation for the items people want. Sales and prices for food, housing, building materials, and used cars have exploded higher. For items facing strong demand, many producers will be slow to expand capacity, as demand may be temporary and supply chains remain constrained.
I personally believe that this environment is bullish for entrepreneurship due to its rapid rate of change and massive liquidity. Entrepreneurial thinking can ride a boom-bust roller coaster better than a slow-grind higher. It’s Darwinism where ‘booms’ generate more spending on ideas, and ‘busts’ clear out weaker firms – freeing-up more resources. I think the table looks more like post-WW2 and the 1970’s and 80’s rather than post dot-com or 2008 eras. My entrepreneurial F#$K IT list has always included being able to choose: (a) who you work with, (b) what you work on, (c) when you work, and (d) from where you work. Entrepreneurship is the only chance I have of scoring 100% on all 4 of those.
InfoBits:
- Rivian raised $2.5B for their electric pick-up truck: Rivian is developing a $100k electric delivery van for Amazon with an ETA around 2021.
- Amazon Prime welcomes Walmart+… you’re $98/yr. rival. It’s all about same-day &, 2-hour grocery delivery, product deals, and gas discounts.
- More turbulence in the skies... as United Airlines released news that it will potentially furlough almost half its U.S. workforce starting on October 1st . Many are already initiating early retirement discussion.
- Blame it on $2 hand-sani... for Walgreens losing $1.7B last quarter. It seems the world has shifted to buying TP vs prescription meds, and there are higher costs associated with sanitizing. All of that contributed to their profit decline.
- So who’s buying Tonal… Apple, Amazon or Spotify? Tonal bills itself as the world’s most intelligent home gym with personalized: workouts, design, feedback, and instruction.
- I’ve been SPAC’d again… as Spartan Energy Acquisition Corp announced its merger with electric car marker Fisker. First was NKLA and now Fisker ($2.9B valuation) – with yet a 3rd patiently waiting in the wings.
- Li Auto… a Chinese based EV startup, has filed for a U.S. IPO as a profitless company hunting for fresh capital to bankroll its growth.
- Huawei (the Chinese telecom giant)… recorded a 13.1% YoY revenue GAIN in the first half of 2020, despite the world banning its equipment.
- India brings less spending / person, but a lot more people...
o Google will invest $10B to make their internet "affordable and useful".
o Facebook’s into India’s biggest telecom Jio Platforms for $6B.
o Amazon’s invested $6B to expand its India operations.
o Walmart dropped $16B in 2018 on Indian ecommerce company Flipkart.
- PepsiCo should rename itself: SnacksCo because… Frito-Lay sales rose 7%, Quaker sales rose 23%, but Pepsi’s beverage sales fell 3%.
- WeWork = WeMoney… as it expects profitability in 2021 after a massive cost-slashing effort that included cutting 8K jobs.
- MSFT, FB, AMZN, GOOGL and AAPL… are the most concentrated the S&P 500 has ever been in its top five stocks and they’re all big tech.
- nCino IPO’d at $31 per share last week… but the stock opened at $71 and closed at the highs of $91.59. NCNO is now the second IPO that more than doubled on its debut. Remember Lemonade? Jeepers.
- All health data – report to Washington D.C. ASAP… it seems that the administration wants to politicize our health data as it has ordered hospitals to bypass the Centers for Disease Control (CDC) and send all virus data directly to Washington. Oh well – so much for turning this around before November.
- Airbnb has confirmed that it wants to go public this year… despite the lingering impacts of COVID on its business. The company is under pressure from its workers to go public – otherwise their options / shares expire.
- ZOOM wants to make your fake background – real: Barbados is offering a 1-year visa so you can work from its pristine beaches. They call it: ‘Working From Home … with a twist of lime – mon.’
- Lemonade (new insurance company)… needs to increase its customer’s lifetime value if it wants to become profitable. 90% of its customers are 1st-time insurance buyers – often just selling you renters insurance.
- Netflix’s earnings were none too inspiring … as the stock dropped 12% after-hours on weak guidance for Q3.
- Domino’s Pizza on the other hand… reported impressive revenue growth of 13% and a spectacular jump in net income of almost 29%.
- Facebook's Instagram today confirmed it’s preparing to soon launch its TikTok competitor, known as Zik-Zuck … or Reels … I forget which.
- Uber has held talks about raising $500m for its digital brokerage unit, Uber Freight, in a deal that would value the business at around $4B.
- Remember Rep. Ayanna Pressley’s quote… about Sec. of ED Betsy DeVos: “I wouldn’t trust you to care for my house plant let alone my child.”
- School re-openings will trigger COVID outbreaks… says a South Korean study of 65,000 people. The study found that children between the ages of 10 and 19 can spread the virus at least as well as adults. These findings could mean clusters of infections in children of all ages. The director of the Harvard Global Health Institute called the study “one of the best” to date on the issue.
Crypto-Bytes:
- Those poor beached whales: It seems the number of addresses holding 10,000 BTC has declined 8% over the past year. Some see this as reflecting weaker buying pressure, others point to the Bitcoin network decentralizing.
- Binance announces its first major rollout of a debit card… allowing users to pay for goods and services in crypto. It’s powered by Swipe and users in the European Economic Area (EEA) will be able to apply for a card in August.
- Volatility loves company… Bitcoin’s ongoing low-volatility play is reminiscent of the price doldrums observed ahead of the sudden 40% crash in the 2nd half of November, 2018. This time the price squeeze is setting up in the other direction.
- It’s an invasion of privacy (yawn)… Multiple bills that threaten encryption are moving through the U.S. Senate. 2 bills are taking aim at cryptography and privacy by mandating backdoors for government watchdog use. Oh yeah – a backdoor that only good guys (wink-wink) know how to use – that’s the ticket!
- Dissent and stablecoins seem to go together… as stablecoin usage has spiked in Hong Kong following the imposition of China’s’ national security law. Crypto assets and encrypted communication tools are a way to resist financial surveillance and internet censorship. Surprise, people no longer believe that the government or banks will keep their assets safe – shocker there.
Last Week:
Monday: Right now there are more than 19 outfits trying to come up with a vaccine and each time any of them announce something, the futures go crazy. The metals miners are on fire. TSLA is up $216, AAPL $14, AMZN $124, and NVDA is up $10. Clearly, if you’re one of the hot shots, you can do no wrong, and only go higher. Here’s something to play with if you don’t mind the risk. UAVS is moving on rumor & research that they’re going to get a big contract with AMZN. It actually looks legit. So, if it gets over $2.65 I might just throw some risk money at it, and see what happens. What just happened? Who said that they don’t ring a bell at the top. The Nasdaq rallied over 2% setting an all-time high, and then reversed and closed down more than 2%. It was a wild day. This was only the second time this has ever happened. The first time was on March 7, 2000 – the top of the dotcom bubble.
Tuesday: Rumor has it that yesterday’s turnaround was due to a major fund deciding to take profits. The other rational is that FED voter Kaplan (who suggested that some of the emergency QE could be scaled back as the economy improves) prompted the sell-off. Here’s a short list of the COVID related stocks that are being played with daily: BMRA, CEMI, TRIB, GNMK, APDN, THMO, CODX, APT, AHPI, DVAX, INO, SINT, OBCI, MRNA, VXRT, and SRNE. It's been over a month now, since the DOW fell below its 200-day, and it can't seem to break through it to the upside. If it gets through and holds, we're going to rocket higher. But if it can't, we might see some more sideways chop. I am watching MO. People are trying to find some dividend income and MO pays 8.2%. A move over $41.05 could pull me in.
Wednesday: Yesterday, the DOW closed above its 200-day moving average after a month of trying. Also AAPL got its tax burden eased out of the EU and won’t have to pay an extra $16B. The real excuse for this morning’s gap higher is Moderna posting a ‘robust’ immune response from their latest trials. Of course, retail bankruptcies are piling up at a record pace (5 filed in the past week matching an all-time record). California has announced a total lockdown again. For the most part, stocks aren’t doing much if you’re not a hot biotech, or a market favorite. But after being up 428 DOW points, and tons on the S&P and NASDAQ – the NASDAQ just went red. Why – because the market’s tired. Unless you want to buy out of the money options on the monster stocks, I’m not seeing anything terribly attractive right now.
Thursday: The ECB left it’s stimulus plan unchanged. Can our financials save the day today? It’s possible. One area that’s still getting traction over the shut downs, is take out, and PZZA looks pretty interesting. Our little UAVS is doing well, and is up over a dollar (on a $2 stock). If you own it, you have to decide what you’re going to do being up 21% on the day. I’m also liking PZZA over $93.90 and CWH over $35.50.
Friday: For the past few days you could see the inherent weakness in the market. The market truly wants a correction, but every day the FED, Kudlow, or someone comes out with a statement that the algos latch on to and up we go. Last night NFLX announced earnings that disappointed and the stock is getting hit. Will this take the wind out of the market in the morning? Probably not, but it could be the closest we get to a pause situation. The market wants down, the FED & banks want up – so we’re in this sideways chop. A name I’m beginning to watch again is MAXR. The technicals are turning, and if it gets up and over $16.70 it could easily challenge their recent $20 high. CWH is also moving, and over $35.91 I’m in.
Gold – the Anti-Bubble:
Think about it … what we’ve seen over the last decade is the transformation from risk-free interest to interest-free risk, and what this has created is a series of bubbles. And when you think about cheap assets that are poised to perform when other asset bubbles burst – think about gold and silver. Assuming banks and governments continue to borrow and bail everyone out – gold could hit $5,000 / ounce and silver $70 / ounce within five years. That is making both crypto and the precious metals a hedge / anti-bubble in the current investing climate. Gold has already enjoyed a strong year amid all the chaos, rallying about 19% and touching on levels not seen in a decade.
Next Week: Can the markets hold it together thru earnings?
The S&P is seeing docile moves as Nasdaq continues to have tantrums!
- The QQQ’s started the pullback as they finished the week lower while the S&Ps were slightly higher on the week.
- Be aware that the Russell Small-Cap Index actually exceeded their expected move to the ‘upside’ on the back of some smaller banks.
- Warning Shot #1: – every day for the last 2 weeks – the Nasdaq has seen fits of ‘bid-less’ behavior. It’s exhibiting scary gap downs.
- Algorithms – are specifically attacking the Monsters of Tech … Amazon, Apple, Google, Microsoft and Facebook. Microsoft actually broke thru the bottom of its expected move last week.
- The expected move on the SPX has contracted from this week, and this tells me NOT to sell premium over the next week or so.
- Remember, the monsters of tech could collectively take apart the S&Ps in a hurry if ‘the Bid-less Beast’ continues to show up.
Which sectors are driving trade:
- Tech (XLK) is lagging – scraping the bottom of its expected move, while the financials (XLF) are beginning to lead the market higher. This is a departure from the Nasdaq leading and pulling capital out of the financials and small caps.
- The big winner on the week was healthcare. Between the COVID vaccines and the new methodologies that people like UNH are putting in place, healthcare is figuring out how to make money in this type of arena.
90% of the time, convergence only happens in a downturn or forecasting one:
- Warning Shot #2: The last 3-month comparison chart shows the IWM and QQ converging. The risk / reward in the Nasdaq is sharply in favor of the downside. There’s virtually no diversification within the sector, and if we go ‘bid-less’ – the floor is a long way down!
- Volatility and convergence have gone hand-in-hand over the past 3 years. We’re currently converging and the markets have NOT tanked. You may wish to consider a pairs trade by getting long the IWM (small caps) and shorting the XLK (tech).
The VIX is lying on the floor, but it’s not dead! The VIX is still at 25 – definitely not dead. And the VVIX is still sitting at 118 (well above its 110 ‘complacency’ threshold). Right now, most institutions are buying the September VIX Calls (signally coming volatility) and they’re financing these Calls via selling September Puts. This tells me that the professionals are still scared, and see volatility rising in the short-term.
Warning Shot #3 = Make metals your inflationary or hedging trade. I am long SLV and a bunch of miners associated with Silver. A couple years back SLV went crazy in a hurry – signaled by a small break above trend. Well, if it continues to break and rise above $20 – a lot more eyes will take notice. Currently, the world is asleep on this trade, so take advantage of it while it’s still here.
Big Banks tell us that they don’t know, and the WORST is yet to come. They don’t know how much capital to set aside for their loan loss reserves, and they realize that there will be massive mortgage defaults coming down the pipe. Oh Noooooo!
SPX Expected Move:
- Last week the expected move was $76, and next week we’re looking for a $74 expected move.
- Every time we breach the expected move – volatility increases / option premiums go crazy / metals take off to the upside and the Nasdaq goes down.
- Hint: Buy volatility when you can over the next week.
Crazy Info:
- From May thru July, the S&P has risen 319 points. ALL of those gains came during the overnight session. The S&P lost 5 points, when markets were open.
- Since January 1995, if you bought the S&P index (SPY) every day at the close, and sold it at the open – your gains would be 700%. If you bought at the open and sold at the close your gains would be NEGATIVE 15%.
- Conclusion: whether it’s the Swiss Banks or the Plunge Patrol Team = it’s easier to manipulate our markets during the off hours via futures, than while it’s open.
- Having said all of that, the FED is clearly ‘All In’ on keeping our markets buoyant and therefore pauses, dips and fades will most likely be resolved to the upside.
Tips:
The top stocks in the Nasdaq 100 were hit with a wave of selling, the most we’ve seen in weeks. Only 8 of the 25 closed higher. But the big story continues to be about Novovax – which is turning into a GOAT (Greatest of all Time). NVAX jumped another 49% for the week and is now up an astonishing 3430% YTD. Last week, the company received $1.6B from Operation Warp Speed to help accelerate its coronavirus vaccine work.
HODL’s:
- Yamaha Gold (AUY = $5.58 / in @ $4.60 = up 22%),
- Canopy Growth Corp (CGC = $17.95 / in @ $22.17 = down 19%),
- EXK Gold (EXK = $2.88 / in @ $1.53 = up 88%),
- GBTC Bitcoin (GBTC = $9.54 / in @ $9.41 = up 1.3%),
- Hecla Mining (HL = $4.57 / in @ $2.36 = up 82%),
- KL Gold (KL = $44.71 / in @ 26.85 = up 67%),
- MUX Mining (MUX = $1.11 / in @ $1.14 = down 2%),
- NovaVax (NVAX = $140.49 / in @ $7.24 = up 1,840%),
- New Gold (NGD = $1.38 / in @ $0.82 = up 69%),
- Pan American Silver (PAAS = $34.39 / in @ $13.07 = up 163%),
- XLF = $24.17 = July 31st = SELL -1 $23 call, and BUY +2 $24.5 Calls for $0.14 credit == You win if it explodes higher and you don’t lose if it doesn’t.
Crypto:
- Bitcoin (BTC = $9,225),
- Ethereum (ETH = $240),
- Bitcoin Cash (BCH = $230)
Thoughts: Trepidation is growing as discussions about what will happen when schools begin to open-up. Schools are likely to have some home-based online component, and this reliance upon technology could easily redefine education. MSFT is poised to take advantage of that redefinition with its cloud business, Teams software, and reputation. MSFT outperformed the S&P 500 in its bounce this spring, but it’s fallen back in the last week along with the rest of the market. MSFT reports earnings on July 22, and that could increase the stock’s price volatility. But if you think MSFT will reap benefits from quarantined people using its services, and that it might rally in the next few weeks – then long call vertical that’s long the $200 Call and short the $205 Call in the August monthly expiration is a bullish strategy that has a 63% 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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