RF's Financial News

Sunday, September 17, 2017

This Week in Barrons - 9-17-2017

This Week in Barrons – 9-17-2017:

“Bitcoin is a fraud.” … Jaime Dimon (CEO of JP Morgan Chase) … 9/12/2017

Mr. Dimon – You’re losing the ‘Race for the (fiat currency) Cure’:

Mr. Dimon, this past week at the Developing Alpha Conference I heard you call bitcoin a fraud. Not minutes after you finished your statement (as seen by the graph above detailing bitcoin purchases) your bank started buying bitcoin hand-over-fist. Your bank finished that day’s crypto-buying frenzy slightly behind Morgan Stanley but ahead of Credit Suisse in the ‘Race for the (fiat currency) Cure’. The above snapshot combines client and bank crypto-purchases, but I was a little surprised to see JPM as the 4^th most active buyer of bitcoin notes on a day where you called it a ‘fraud’. It’s yet another example of a bankster doing their variation of the ‘pump-and-dump’. I just thought that you (being one of the world’s most influential banksters) after calling bitcoin a fraud – would have instructed your bank to be net ‘sellers’ and NOT net ‘buyers’ of crypto for at least one day.

But it goes further than that – doesn’t it Mr. Dimon? JPM doesn’t simply purchase bitcoin notes after you call it a ‘fraud’, JPM is also heavily immersed in the ‘blockchain’ technology associated with the crypto-currency world. In fact, JPM has applied for over 175 U.S. ‘bitcoin alternative’ patents since 2013. JPM is also working on additional Ethereum-based blockchain solutions alongside Zcash’s (another crypto-currency) development crew. To jog your memory, your Ethereum project is called ‘Quorum’, and has its own Github repository that explains how the permissioned blockchain does not need consensus mechanisms like Proof-of-Work (POW) or Proof-of-Stake (POS).

Oh Mr. Dimon, if that memory escapes you – maybe a picture of one of your previous derivative executives Ms Blythe Masters, (pictured above) along with a Bitcoin appreciation chart will jog your memory? After all, Ms. Masters (after leaving JPM) started her own blockchain firm called Hyperledger which is now run by the Linus Foundation with Ms. Masters remaining on its board and heavily involved with their blockchain efforts. And you must remember the departure of your former 50-year-old veteran commodities trader, Mr. Daniel Masters, who joined JPM right after college and recently left JPM announcing the Island of Jersey’s first fully regulated Bitcoin hedge fund. It seems that his Global Advisors Bitcoin Investment Fund (GABI) will hold bitcoin denominated in sterling, and focus on U.K., European and Middle Eastern clients.

Mr. Dimon, if you think bitcoin is in a bubble – according to currency experts: you ain’t seen nothing yet. They are expecting bitcoin to surge over 300 times – when it is granted ‘legitimate currency’ status. Iqbal Gandham, U.K managing director at eToro, has mapped other ‘legitimate currencies’ against bitcoin and the math is telling him that once bitcoin attains ‘legitimate currency’ status – it will be worth upwards of $1m per coin. He simply equated the Satoshi (the tiniest component of bitcoin = 0.00000001 bitcoin) to the ‘penny’ and asked the question: “When the Satoshi equals one penny – what does bitcoin equal?” The answer becomes over $1m per coin. This also falls in line with John McAfee’s prediction of bitcoin reaching $500,000 over the next 3 years.

Mr. Dimon, you do remember that you and your fellow banksters were the impetus for bitcoin – as it was created at the height of your financial crisis - yes? It emerged as one of the clearest alternatives to government-backed currencies. It is decentralized from central banks or governments, and underpinned by a blockchain technology that acts as a non-alterable digital ledger. In fact, for many, the blockchain technology is the most crucial and lucrative aspect of the crypto environment. It’s that aspect in particular that allows it to execute things like: mortgages, stock trades, and loans without any bankster intervention.

Mr. Dimon, your exact quote was: “Bitcoin is a fraud because it’s value is being driven by speculation and not by utility.” If you’re saying that bitcoin has not seen wide-spread adoption for day-to-day transactions, and is missing that ‘killer app’ – you’re right. But, the number of bitcoin transactions occurring across the globe has been rising by leaps-and-bounds in 2017. And those ‘killer apps’ that you wish to see are not only being built by independents but by the likes of: Microsoft, Google, Oracle, Apple, and JPM as well. So, I must assume (at this point) that the crypto-currency ‘fat lady’ is warming up. Sure, there are regulatory rumblings out of China in order to better control their ICOs, and yes, the Chinese have closed 3 crypto-exchanges. But that leaves over 20 open and active crypto-exchanges, and China is still doing the bulk of global bitcoin mining.

In fact, just this week Merrill Lynch named bitcoin along with the FAANG stocks their two most ‘crowded trades’. Their survey is one of the most respected on Wall Street as it includes over 200 global fund managers with at least $600B under management. ‘Crowded’ simply means investors believe that there are too many people on one side of the trade, and it could be due for a reversal. But I don’t see you calling Facebook, Apple, Amazon, Netflix and/or Google frauds. And I haven’t seen any of those stocks on your ‘must sell’ list.

So, Mr. Dimon, it appears that your ‘bitcoin is a fraud’ remark was not only a well-time publicity stunt, but also an extremely profitable one to JPM. Unfortunately, you cannot hide the fact that JPM is deeply invested in blockchain technology, and JPM (like hundreds of other financial institutions) is just hoping that it won’t be totally replaced by crypto and blockchain technology in the years to come. I’m often reminded of the great Henry Ford quote: “If the people ever understood the banking system…there would be a revolution in the morning.”

The Markets:

Factually:

- The S&P 500 reached the 2,500 mark for the first time while posting its largest weekly gain since January. These gains came together with the news that the Republicans in Congress are preparing to release the outline of a tax reform plan later this month.

- Traders paid little attention to another missile test by North Korea.

- The Japanese Yen saw its biggest weekly fall in 10 months, and the U.S. dollar its largest rise since April.

- And OPEC is forecasting higher demand for its oil in 2018, and is pointing toward a tighter global market. The International Energy Agency (IEA) is also reporting that the oil glut is shrinking due to the strong European and U.S. demand along with production declines. Of course let’s see what happens once Houston comes fully back on-line.

What continues to bother me is our underfunded corporate and government employee pension plans. Boeing (as an example) for the past decade has largely neglected its pension fund deficit – all the while doling out lavish rewards to its shareholders. What is causing me to raise an eyebrow is how Boeing plans on fixing this problem. Just last month, Boeing made its largest pension contribution in over a decade when it transferred $3.5B of its own stock into the pension fund. It's a bold move, and to pension experts, one that isn’t worth the risk. Why didn’t they just ‘cash-out’ the shares and transfer the cash into the fund. Instead, after a record-setting 58% rally this year, Boeing is betting that it can keep producing the kind of earnings that push their shares even higher. If all goes well, not only will the pension fund benefit, but Boeing says it will be able to forgo contributions for the next four years. If anything goes awry, the $57B pension fund (which covers a majority of its workers and retirees) could easily end up worse off than before.

So, the pensions (and retirement) of so many of Boeing’s employees - rest on the idea that the market never crashes. Does anyone but me see a problem with that? This is just like the Norwegian wealth fund, which wants 70% of its pension money in equities. Either they know that the Central Banksters will never let stocks fall, or they've been conned into something truly frightening. My guess is that they have seen so much financial engineering, and so much manipulation, that they're banking on things going just swimmingly forever. Maybe they should consider the following headline: “CVS Needs Aggressive Buybacks to Meet FY18 Estimates.” Jefferies (the brokerage house) is saying that based upon organic growth, revenue, and expense estimates – the only way that CVS is going to make its earnings projections is by re-purchasing a lot of their own stock and thereby reducing the number of shares outstanding. I’m guessing that CVS will sell corporate debt to fund a massive stock buy-back program, boosting earnings per share, while incurring a huge debt liability during a time of rising interest rates. Who does this benefit again – oh yeah – the current executive team.

Market-wise, the 3 major U.S. stock benchmarks ended the week on a bright note despite the twin hurricanes. Unfortunately, the devastation brought about by Harvey and Irma in succession will have a negative impact on the U.S. economy. The early estimates indicate that the effects will have a downward impact on third-quarter growth. According to economists, the damage by Harvey could reach $160B – which should earn it the notorious distinction of being one of the costliest storms on record.

There is an FOMC meeting this coming week. The good news for the meeting is that the U.S. dollar is being ‘crushed’ as of late, and that increases the probability of higher inflation going forward. The markets are not anticipating anything coming out of the meeting, and expect the meeting to have a more-dovish stance than normal given the storms.

What has me worried for this coming week is the SKEW. The SKEW measures the value of the out-of-the-money puts against the out-of-the-money calls. The SKEW is currently extremely high (sitting around 1.45) and is saying that more investors are buying out of the money puts (hedging against stocks going down) than calls. It’s also telling me that the experts are looking for the market to move in larger increments this coming week. So, when the pros tell me that this ‘wild market ride’ is going to continue a while longer – I’d best listen.

Tips:

Recommendations:

Bullish: (Sell PCS = Sell a Put Credit Spread):

- Applied OptoElec (AAOI = 58.3) – Sell PCS – Sept 22: +53/-53.5

- Gold Miners (DUST) – Sell PCS – Sept 22: +20.5 / -21.5

- First Solar (FSLR = 50.45) – Sell PCS – Sept 22: +44/-45

- Gold Miners Bear (JDST = 49.38) – Sell PCS – Sept 22: +45/-46

- Lumentum Hldgs (LITE = 57.25) – Sell PCS – Sept 22: +52.5/-53

- Restoration Hdwr (RH = 73.3) – Sell PCS – Sept 22: +68.5/-69

- Shopify (SHOP = 120.26) – Sell PCS – Sept 22: +109/-110

- SPX Futures (SVXY = 86.04) – Sell PCS – Sept 22: +75/-76

- UltraBull QQQ = (TQQQ = 115.11) – Sell PCS – Sept 22: +110/-111

- Wayfair (W = 79.76) – Sell PCS – Sept 22: +73.5/-74.5 for $0.15

- DBV Technologies (DBVT = 43.46) – Sell PCS – Oct 20: +10 / -15

- Axovant Sciences (AXON) – Sell Iron Condor – Oct 20: +5 / -15 to -22.50 / +40 // and Buy a Call Debit Spread – Oct 20: +20 / -40

My Crypto-Currency Holdings Include:

- Ethereum (ETH), Litecoin (LTC), Dash (DASH), Digix (DGD), MaidSafeCoin (MAID), Metal (MTL), OmiseGo (OMG), PIVX (PIVX), Patientory (PTOY), Steem (STEEM), and NEM (XEM).

To follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription by visiting:

<http://rfcfinancialnews.blogspot.com/>.

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, September 10, 2017

This Week in Barrons - 9-10-2017

This Week in Barrons – 9-10-2017:

“Whether a balloon lives or dies, strictly depends upon where you fly it.”… Richard Branson

Thoughts:

Most importantly, I would like to express my most sincere thoughts and prayers to those caught in the path of Hurricane Irma. I hope you are safe, and reading this in the comfort of friends and loved ones.

Before I purchase any asset, I first determine if I’m an investor, trader or speculator in that asset. My answer strictly depends upon whether I can accurately forecast the price of the asset at the end of a specific time horizon.

I frequently talk to people who tell me that they are long-term investors, but want to know why the asset they purchased last week isn't up 20% by now. I truly understand that when you put your hard-earned money to work – you would like to see results. And I’d like to think that a well-timed buy will garner a quick response. But it doesn’t always work that way because markets are inherently unpredictable. Just when a stock starts to move and you jump in long – Kim Jong-Un decides to fire a missile over Japan and the Dow sells off for 200 points. That doesn't mean that you made a mistake, but it does force you to decide whether you’re a speculator, a trader or an investor. Jesse Livermore (in his book Reminiscences of a Stock Operator) said: “A speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but rather to profit by an immediate rise or a fall in the price of that asset.” In Jesse’s world, speculating is not gambling but rather defined as “making an educated guess (with 70% certainty) about where an asset's price will end. And it’s only the degree of certainty that rises as you move from speculator, to trader, and finally to investor.”

Is gold an investment? A lot of people will tell you that because gold has no inherent value, you’re strictly speculating that gold’s price will go higher in the future. But that’s not true because the price of gold is directly correlated with the U.S. dollar. As the dollar loses purchasing power through inflation – the price of gold tends to rise. In addition, when the economic environment gets a little dicey, gold prices tend to rise as a ‘flight to quality’. You can't bank on gold in the same way as a dividend producing stock, but gold (as an investment) serves an important role in any portfolio – especially as a hedge against inflation and a stock market sell-off.

Is bitcoin an investment? You can't (at least not yet) value bitcoin in relation to the U.S. dollar. But there's no denying the incredible run bitcoin and other crypto-currencies have enjoyed. It's interesting to me that bitcoin has become somewhat of an alternative to gold. Bitcoin certainly has more utility than gold – because you can actually buy stuff with it, and crypto-currencies (in general) are gaining acceptance on the world stage. Even the CBOE (Chicago Board of Options Exchange) will be offering cash-settled bitcoin futures in the spring of 2018. That’s an important step as it will single-handedly begin to stabilize the price of bitcoin, and will therefore lead to many more people using and trading it. The question is: At what price will bitcoin stabilize? It seems certain that bitcoin isn't going away, and if you already own bitcoin – then you're investing based upon the price being higher in the spring than what it is right now.

Is biotech an investment? Back in June, I remarked about a cancer drug trial for a company called Loxo Oncology (LOXO). The stock recently gapped up from $49 to $70. But even after that huge jump, can Loxo go higher? After all, what's a truly effective cancer treatment worth? We can all try to put a number on it, but unlike gold and bitcoin – it’s value is often determined more by politics and emotions than correlations. For example, just a couple days ago Gilead Sciences announced that they were buying Kite Pharmaceuticals (another cancer biotech company) for $12B. That acquisition put all cancer-related biotechs (like Loxo) in play, and it’s only via speculation that Loxo's stock price will continue to climb higher.

Personally, I invest in gold and bitcoin, and speculate on biotech. I base my category decisions solely on whether I can (with over 70% certainty) forecast their price next week – next month – or next year.

Speaking of UN-certainty, last week Equifax decided to tell the world: ‘Opps, I guess we’ve been hacked. Yes, it was a while ago. And sorry we didn’t tell you before now.’ Equifax is one of the three major U.S. credit reporting agencies and (among other things) is responsible for calculating your credit score. It seems that earlier this year, hackers broke into the Equifax data repository through a website vulnerability, and stole the personal information of 143m Americans – roughly two-thirds of all adults living in the U.S. They appropriated social security numbers, birth dates, addresses, driver's license and credit card numbers. That’s a lot of personal information that’s out there being sold. Equifax said that it’s cybersecurity was lacking because it didn’t want to spend the money to adequately protect your information, but offered up a website that allowed you to report your identity theft. However, what they failed to tell you is that by checking the identity theft box on their own ‘consumer protection’ website – their terms and conditions are worded so that it absolves them of any negligence and prevents you from suing them going forward. Honestly, I think I’ll be investing in Equifax on the short side.

The Markets:

“You do the math.”… Meg Ryan from the movie When Harry met Sally

In terms of predicting the weather, the three best sites – that truly ‘do the math’ are: weatherbell.com, bearpawsweather.com, and tropicaltidbits.com. Weatherbell.com has both a free and premium side. The premium side is used mostly by hedge funds and farm conglomerates – people that have a lot riding on how the weather will impact their crops. But the free side is packed with enough information that you can get a pretty good glimpse of what's coming your way. Joe Bastardi is one of their forecasters, and is about as good as it gets. He predicted that Hurricane Irma would hit the western side of Florida when everyone else was saying that it was going east – so he’s got my vote. If you want to look at the tropics, and get a really inclusive view of what's out there and where it might be going – then visit: bearpawsweather.com. They put all the charts, satellite photos, spaghetti tracks, cones, and official statements in one place. And on tropicaltidbits.com you will find the latest tracking models. The site allows you to pick what predictive model you would like, and proceed through it – hour by hour. Based upon the models that I’m seeing, I truly hope that somebody got the math ‘wrong’ on this one – because Irma looks to be the real deal.

Historically, the S&Ps have declined 2% over the 10 days before and after a major hurricane. The effect tends to moderate going forward due to the pickup in public and private spending. Underperformance is most noticeably felt in sectors such as: insurance, hotels, restaurants, airlines, telecom and cable providers (due to capital expenditures related to repair and cancellations), and industrials (due to rising supply costs, disruption in production, and transportation). The out-performing sectors are those tied to repair and replace such as: energy equipment and services, communication equipment, automobiles, air freight, distribution, basic materials, and engineering companies. The top performers typically are in the transportation-distribution sector (rising 3.1%), with construction materials coming in second (rising 2.9%).

This past week we learned that FED Vice-Chairman Stanley Fisher submitted his resignation effective Friday, October 13^th. Mr. Fisher you’re right – it’s not as much fun navigating the world's largest economy when you are raising interest rates and paying back debt – versus pushing rates to 0% and printing money like there’s no tomorrow. In his letter to President Donald Trump, he cited personal reasons for his departure from his term as vice chair – that was set to expire on June 12, 2018. He knows the deal, and wants out before this thing really turns ugly.

September is a notoriously weak month for the stock market, and a couple of hurricanes could compound that weakness. Hurricane Harvey has already hurt the job market. Last Thursday the federal government reported that initial jobless claims surged 27% to the highest level in over two years. Most of that increase came from Texas. The markets are wary that Hurricane Irma will have an even larger impact on the broader U.S. economy.

Right now, it’s hard to be excited about the long side of this market – but that’s not to say it’s a ‘no-brainer’ going short either. The financials are rolling over. The energy sector (which was rallying after Hurricane Harvey) announced that it’s taking a break. For a stock to move higher – you need a lot of coordinated buying. However, for a stock to fall you do not need concentrated selling, but rather simply a lack of buying. Think of it like this: Nvidia (NVDA) is a great company, but what if everybody who wants to own NVDA – already owns it? Very seldom does a stock like NVDA trade sideways until finding more buyers. What most often happens is that institutions and ‘buy-n-holders’ have pre-set stop-orders on their NVDA shares. Meaning, that if NVDA falls to a certain level – it will automatically trigger their shares to be sold. Unfortunately, today’s markets are really good at ‘finding liquidity’, and will tend to drift toward these pre-set levels in order to intentionally trigger sell (or buy) orders. Selling often begets more selling and stocks like NVDA will then begin to drift lower until either: (a) corresponding buy orders are found underneath a much lower level of support, or (b) some brave souls attempt to ‘catch a falling knife’.

The pockets of strength in this market are somewhat localized to the biotech sector as of late, as we have a true flight to quality going on with bonds (TLT), the Yen (FXY), and gold (GLD). These safety plays along with a small ‘dead-cat’ bounce are reflected in my recommendations below. I will continue to discuss various shenanigans surrounding bitcoin and other crypto-currencies next week, but for now I’d like to reiterate my hopes and best wishes for those trapped in Hurricane Irma’s line of sight.

Tips:

Recommendations:

Bearish:

- UVXY – Sell Put Credit Spread – Sept 15: +26 / -26.5

- Gold Miners (DUST) – Sell Put Credit Spread – Sept 15: +17.5 / -18.5

Bullish:

- Boeing (BA) – Sell Put Credit Spread – Sept 15: +230 / -232.5

- Gold Miners (NUGT) – Sell Put Credit Spread – Sept 15: +37.5 / -38.5

- Gold Miners (JNUG) – Sell Put Credit Spread – Sept 15: +20.5 / -22

- Twilio (TWLO) – Sell Iron Condor – Sept 15: +27 / -30 to -29 / +32

- Lulu Lemon (LULU) – Sell Put Credit Spread – Sept 15: +57 / -57.5

- Ultra-Financials (UYG) – Sell Put Credit Spread – Sept 15: +89 / -90

- Small-Cap Bull (TNA) – Sell Put Credit Spread – Sept 15: +50 / -51

- SodaStream (SODA) – Sell Put Credit Spread – Sept 15: +54 / -55

- Ultra-Dow 30 (UDOW) – Sell Put Credit Spread – Sept 15: +59 / -60

- Athena Health (ATHN) – Sell Put Credit Spread – Sept 15: +125 / -126

- Avis (CAR) – Sell Put Credit Spread – Sept 15: +35 / -36

- Applied Opto (AAOI) – Sell Put Credit Spread – Sept 15: +51.5 / -52.5