RF's Financial News

RF's Financial News

Sunday, October 22, 2017

This Week in Barrons - 10-22-2017

This Week in Barrons – 10-22-2017:



   Last week former President Barack Obama offered these words: “If you have to win by dividing people – you won’t be able to govern or unite them later.”  Former President George W. Bush echoed a similar sentiment: “Our arguments are turning too easily into animosity.  Our disagreements are escalating into dehumanization.  We’re judging other groups by their worst examples, and ourselves by our best intentions.”  Because after all what are we … Barbarians? 
   Prime Minister Rajoy of Spain should be giving a big thumbs-up to that ‘barbarian’ remark.  This week he is expected to take formal control of Catalonia (the semi-autonomous region in northeast Spain that includes Barcelona).  Earlier this month, Catalonia voted to break up with Spain.  Spain said the vote was unconstitutional, and has repeatedly called on Catalonia to back off its plans.  Catalonia sent those calls directly to voicemail.  The result is that next week Spain will make the bold move to remove the Catalan leaders, and bring the region under their direct control.  Investors beware – this will not only test Spain’s democracy, but could also mark a spread to other areas of the European Union.
   Yescarta surfaced last week as a newly FDA approved gene therapy for cancer patients treating adult lymphoma.  Doctors pull cells from a patient's immune system, genetically modify them to attack and kill cancer cells, and then inject them back into the patient's body to fight the disease.  The good news is that virtually all of the treated patients saw their cancer shrink or disappear.  It’s ‘barbaric’ to learn that the drug costs almost a half-million dollars per patient.



   Do you find Amazon’s behavior – of having cities bid for the location of their next HQ – a bit ‘uncivilized’?  They’re promising a $5B facility, and 50,000 jobs over the next 20 years.  While the city groveling was embarrassing, the taxpayer-funded incentives are worse.  With virtually all of the 100 bidding cities begging and bankrupt, Seattle (their current HQ site) is saying ‘bye and good riddance’.
   I find it ‘crude and unrefined’ that Nielsen (the company that tracks our TV viewing) still measures it as if we were back in the early 90’s.  In fact, Nielsen just announced that it will soon begin to track the streaming services (Hulu, Netflix, Amazon, etc.) – with one small exception.  It won't be tracking people who are watching on their phones, and some other portable devices.  So Nielsen, it seems we’re still back in the ‘stone-age’ because you can’t track ANY of the 15 hours per week that the average millennial spends consuming video content.
   Last week, the barbarians finally caught and killed Daphne Caruana Galizia using a car bomb.  She's the investigative journalist who was reporting on the Panama Papers in Malta.  Last year, she exposed the offshore accounts and shell companies that politicians, officials, and celebrities used to hide their wealth.  Most recently Ms. Galizia was leading the charge on completing the puzzle, and was (until recently) a “one-woman Wikileaks.”  R.I.P.




   And then there’s Bitcoin that hit another all-time-high of over $6,100 per coin last week – a 500% year-to-date increase.  In fact, a $1,000 Bitcoin investment in 2010 would be worth over $35m today.  Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, sees 2 scenarios that would potentially send Bitcoin into the stratosphere:
-       A user-profile expansion that would include institutional money such as endowments, foundations, and pension funds.  After all, even institutional investors can contract FOMO (the fear of missing out).
-       A bigger catalyst would be a downturn in the U.S. stock market.  Carlson writes: “Endowment funds would flow into Bitcoin, if there was evidence that it acted as a diversifying asset during a stock market correction.  And once a few pulled the trigger – the herd mentality would kick in.”
   Abigail Johnson (Fidelity Investments CEO and a ‘crypto’ supporter) see 4 barriers to adoption:
-       Technology: “There is currently a tradeoff between privacy, scalability, and achieving peer-to-peer settlement.  Right now, you can’t have all three.”
-       Regulation: “Innovation is outpacing regulation.  Regulators still have a steep learning curve, and that will cause growing pains.”
-       Control: “Bitcoin’s network (by design) has no formalized structure, and institutions would like the ability to influence the developer community.”
-       Humans: “Crypto is often seen as a solution in search of a problem.  We need use cases that drive clear benefits for individuals and institutions.”
   Ms. Johnson continues: “This technology has the capability of doing for the transfer of value what the internet did for the transfer of information.  I’d love it if the technology itself became slightly less ‘barbaric’ and more civilized and refined.”  After all, the most recent poll shows that nearly 60% of all respondents believe that Bitcoin will hit $30,000 (from $6,100) before the Dow Jones Industrial Average does (from $23,000).  Watch out for Bitcoin to continue to bring out the ‘barbarian’ in all of us.


The Markets:



   It's hard to come up with riveting commentary about a market that only goes up.  Despite the fact that it is earnings season and thousands of companies are spilling their guts about their last quarter – in many ways it’s worthless drivel.   After all, IBM released earnings last week and their stock went up $10 a share – even though their revenues actually fell for the 22nd quarter in a row!  I suspect that despite all the reasons this market should fall, it is going to continue to melt up into year end.  Think about it, if you’re a fund manager and you haven't believed in this rally -  you only have 2 choices: (a) try and explain to your clients why you didn't do so well, or (b) hold your nose and dive in.  I think we're seeing a lot of diving going on, and we will simply gain more into yearend.  This momentum is strong, and while I think people are going to pay dearly for all of this – it’s not happening right now.  Right now, bad news is ignored, and good news is rejoiced.
   The bulk of company earnings are set to come in over the next two weeks.  Thus far, almost 20% of companies in the S&P have reported earnings for the third quarter.  The reports show earnings growth of 2%, and 76% of the results have beat consensus estimates.  Currently the market is focused on the world’s improving economic conditions, and on the growing expectations for tax relief.  According to Bruce Bittles, the chief investment strategist at Baird, tax reform is expected to return over $2T in overseas profits which will be used for even more corporate stock buybacks.  And no one can argue with President Trump’s tweet that since his election – the stock market has gained more than $5.2T in value.
   But this is NOT normal.  Some investors believe that this is simply a repeat of what happened back in 1995 - 2000 – the ‘Internet bubble’.  Back then, markets went higher on the hope that the new ‘Internet’ would produce big profits for start-ups with nothing more than a napkin and a phone.  But the profits never materialized, and most were sorely disappointed.  Other investors believe that this is more akin to the 2004 - 2007 era – the ‘Real Estate bubble’.  It was a time when real estate could not go down, and companies were making gobs of money because of all the financing and building.  That also ended badly. 
   For me, I simply think we’re witness to the single greatest coordinated money printing operation the earth has ever seen.  We can all add up the money printing numbers, but the fact is – we have NO IDEA what amounts are being printed and distributed.  Why?  Because the Central Banks have hundreds of ways to print and distribute without telling us.  I remember in 2011 when the FED's emergency lending program was audited.  They found that our own FED had lent $16T to various European banks during the 2008 melt down.  This was money that was printed that no one told anyone else about. 
   Forbes at the time wrote: $16,000,000,000,000.00 was secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world's banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion-dollar bailout is obvious – the American public would have been outraged to find out that our Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.”
   This was a headline that was made pseudo-public.  Who knows how much money was really printed and given away.  When Alan Grayson asked FED-head Ben Bernake: “Who got the money?"  Mr. Bernake answered: "I don't know.”
   So, what we have is a market that is being fueled by so much liquidity that a percentage of it is landing in the stock market.  The buyers don’t care about fundamentals – why should they?  If $50m in untraceable dollars fell into your lap – wouldn’t you put some of it to work in the market?  Besides, it just so happens that the stock market is the single largest and easiest way to ‘launder’ money. 
   The only questions then become: (a) Does it stop? (b) Why does it stop? And (c) How does it stop?  Some suggest that it doesn't have to end, and we can just print forever.  However, that brings up the concept of hyper-inflation hitting at some point.  Some feel that they will ‘juice’ these markets until a replacement for the global reserve currency is set in stone – and then pull-the-plug.  Others believe they'll continue to print and buy up large positions in the world’s leading companies – until one day governments will own everything. 
   This has already gone much further than I would have ever expected.  But judging by Friday, there's more where that came from.  You need to continue to lean long, and hope for the best.


Tips:
   Bitcoin / BTC ($6,100):  The market cap of Bitcoin alone is now over $100B, and is almost 60% of the entire digital currency market.  Money is currently pouring into Bitcoin while altcoins are getting hammered.  At some point in the near future, (around the Ethereum Developer’s Conference) the other popular coins are likely to offer an excellent buying opportunity.  For Bitcoin, I’m looking for a target of $6,350 and another one in the $6,850 range.  I don’t recommend fresh trades up here, and I’m keeping my stop loss at $5,600.
   Ethereum / ETH: ($300):  Ethereum has been falling, but should hold the $275 level.  I’m not buying on the way down, but rather waiting for the move higher to begin.  That will give us 2 to 3 days to begin a new uptrend.
   Litecoin / LTC: ($60):  I’m looking for Litecoin to hold the $57 level and begin to slowly climb higher.  I would initiate long positions at $63.  My stop loss remains at $55 with a short-term target of $75.

   If you like investing in ETF’s, the 5 best ETF investments are: (a) TQQQ – NASDAQ 100, (b) TNA – Small Caps, (c) FAS – Financials, (d) XBI – Biotech, and (e) UPRO – the S&P 500.

Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread)
-       Electronic Arts (EA = 113.62) – Sell PCS – Oct 27: +109 / -110, $0.17
-       Jr. Gold Miners (JDST = 57.40) – Sell PCS – Oct 27: +53 / -54, $0.20
-       Ionis Pharma (IONS = 64.39) – Sell PCS – Oct 27: +60.5 / -61.5, $0.20
-       Micron (MU = 41.50) – Sell PCS – Oct 27: +38.5 / -39.5, $0.16
-       Nike (NKE = 53.08) – Sell PCS – Oct 27: +50 / -51, $0.14
-       Restoration Hdwr (RH = 83.79) – Sell PCS – Oct 27: +77 / -78, $0.20
-       Roku (ROKU = 21.87) – Sell PCS – Oct 27: +19 / -20, $0.15
-       Shopify (SHOP = 102.10) – Sell PCS – Oct 27: +95 / -96, $0.15
-       SOXL (SOXL = 71.65) – Sell PCS – Nov 17: +97 / -98, $0.35
-       SVXY (SVXY = 108.19) – Sell PCS – Oct 27: +102 / -103, $0.15
-       SVXY (SVXY = 108.19) – Sell PCS – Nov 17: +92 / -93, $0.13
-       Wynn (WYNN = 142.33) – Sell PCS – Nov 3: +138 / -143, $1.96
-       YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88.5 / -90, $0.38
-       YY Inc. (YY = 93.12) – Sell PCS – Oct 27: +88 / -89, $0.15

My Crypto-Currency Holdings continue to Include:
-       Bitcoin (BTC), 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!

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