This
Week in Barrons – 8-27-2017:
“Just a spoonful of sugar
helps the medicine go down”… Mary Poppins
Our no-brainer remark of the
week comes from Tom Lee of Fundstrat when he told CNBC that he expected
bitcoin to be the best performing asset
class through the end of this year. This
is after bitcoin tripled in value during the first 7 months of this year, and after
knowing institutional demand from the launch of bitcoin derivative products
will certainly help drive the digital currency's price higher. I have a couple questions: (a) How will crypto-currencies
play on the global stage? And (b) In which digital currencies should the
average person invest?
China has been extremely shrewd in dealing
with crypto-currencies. A year ago,
China controlled over 80% of global bitcoin trading. Recently, China’s trading impact has fallen to
just 16%, but they continue to control over 70% of bitcoin creation / mining. Bitcoin mining is essentially a computer task
– consuming enormous amounts of electricity.
China (thanks to an abundance of hydro-electric power) is one of the world’s
lowest-cost producers of electricity, and can therefore produce bitcoin at
virtually no cost. If China were to
initiate a new crypto-currency backed by gold (which the country has been
amassing), you could witness a new monetary system the world would be willing
to accept. Couple that with China’s alliance
with an oil producing power-house such as Russia, and it could single-handedly bring
an end to oil’s ‘petro-dollar’ standard.
A study released this week, showed that 5 of the nation’s worst-performing
currencies in 2017 – are actively pursuing efforts in the crypto-currency
arena. Those 5 nations are: Venezuela,
Argentina, Belarus, the U.K. and Egypt.
Data suggests that whether it’s South America, Europe or Africa – interest
in crypto-currencies is on the rise. Clement
Thibault, a senior analyst at Investing.com, stated: “While developed nations have an abundance of alternate investment
opportunities, underdeveloped or politically unstable nations may lack such avenues,
and will be more inclined to invest in crypto-currencies as a consequence. To
citizens that already distrust their
financial institutions, the danger of an unsupervised currency is not only
minimized, but it becomes a real advantage and place of refuge." Thibault is reinforcing
the popular argument that the value proposition of crypto-currency is
highest when the risk posed by holding the local currency rises. Ronnie Moas, founder of Standpoint Research, said it
best: “Imagine you live in Venezuela and
you're keeping your money under the mattress. Would you rather leave it there
in Venezuelan Bolivar, or would you rather put it in bitcoin? It shouldn’t take
you very long to make that decision."
In terms of investing, two places come
immediately to mind: ETH (Ethereum) and XRP (Ripple) – but a more complete list
follows under ‘Tips’. Ethereum has already made investors triple-digit
gains this year, but it’s more than just a crypto-currency – it’s a platform
that allows developers to create applications. The unique structure of the Ethereum
blockchain helps businesses improve security, prevent fraud, and increase
efficiency and trust. Ethereum is backed
by a 150-member corporate alliance including: Microsoft, Intel, MasterCard and
others. Many members are getting ready
to launch their own services that have Ethereum at their core. For example, IBM recently launched its first
Ethereum-based, business-blockchain service to clients such as: Wal-Mart,
Northern Trust, and the Bank of Tokyo-Mitsubishi.
If you agree with Ethereum as an investment,
then I would advise buying what major hedge funds are buying when they buy
Ethereum. These ‘liked’ technologies
will be reflected in correlation data.
The chart below shows cross-correlation statistics between various
crypto-currencies, and the circled portions show a significant correlation
between Ethereum (ETH) and Ripple (XRP).
Ripple is a ‘fintech’ platform aimed at increasing the efficiency of
international money transfers between banks.
So, it would make sense that the major players are investing in both ETH
and XRP.
Where and when could all of this actually be
applied? As SF remarked, Jack Ma (founder
of AliBaba) would like to help Hong Kong become the first cashless
society. Mr. Ma remarked: “Being
cashless would make Hong Kong more fashionable, modern, and efficient. In the near future, we will begin to get more
involved in Hong Kong’s technological and financial development.”
The Markets:
“I’m thinking leaders are made, not born.” BoBo Bear
Factually:
-
78% of full-time
U.S. workers live paycheck to paycheck.
-
71% of all U.S.
workers are bankrupt (have more debts than assets).
-
59% of workers
making over $100,000 / year are ‘in the red.’
-
56% of all U.S.
workers save less than $100 per month, and
-
68% of all U.S.
workers feel disengaged from their work and blame it on bad management.
According to Gallup’s Larry
Emond, “Companies choose the WRONG person
for the job – 82% of the time”.
Peter Cappelli (a Professor of Management at the Wharton School) says: “We’ve gotten more stupid about figuring out
who is going to be a good manager in the right job. Companies have gotten penny-wise and
pound-foolish when it comes to investing in training and development of future
leaders”. Companies should be
looking for character traits such as: extroversion, humility, communication
skills, and self-confidence in their leaders.
Good leaders also often exhibit conscientiousness – because conscientious
people are hard-working, reliable, self-disciplined, meet deadlines, and pay bills
on time.
Unfortunately, very few of these leadership traits were on display this
week at the FED’s Jackson Hole get-together.
Investors and the markets in general, were not buoyed higher by the
speeches delivered by FED Chair Janet Yellen and ECB President Mario Draghi. Neither offered hints about their future
monetary policy moves. Yellen simply
talked about banking regulations and economic improvements in the U.S., while
Draghi raised concerns about protectionism.
Karl Schamotta, director of global product and market strategy at Cambridge
Global Payments, said it best: “Yellen
and Draghi only validated Jackson Hole’s well-earned reputation as a currency
trader’s graveyard.”
But
even though not a whole lot was announced, what I found most interesting was the market's reaction. Friday morning the market leapt
out of the gate, and things moved strongly higher in the first half hour of
trading. But then the air leaked out of the balloon, and markets had a
heck of a time staying green. When the
bell rang, we ended up 30 DOW points and 4 S&Ps – but that was a far cry
from +120 and +10 we'd seen earlier in the day. In fact, that makes 3 sessions in a row where
the S&P has remained below its 50-day moving average. I've been saying for a week now that these
markets feel content to ‘stair-step’ lower, and since their August 7th
high, the market has put in lower highs and lower lows.
But calling for a lower market has been a fool’s
game for quite some time. At any time, Central
banks could step in, buy a ton of stock, and jam our markets higher. In fact, just this week Norway's $970B wealth fund
has been ordered to raise its stock holdings from 60% to 70% in an effort to
boost returns and safeguard the country's oil riches for future generations. Trond Grande, the fund's deputy chief
executive was asked about market prices being high and he responded: “We
don’t have any views on whether the markets are priced high or low.” Huh,
did I hear that correctly? You don't
care whether stocks are expensive or cheap, about P/E's, price to book, or
price to sales. I guess when you can print
money out of thin air and buy tangible assets with the counterfeit money, why
would they care if stocks are expensive or not?
I wonder if they care about: Russia vs Syria, North Korea threatening
nukes, or trouble in the U.S. White House? Even Mark Grant was on CNBC last
week, and when asked about the markets said: “Interest rates would probably fall to 2% and assets will probably keep
rising because of Central banks. Central
banks have bought $19T in assets, and over $1.5T this year alone. They've created a whole new country worth of
buying. As long as they stay intact,
rates will fade and equities will probably go up". Bravo Mark,
and thanks for saying it.
For next week, the stage is set for Amazon (AMZN) and Whole Foods (WFM)
to make big changes after receiving regulatory approval from the U.S. Federal
Trade Commission. The kick-off will be a
major price-cutting campaign on Monday, August 28, when the online giant’s
acquisition of the organic and natural grocer is slated to be complete.
The GDP report will be released on Wednesday followed by consumer
spending data on Thursday. It will be a
busy day on Friday as three major economic reports are on tap: August
unemployment report, ISM Manufacturing, and automotive sales.
Elsewhere I’m looking for Gold to consolidate at $1,300, while crude oil
drifts slightly higher. The U.S. Dollar
Index will continue its weak behavior, while U.S. Treasuries are biased to
continue moving higher. The Shanghai
Composite looks to continue higher after a big break-out, and Emerging Markets
are moving to the upside. Volatility looks to remain low putting the bias
back to ‘flat-to-higher’ for the equity indices: SPY, IWM and QQQ.
Until I see the S&P (SPX) get up and
over 2,468 – I’m playing cautiously. If the
bulls have a shot at keeping things alive, the S&P has to first get over
and hold its 50-day moving average, and then has to overcome the 2,468
area. Until then, I’m looking at this
market with a skeptical eye. With things like the debt ceiling looming, and
with all the noise over happenings in the White house – I think that this chop
continues for a while.
My thoughts and prayers go out to the folks
in Texas who are dealing with Hurricane Harvey.
Tips:
An ETF firm based in Connecticut is
launching a new fund that will invest in bitcoin-based derivatives and
other exchange products. REX ETFs,
founded in 2014, filed to create the "REX Bitcoin Strategy Fund" on
Friday, but instead of investing directly in the crypto-currencies, the fund
intends to buy bitcoin futures contracts and exchange-traded notes. REX CEO Greg King stated: “The fund does not expect to invest directly
in bitcoin, but rather the fund will invest in financial instruments that
provide exposure to the price movements of bitcoin – including futures
contracts linked to the price of bitcoin.
We believe crypto-currencies are a phenomenal innovation that will
impact finance and investing for decades to come." Earlier this month, the CBOE announced plans to launch
bitcoin derivatives. Also, US-based
money manager VanEck is looking to launch its own bitcoin ETF. Simultaneously, the SEC is looking into
reviewing its rejection decision surrounding the crypto-currency ETF proposed
by Cameron and Tyler Winklevoss.
Notice from the above
chart on Lisk (LSK) there are various technical set-ups that would have allowed
you to triple your money in less than 1 week.
All 3 of these technical set-ups are perfectly aligned: (a) the RSI
breaking through resistance, (b) the MACD crossing over on rising volume, and
(c) the Bollinger Bands exploding past their Kelltner Channels. It’s these technicals that also exist within
my crypto-currency recommendations below:
Recommendations:
Bearish:
-
Amazon (AMZN) – Buy
Put Butterfly – Sept 15: +900 / -920 / +940
-
Apple (AAPL) – Buy
Butterfly – Sept 15: +155 / -160 / +165
-
NetFlix (NFLX) –
Buy Put Butterfly – Sept 1: +155 / -162.50 / +170
-
UVXY – Sell Put Credit
Spread – Sept 15: +22 / - 24
Bullish:
-
Wynn Resorts
(WYNN) – Sell Put Credit Spread – Sept 1: +128 / -130
-
Russell Sm-Cap (IWM)
– Sell Put Credit Spread – Sept 1: +132.5 / -134.5
-
S&P (SPY) – Sell
Put Credit Spread – Sept 1: +241.5 / -242
-
Kohl’s (KSS) – Sell
Put Credit Spread – Sept 1: +36 / -37.5
-
Western Digital
(WDC) – Sell Put Credit Spread – Sept 1: +85 / -87
-
Gold Miners (NUGT)
– Sell Put Credit Spread – Sept 1: +30 / -32
-
Gold Miners
(JNUG) – Sell Put Credit Spread – Sept 1: +16 / -17
-
Nasdaq (QQQ) –
Sell Put Credit Spread – Sept 1: +138 / -140.
Crypto-Currency Buys:
-
Ethereum (ETH),
Litecoin (LTC), Dash (DASH), Decred (DCR), Digix (DGD), Lisk (LSK), Monaco
(MCO), Pivx (PIVX), Augor (REP), Waves (WAVES), Ripple (XRP), Monero (XMR), and
Z-Cash (ZEC).
To 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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