This Week in Barrons - 12-24-2017

This Week in Barrons – 12-24-2017:

Just last week Christmas became ‘personal’ in many ways:

-       A U.S. Appeals Court judge said that he was stepping down after 15 women accused him of sexual misconduct.  They said he ‘personally’ did things like grope them and show them porn.

-       South Korean investigators said that North Korea was responsible for hacking one of their country's bitcoin exchanges (again), shutting them down, and forcing them into bankruptcy.  North Korea remarked that they were taking the new U.S. sanctions – very ‘personally’.

-       Coinbase, a U.S. crypto-exchange, is examining it’s ‘personnel’ over possible insider trading.  It seems that earlier last week, it added the Bitcoin Cash coin to its exchange.  But hours before it officially hit the exchange, the currency's price spiked higher - hinting that someone leaked their upcoming action.

-       Last week Apple admitted to something we already knew – it had been purposely slowing down people’s older model iPhones.  People took it ‘personally’, and at least 4 major class-action lawsuits have been filed.

-       John Schnatter (‘Papa John’ of Papa John's) announced that he was saying g-bye.  After founding the pizza chain over a decade ago, he raised eyebrows by criticizing the NFL's handling of the #TakeAKnee protests.  He's leaving the CEO seat to pursue new passions – just NOT the ‘personal’ pizza kind.

-       Last week Spain received the worst kind of personalized Christmas gift.  Catalonia (the semi-autonomous region that includes Barcelona) voted FOR a new, pro-independence government.  That is exactly opposite what Spain had hoped would happen.  A few months ago Catalans voted for their own independence, but Spain called their vote unconstitutional, sacked the locals, and demanded new elections.  It seems Catalans made it ‘personal’ by getting a record number of voters to go to the polls, and deliver yet another pro-independence vote.

-       Finally, Amazon made it ‘personal’ last week when it filed to trademark: ‘AmazonTube’.  This comes weeks after Google pulled ‘YouTube’ (which it owns) off of any Amazon device.  And that came weeks after Amazon refused to sell any of Google’s products on its website.  To both organizations – this has gone far beyond business.

   And if you’re still looking for a Christmas present for that certain someone, how about a couple shares in Long Island Iced Tea – LTEA.  This company makes teas.  But suddenly they had a genius idea to change their name to: Long Island BLOCKCHAIN.  This is not a joke.  Their stock price spiked 289% (from $2.44 to $9.49 per share) after the unprofitable Hicksville, New York-based company rebranded itself as: Long Island Blockchain Corp.  After all, Long Island Blockchain, whose business had been selling non-alcoholic beverages, said that it will now seek to partner with or invest in companies that develop decentralized ledgers – the technology that underpins bitcoin.  Scott Nations (author of ‘A History of the United States in Five Crashes’) said: “This is so reminiscent of what happened in the late 1990s, when a company that had nothing to do with the Internet would put out a press release saying that they were going to become an Internet company, and their stock would explode higher.”  Naturally, LTEA has no agreements with any blockchain firms, and can give no assurances that any definitive agreements or other elements will be entered into or ultimately consummated.  In fact, as of last week, LTEA had a year-to-date net loss of $11.6m on sales of $3.9m.

   But at least this past week I finally figured out whether Bitcoin is a currency or a store of value.  Bitcoin has gained over 1,500% in the past year.  But the week of June 10^th its price slid 34%, fell 35% the week of September 1^st, and tumbled 22% the week of November 8^th.  And let us not forget: ‘Bitcoin Pizza Day’.  Legend has it that on May 22^nd 2010, Laszlo Hanyecz agreed to pay 10,000 bitcoins for 2 large Papa John's delivered pizzas.  At the time, the bitcoins were worth $41, and the pizzas just over $25.  Seven years later, those 10,000 bitcoins are now worth about $150m.  Hanyecz will be remembered as the Ronald Wayne of the cryptocurrency world.  It was Ronald Wayne who sold his 10% stake in Apple for $800 in 1976 – now worth over $75B.
   Bitcoin carries with it great rewards, as long as you understand and appreciate the risks.  The idea of bitcoin being a currency (with the current volatility) is misguided.  A useful currency cannot gain 100% in a month, nor lose 35% in a week.  Using bitcoin or any other crypto to purchase anything – is foolish because you are giving up more than you receive.  And if you've sold something in exchange for bitcoin – you are a genius.  That is NOT a successful model for a currency, but a terrific model for an investment. 

The Markets:

   Back in 1972 comedian George Carlin listed 7 dirty words that you couldn’t say on TV.  It was an amazingly funny, classic bit.  Recently, the Trump administration listed 7 dirty words you can’t use if you work for the nation’s top public health agency – the CDC.  They are: evidence-based, science-based, vulnerable, entitlement, diversity, transgender, and fetus.  It also became an instant comedy classic.  So, I decided to join the party and do the same for finance.  From here on out I don’t think our traditional financial media can use the following 7 dirty financial words and phrases: overbought, crash, sell stocks, sell bitcoin, take profits, raise cash, and limited upside.  Our markets have become both comical and scary.  There’s no reason to sell in 2017 anymore, but there are at least 3 reasons to worry about 2018:

-       #1 Loan Delinquencies:  Delinquency rates on consumer loans, C&I loans (mainly energy related), and others have been quietly rising since 2015 – as credit growth slows.  Rising delinquencies in these areas have historically preceded recessions, and to make matters worse U.S. bank loan growth appears to have peaked right around the same time.  Increasing delinquencies combined with FED tightening will discourage banks from future lending.  Combine that with corporate debt being at 13-year highs (due to their stock buy-back programs) and you could have a recipe for disaster.

-       #2 The Yield Curve and Money Supply:  Stocks and bonds continue to paint a different picture of the same economy.  Our strong stock market continues to indicate favorable economic conditions, while the flattening bond yield curve is predicting a slowdown ahead.  On average, the yield curve inverts 16 months prior to an economic recession, and 13 months before a meaningful stock-market correction.

-       #3 The Repeal of Net Neutrality:  Recently the FCC voted to repeal their enforcement of net neutrality.  That means that service providers are now free to charge differently for varying forms of Internet data.  It allows Internet Service Providers (ISPs) to slow down or block access to competing sites.  And despite FCC Chairmen Ajit Pai’s patronizing assurances, ISPs have a history of: providing substandard Internet to certain sites, censoring information, and forcing people to pay expensive rates for their favorite sites.  The reality is that 51% of Americans only have one ISP to choose from.  Most cryptocurrency transactions occur via exchanges, and ISPs could target exchanges, slowing them down or banning them altogether.  On the other hand, net neutrality could push adoption of blockchain as an alternative to ISP monopolies.  Ethereum and other blockchain networks could enable a large-scale mesh network.  Mesh networks are essentially where users connect directly to each other – creating a network.  Ethereum and other blockchain platforms are perfect for implementing this and sidestepping the ISPs.  Blockchain’s main use case revolves around disrupting centralized corporations such as banks and financial institutions, but net neutrality demonstrates that ISPs are yet another important target for disruption.

   In 2018, it’s going to be important to ‘Follow the Money’.  In January, Coinbase (Gdax - the largest U.S. crypto-currency exchange) is expected to add coins to its platform.  This is a BIG DEAL because Bitcoin Cash quintupled in value within the first hour of trading on the Coinbase exchange.  In November, Coinbase published their list of exchange requirements that included: (a) Are you a secure open source environment, with a tested and documented peer review? (b) Are you run by a qualified team, with good community interaction, and a strong venture capital or hedge fund backing? (c) Are you scalable? (d) Do you solve real world problems? (e) Are you globally traded in a liquid environment? And (f) Do you comply with the Anti-Money Laundering guidelines?  Notice it does not specify a working product and does not exempt ICO’s – but liquidity is a must.  This gives me the impression that they want variety, and not just a bunch of Litecoin types.  My descending order of expected introduction is: (a) Ripple – XRP a no brainer, (b) DASH, (c) IOTA – they recently sent their software to MIT for testing for a reason, (d) QTUM – note the move in price, (e) OMG – great team & VCs, and (f) NEO – another great team.  My ‘spec’ plays are: ZEC, XLM, ADA, STEEM and LSK.
   The week played out with crude oil moving lower but quickly reversing itself for the remainder of the week.  The U.S. Dollar continued to move sideways while Treasuries reversed lower early in the week and then found support.  Volatility remained in a narrow range – keeping the bias higher for equities. The SPY had started a very small pullback but caught itself to end the week with two inside range days.  Its price action brought it closer to its 20-day SMA, easing one overbought indicator, and I’m looking for some consolidation into year end.  But the weekly SPY chart shows no sign of letting up – just a steady march higher.  Historically, Christmas week has equities looking to the upside along with gold and crude oil.  Volatility looks to remain low keeping the bias higher for the equity index ETFs: SPY, IWM and QQQ.  Their charts agree, especially in the longer timeframe, but may have a quiet week in the short run. 

   Merry Christmas to everyone.  Enjoy your families and friends, and remember the reason for the season.

Tips:

   Mike Novogratz was one of the early investors in Bitcoin and Ethereum, buying Bitcoins when the price was $50 and Ethereum during its initial crowd-sale for 30 cents.  He has been selling Bitcoin and Ether periodically and is estimated to have made $250m by liquidating a portion of his holdings in 2017.  Despite his earlier bullishness, he now believes that Bitcoin could plunge to $8,000 and take a while to recover.  He predicts that the price will stabilize between $10,000 and $16,000.  The crypto rally in 2017 has enthused many neophyte digital currency investors; however, when veterans like Novogratz begin to call for caution – it might be wise to listen.

   I was talking about crypto to one of the smartest people I know the other day and his response went something like this: “All major empires historically have expanded indefinitely because of greed, and have all fallen because of some lack of knowledge.  The same can be said of the world's greatest businesses, leaders, and politicians.  In crypto, the situation is no different.  If you hook and indoctrinate a populate on something they don't fully understand, they become addicted and susceptible to the most basic of human emotions – confusion.  Confusion most often expresses itself as fear.  Then comes the 4 stages of grief: anger, bargaining, depression and acceptance.  I view acceptance as more of an understanding of the technology (the knowledge part of the equation).  Acceptance is the part of the cycle that we have entered, and I don't know how long it will last – because it always seems to stretch longer than I anticipate.”

   In terms of what to buy now – one element is caution.  But if the fever grabs you:

-       XRP is topping my list – as everyone knows it will be added to GDAX in January.

-       QTUM and Ethereum (ETH) also look good to me here.

-       ZEC and BCH look to be buyable on a pullback.

-       And NEO’s chart is tugging at my sleeve as we speak.

Equity Recommendations:

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

-       Aurora – ACBFF (5.92) – Long Stock from $2 / share,

-       GST (1.04) – Long Stock from $1 / share,

-       LYB (107.14) – Sell PCS – Jan 19^th: - 105 / +100, $1.30,

-       MARA (5.74) – Sell PCS – Jan 19^th: -2.50 / +1, $.20,

-       MU (43.21) – Sell PCS – Jan 19^th: - 45 / + 40, $2.30,

-       NFLX (188.54) – Sell PCS – Jan 19^th: - 180 / + 175, $2.00,

-       OSTK (68.35) – Sell PCS – Jan 19^th: - 25 / +20, $0.15,

-       SVXY (127.36) – Sell PCS – Jan 19: -27.5 / +25, $0.16,

-       RIOT (28.5) – Sell PCS – Jan 19: -10 / +7.5, $0.35,

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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