This Week in Barrons: 8-16-2020:
Which pill? Everyone's confused, and we can't afford to waste time.
Factually: Republicans (red) think generous benefits will disincentivize people from returning to work. Democrats (blue) believe that the jobs aren't there to return to, so $3.5T in aid is needed to support people while containing the virus. Congress controls federal spending, so Trump's executive orders (which are loaded with federal spending) could get sued in court. With all this uncertainty, one thing remains clear: the virus controls the economy, and it's still out of control.
Historically, how did we get here?
- April 2019: The only mask I ever wore was for Halloween, and the unemployment rate was at 3.6%.
- April 2020: COVID and lockdowns hit. The US economy lost a record 20.5m jobs, and unemployment hit 14.7% (a post-World War 2 high).
- May 2020: The U.S. (shockingly) added 2.5m jobs, and unemployment dipped to 13.3%. Facemasks are in ample supply, but there’s no vaccine in sight.
- June 2020: The U.S. added 4.8M jobs as lockdowns ease and businesses re-open. Unemployment fell to 11.1%. COVID cases surged again, and some businesses re-closed.
- July 2020: We only added 1.8M jobs and unemployment fell to 10.2%. Retail sales have slowed, and inflation has begun to rear its ugly head.
Personally, what SHOULD you do? In times of stress – smart people:
- Embrace the challenge,
- Learn from failure,
- Ask more questions, and actively pursue the answers,
- Continue to Do-It-Themselves,
- Understand the math and the risk vs reward behind it, and
- Realize that its ok to know more, and to want to know more than that.
Specifically, what CAN you do? Learn to forget about your weaknesses and amplify your strengths. In crisis, nobody hires, buys, or recommends people because they’re average and well-rounded. They do it because of someone’s exceptional talent in a particular area. Therefore (during COVID) take the time to invest even more energy into your exceptional strengths & talents. Make a list of what you MUST have versus what you SHOULD have. Fully knowing that you’re unlikely to get everything you SHOULD have, but it’s entirely probable that you’ll get everything that you MUST have. The trick is to be clear about what goes into each category – so that we can all stop SHOULD-ing all over ourselves.
The Market:
The robots are coming. The robots are coming.
Lucky for us we don’t pay robots, surgeons, or teachers by the hour. We invest in their education, in their maintenance, and in their re-training. Why? Because all we care about are the results. Yet, for some jobs (from policemen to lawyers to programmers) we continue to pay by the hour. Realize, when we’re paying by the hour, we’re NOT getting someone’s innovative thoughts or their productivity enhancing ideas. Factually, robotic usage has increased 38% from January to June. Bot-acceleration will make the unemployment situation even worse.
Per HL, a couple economic high-lights:
1. Asset inflation and the U.S. Dollar: It is simple, if the U.S. Dollar continues to lose ground, people will attempt to protect their purchasing power, and the price of many assets will go up – stocks, real estate, crypto, and precious metals.
2. With so many breakdowns in software stocks after they reported earnings, it illustrates that the COVID-restrictions and spending cuts are not favorable for all tech stocks – potentially just the FAAMG names.
3. The small caps (IWM) finally woke up. Maybe it’s due to the potential of another stimulus package, a working vaccine, or just catching up with the rest of the market. Any rotation into small-caps will prolong the current rally in stocks.
4. Solar power’s strength (TAN) has been increasing. Every solar company’s earnings report has led to a ‘gap-and-go’ – which tells me the market is anticipating a new clean energy bill.
5. For the FAAMG stocks, BTFD (buy-the-dip) is still the predominate trading philosophy. The only thing stopping these stocks right now are our politicians.
InfoBits:
- I think I’m seeing a trend… Nintendo’s profits surged an insane 428% last quarter. Take Two (Grand Theft Auto’s publisher) nearly doubled its profit last quarter. Microsoft’s Xbox sales soared 64% last quarter. And Fortnite-maker Epic Games raised a whopping $1.8B at a $17.3B valuation. It seems digital fantasy worlds THRIVE during a global pandemic – who knew?
- Hakuna Matata… Disney is doubling down on this COVID-friendly biz with a new streaming service (ETA 2021).
- TikTok is planning on suing the White House… challenging Trump’s executive order banning the service from the U.S. on grounds that it failed to give the company a chance to respond, and that the administration's national security justification for the order is baseless.
- “Charming little wine holes”… are being reopened in Italy to sell restaurant wares for take-out. They were last used during the ‘Black Plague’.
- Tesla just announced a 5 to 1 stock split. This comes on the heels of Apple announcing a 4 to 1 split. This makes the stock easier for smaller investors to accumulate and trade. TSLA is up 228% YTD. It’s splitting like it’s 1999.
- Consumer prices rose the most in almost 30 years. Imagine that – inflation is coming – inflation is coming.
- Airbnb needs to go public. There is just one tiny problem, Airbnb’s bookings are collapsing. It’s valuation has plunged by 50%, but is taking the Nike approach = Just do it. It’s been private and profitless for 12 years. Investors are itching for a public listing, and early employee stock options will expire at year’s end. Time (and a global pandemic) are NOT on their side.
- Facebook Pay Me… is NOT quite as catchy as Venmo. FB launched a new division that'll unify all of its payment products under one umbrella: Facebook Financials. Digital payments have soared as people fear germy cash, and FB wants a (large) slice of that pie.
- Cali ruled that Uber and Lyft drivers are independent workers… that are entitled to minimum wages and benefits. Uber CEO has said that the ruling is a deal-breaker for Uber.
- Schools that have reopened for in-person learning… have more than 2,000 students, teachers and staff in quarantine – and at least 230 positive COVID cases. We continue to show that without adequate planning – we continue to make inadequate decisions.
- Virus testing in the U.S. has FALLEN… for the first time. This is often a sign of politics, frustration, and lacking the drive and patience to move forward.
Crypto-Bytes:
- Bitcoin’s market cap is approaching $200B… putting it on par with Netflix.
- Bloomberg thinks that… “Bitcoin mania appears to be almost back in full bloom”.
- MicroStrategy purchased 21,454 BTC on Tuesday… effectively shifting its inflation hedging strategy into digital assets. “This reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash," said CEO Michael J. Saylor.
- India’s crypto trading volumes have soared… since their Supreme Court lifted banking restrictions for exchanges. According to Paxful, India is now among the 5 fastest-growing bitcoin user groups in the world.
Last Week:
Monday: Gold and silver are higher this morning. I mentioned TJX on Friday, and it punched through its 200-day, and held that into the close. If it tests and bounces off its 200-day today – I’m going in. I'm still watching the XPH, which is a large pharma ETF. A new ETF to watch is ETN. Back in early June and in late-July it stalled out at the $98 level. Friday it closed at $97.76. With a little bit of volume, I think this finally breaks free. The DOW and gold and silver are up, while the NAS and the SPYs are down. ETN is acting very well, and I wish I'd have taken more of it. I'll take it again over $99.50. TJX held above its 200-day, and I'll take it over $56.30.
Tuesday: The DOW futures are on fire because Russia has beaten the world to a COVID-vaccine. They’re still rotating out of tech and into manufacturing and industry. There are less than 3,000 listed stocks in the US, and over 7,000 listed ETFs. Twenty years ago those numbers were reversed. FAAMG (Facebook, Amazon, Apple, Microsoft, and Google) earnings grew by 2% this year while earning-per-share for the other 495 S&P-500 companies plunged 38%. The DOW is up 300 points on FED money and a slightly stronger 10-year bond. When the 10-year is rising, it means that people are moving money out of bonds and into stocks. Crypto and the miners are getting an ‘ass-whoopin’ today. It was inevitable. They’ve been parabolic, and weren’t going to do that forever. I think our FED will not stop devaluing the dollar, and after this round of profit-taking – they should climb even higher.
Wednesday: So, where are we now? Well, we’re a smidge away from an all-time high on the S&Ps, not too far from one on the DOW, and already in one on the NASDAQ. We’re ridiculously overbought, extended, and overpriced. In the past two weeks, at least 3 major banks suggested that a wicked and nasty correction was coming – instead we made new highs. The economy is wrecked. We know that the FEDs are printing trillions and giving ‘off the books’ money to Wall Street banks to keep this action happening. They’re playing the only game they can control – which is to keep the market up at all costs so that people think that things are great. I will NOT be surprised to see DOW 35k before this is over. Gold and silver continue to get hit – which makes sense considering their run. Think of it as a buying opportunity. U.S. consumer prices increased the most in almost 30 years – signaling a rise in real, underlying inflation.
Thursday: The off-price retailer Stein Mart has filed for Chapter 11 bankruptcy. That seems like a good reason for the S&Ps to close just 6 points from an all-time high don’t-cha think? The initial jobless claims came in a bit better than expected. Is today the day we set an all-time high on the S&P, or will it continue to battle resistance and fall back? My guess is that FOMO and momentum will rule the day. It shouldn’t because stores are closing, millions of people are filing unemployment claims, states are shutting down again, and interest rates are on the rise. But it’s all FED all the time. The miners have firmed up, but I’ll need one more day for confirmation. One non-miner that I’m watching is PENN. If PENN can get over its morning high of $53.61 – I’m in. I am doing some due diligence on some microcap miners – let’s see how this pans out.
More Info-Bits:
- Remember Phil Collins – ‘In the Air Tonight’? Well these twins made his 40-year-old single the fourth-best-selling song last week. Go Phil Go!
https://www.youtube.com/watch?time_continue=5&v=0l3-iufiywU&feature=emb_logo
- You’ve been Nikola’d: Electric truck startup Nikola wins an order for 2,500 electric garbage trucks from Republic Services, and closes up 22% on the news.
- HIMS & SPAC: Telemedicine startup Hims (mostly known for its OTC / ED meds) is in talks to go public by merging with a SPAC at a $2B valuation.
- Carvana saw it sales jump 25% last Qtr… when most dealerships were closed.
- 20% of Harvard’s Freshman Class has decided to ‘take a raincheck’ on attending in 2020 – and that’s at one of the nation’s top schools.
- Kids are learning Python… and almost everything online. And by using Lambda School they can become engineers without ever paying a penny.
- What will Universities do with all of their un-used space… Amazon is seeing them as ‘vaunted’ fulfillment centers just like JC Penney. Is that bad?
- You gotta luv Kroger: it’s setting up an ecommerce marketplace to try and compete with Amazon and Walmart. Haven’t those horses already left the barn?
- Yale received a bad report card: The U.S. Justice Dept. accused the university of illegally discriminating against Asian American and white applicants in its admissions process. The DOJ found that race was a "determinative factor" and that Asian American and white students were less likely to be admitted to Yale than Black students with similar academic records.
- AMC is reopening its theaters with 15-cent tickets: They’re promoting it as “movies in 2020 at 1920 prices.” Will they turn on the air conditioning?
- July Retail Sales were weaker than expected. 1.9% growth was anticipated, but we only saw 1.2%. We’re learning not to spend money we don’t have.
- Rent-The-Runway will close all of its retail stores… leaving their only physical presence to be ‘drop boxes’.
- Carparts.com (PRTS) is acting like a ’68 Camaro… as it gained 12% on Monday. PRTS is up 560.45% YTD. What a ride 2020 has been.
Next Week: Big Bond Traders are Back…
Bonds (/ZB and /ZN) on the move:
- The major Bond traders are back and they WILL move the equity side over the next week or so. This week there was big sell-side activity in the 30-year bonds – met with an uptick in volume. Over the last couple of months, the bonds have done nothing. The movement in bonds (/ZB) is indicative of the risk on / risk off mentality of the equity markets. The volume in the 10-year last week (/ZN) out-paced that of the S&P futures.
- The interest rate on 10-year Treasuries (TNX) exploded higher by 40% last week - moving from almost 0.5% to 0.7%. As interest rates move higher, we should see the financials (XLF) move higher with them – but they didn’t.
- This has implications to the S&P futures, but because everything didn’t function as it should – those implications are confusing. When bonds sell off and financials do NOT move higher – then chaos could be warming up in the wings.
- I think that this could signal a larger move inside of the equity markets.
- #1 TRADE: The bond trade would be to ‘BUY an Iron Condor’ on the TLT because bond volatility is at a low. So think of a TLT trade such as: September 25th // + $168 Call / - $173 Call and +160 Put / - $155 Put for $1.99.
- With the bonds selling off and equities sitting right near all-time-highs, I wouldn’t be surprised to see the S&P squirt to the upside so that they can move lower.
It’s a SlopFEST out there.
- The advance / decline (A/D) line (on a weekly basis) is decreasing in relevance.
- On Friday, the A/D line in the S&P 100 opened with 15 advancers and 85 decliners. Then the advancers started to take hold and eventually over-took the decliners, but the market itself fell – basically due to the ‘monsters of tech’ taking a beating and drifting lower. With the entire market place being driven by the FAAMG stocks – any A/D implications are virtually irrelevant.
What’s working: Back-Spreads and ‘Buying Iron Condors’:
- #2 TRADE: ‘Buy an Iron Condor’ (such as the above example on TLT), and sell it when the trade moves higher by 30%. Think of an SPY trade such as: September 18th // + $348 Call / - $353 Call and +327 Put / - $322 Put for $2.14.
- #3 TRADE: Do the same trade on GLD (gold). Why do it on gold while it’s on a rocket-ship to the upside? Because as the above graph displays – lately it’s shattering through its expected moves, and that’s the key to the ‘Buying an Iron Condor’ trade. When you’re ‘Buying an Iron Condor’, you’re saying that the market is going to get the ‘calculated expected move’ wrong, and that GLD (for example) will move outside it’s expected move (either higher or lower) sometime before the expiration date on that trade. Over and over again we’re seeing examples of an inefficient marketplace.
- I’m buying volatility (VIX) 60 days out – because the VIX is not moving substantially lower as the market moves higher, and it sure as heck will explode higher whenever the markets decide to move lower.
- #4 TRADE: Do the same trade on Netflix (NFLX) because it’s hitting up on its expected move week after week, AND it’s volatility is the lowest that it’s been in months. So go out and buy a Put and Call spread 30 to 45 days out, and when the trade value exceeds 30% of the purchase price – pull the trigger and sell it.
Expected Moves:
- The move in bonds is NOT because retail traders are buying the /ZB or /ZN. This isn’t Robinhood where retailers will move TSLA or AAPL via buying extended call positions. The movement in bonds is strictly professionals moving the market and moving it quickly.
- SPX’s expected move next week is $64 – which is only $1 more than this week’s $63 expected move.
Tips:
After years of mocking gold, and saying that if someone from Mars came here and saw people buying it they’d scratch their heads – Warren Buffet bought quite a lot of Barrick Gold (GOLD) last week. Imagine that, the Oracle of Omaha bought into a mining company that mines GOLD. So there’s a good chance that GOLD could very well be in vogue this week, and I’m looking for the miners to move higher.
On Thursday our FED admitted having a digital currency in the wings. They say it’s not about to be released, but my thinking has always been that Bitcoin was just a trial balloon for our FED’s own blockchain currency. It’s coming.
HODL’s: (Hold On for Dear Life)
- Yamaha Gold (AUY = $5.87 / in @ $4.60 = up 28%),
- Canopy Growth Corp (CGC = $17.19 / in @ $22.17 = down 22%),
- CTI BioPharma (CTIC = $1.24 / in @ $1 = up 24% ), + Sold AUG $2 Covered Call for $0.35,
- EXK Gold (EXK = $3.90 / in @ $1.53 = up 155%),
- GBTC Bitcoin (GBTC = $13.40 / in @ $9.41 = up 42%),
- Hecla Mining (HL = $6.04 / in @ $2.36 = up 156%),
- KL Gold (KL = $49.91 / in @ 26.85 = up 86%),
- MUX Mining (MUX = $1.29 / in @ $1.14 = up 13%),
- NovaVax (NVAX = $146.51 / in @ $7.24 = up 1,923%),
- New Gold (NGD = $1.55 / in @ $0.82 = up 89%),
- Pan American Silver (PAAS = $33.56 / in @ $13.07 = up 157%),
Crypto:
- Bitcoin (BTC = $11,950),
- Ethereum (ETH = $430),
- Bitcoin Cash (BCH = $300)
Thoughts: Remember the Polaroid Swinger camera? “It’s more than a camera. It’s almost alive! It’s only nineteen dollars and ninety-five!” Well, you can no longer trade Polaroid so the next best thing is Kodak (KODK). KODK (a while back) went from $2.60 to $60 in two days, and then collapsed back down to just below $10. Because of that volatility, it’s become a more popular speculative stock for not just a COVID vaccine, but government intervention as well. Its earnings had minimal impact on the stock, and it seems to be a waiting game to see if and when the check arrives. More importantly, its options have a 230% volatility rank. If you think that KODK won’t collapse in the next few weeks, you might consider the bullish strategy of selling the $5 Put in the September monthly expiration series. That has an 83% 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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