This Week in Barrons – 1-28-2018:
My mail bag has been over-flowing, so allow me to answer the top 3 inquiries:
#1. Why is entrepreneurship declining? The old entrepreneurship model (that year-over-year increased the number of small businesses and small-business employment) was based upon companies having a customer focus and not a fund-raising one. The old processes resembled an apprenticeship that had ‘want-tra-preners’ and mentors: (a) exchanging $0 up-front, (b) agreeing to a trade of mentorship for equity, (c) an understanding of the numbers, and (d) then educating the ‘want-tra-preneur’ on a ‘learn as you earn’ journey. That environment included: (a) instantaneous feedback and assistance by the mentor(s), (b) success measured by paying customers and cash flow, and (c) NOT making your customer and banker one-in-the same. Then the government got involved and incentivized entrepreneurship education, to the point of: (a) forcing an up-front, ‘want-tra-preneur’ and mentor monetary transaction, that (b) focused on the mentor’s ‘fee for services’, and (c) engaged both parties actively working toward the goal of raising additional funds. The differences between the two processes became immediately apparent with the new model showing: (a) a lack of instantaneous feedback from mentors, (b) little knowledge of the numbers, (c) a disregard for any deep customer relationships, and (d) the investor dictating who is customer #1. This pushed sales and product feedback much further down the lifecycle, and has allowed ‘bad ideas’ to remain on life-support much longer than they should. The current methodology focuses on a fund-raising destination rather than a customer acquisition journey. ‘Want-ta-preneurs’ should use the following Q&A as a guide:
You ask: “Where is the person that will tell me straight away (before any money changes hands): (a) if my idea sucks, (b) why it sucks, and (c) makes an appointment for me to come back – once I fix it?
Look out for: “Well, we prefer to group-educate our trainees first, and watch them pivot toward the right solution. Because after all, every idea could be a good idea under the right circumstances. We let our Demo Day do the talking.”
You ask: “Ok, so when your ‘Demo Day’ comes around – do the really great ideas & teams get the same amount of time as your ‘s__ty’ ideas and teams?”
Look out for: “Yes, everyone gets 7 minutes to explain their problem and solution to the same audience. We let the investors do the talking.”
It’s the ‘want-tra-preneurs’ job to sort out groups that are engaged in giving participation trophies from those that are truly good at what they do. The result of the ‘participation trophy’ era – is that all of the winners ended up feeling ripped-off and they went somewhere else. Pittsburgh in the 90’s was swarming with Internet companies. Today, there is not one ‘crypto-currency’ idea in any of our ‘incinerators’. That tells me that the WINNERS have gone somewhere else.
Yes, the old ways were more emotional and time-consuming. Mentors shared in the sense of urgency, and made mid-course corrections like ‘saw teeth’ – rather than on weekly conference calls. Customers were applauded – not hidden behind the curtain. What sense does it make taking money from 2,300 ‘want-tra-preneurs’ knowing that only 30 will survive? Most of the time reminiscing about the ‘good old days’ also brings back painful memories. In so far as turning ‘want-ta-preneurs’ into entrepreneurs – I think it’s best that we turn back the clock, take our heads out of the sand, and bring back the ‘good old ways’.
#2. Should I mine for bitcoin? Here’s a site that outlines how to mine bitcoin profitably: https://www.youtube.com/watch?v=UHQqWCreCBw. Most people evaluate bitcoin (BTC) mining using today’s bitcoin prices ($11,400) – and conclude that it’s marginal at best. JT ran some numbers and assuming: (a) you MINE-n-HODL (‘Hold On for Dear Life’), (b) power = $0.13 / kwh, (c) use an inexpensive miner such as the Antminer S3 ($300) https://www.ebay.com/sch/i.html?_from=R40&_sacat=0&_nkw=bitcoin+antminer+s3&_sop=16 , and (d) BTC remains around $11,400 – you basically breakeven for the year. However, if each machine mines .03086647 bitcoins / year, and if BTC is trading at $150,000 after 3 years – you then net $12,500 / machine. But bottom-line, it only costs you $300 and a breakeven downside to give ‘er a try.
#3. In cryptocurrencies, what is the most important metric? Knowledge. According to Raghee Horner: “We are looking at the natural evolution of currency trading. It’s a mixture of the 1999 tech culture and the 24/7 rhythm of the currency trading world.” I am constantly asked whether bitcoin will see $26,000 or $6,000 and my answer is ‘YES’ to both. Bitcoin has broken it’s constant uptrend by moving from $20k down to $10k. But that is normal, market maturation. I think we are destined for higher highs, and ‘yes’ we may take the scenic route (via $6k) to get there. A CNBC guest said: “The wacky action we’re seeing in crypto these days is the first sign of greed since the Great Recession. There’s a chance that bitcoin will suffer the same fate as ‘Pets dot com’, but the greed with which investors are approaching cryptos actually bodes well, is indicative of rising risk appetites, and should drive markets higher.”
Participants in the World Economic Forum in Davos are being peppered with cryptocurrency questions. Traditional investors are still not willing to accept the rising clout of the cryptocurrencies, and are pushing for tighter regulation only to find their constituents rebelling. Just last week Robinhood (a commission-free trading platform for equities) got into the act when it opened its doors to commission-free crypto trading. They received almost 250,000 new signees within the first 8 hours of the announcement. The crypto movement is global in scope as in Brazil (for example) there are over 1.4m registered clients on the country’s cryptocurrency exchanges compared to 619,000 registered accounts on the Sao Paulo Stock Exchange. Knowledge is the key to unlocking the deflationary advantages of cryptocurrencies, and their attractive store of value features as well.
“Ma, I’m going faster than I have in my entire life.”
And to corporations, cryptocurrencies could be a way to retain and reward customers. I keep hearing about a Facebook coin where: (a) Facebook would pre-mine a large pool of tokens, (b) distribute a significant number to shareholders, and (c) hold the rest in reserve to distribute to users based on traffic, original content, and upon their ability to share their personal information. Facebook would mandate that on-platform advertising be paid for with FB tokens. A FBcoin market could quickly emerge where billions of users could sell, monetize original content, and be rewarded for sharing their own privacy data with advertisers. This would give Facebook shareholders and users a valuable stake in the future growth of its platform under a more decentralized set of rules. FB is uniquely positioned to open up its tokens to a true, decentralized blockchain system. A decentralized market would result in far more explosive growth – and, by extension, token-based returns for Facebook’s shareholders. If Zuckerberg really wants to experiment with decentralized systems, a publicly issued crypto-token would be a heck of a way to do it. Social media badly needs a model that puts control back in the hands of people. I’m hearing that FB and Mark Zuckerberg recognize that the most powerful gift he can make to the world is a platform for creativity that empowers people by fairly rewarding their ideas, self-expression, and privacy.
There are a lot of things that shock me as of late, a couple of those are:
- Budweiser is no longer the most popular beer in America. Bud Light, Coors Light, and Miller Lite are now the top three best-selling beers in the U.S. The previous top-selling Budweiser dropped to the #4 spot – with sales of all of the top 4 beers declining in 2017.
- Bank of America (as much as it bad mouths crypto currencies) has 43 crypto-patents with another 5 in the wings.
- President Trump slapped tariffs on imported solar panels and washing machines, and big labor did NOT support him. Per SF, big labor realizes that shifting this manufacturing to the U.S. will only increase the price of these items, making them too expensive for the consumer, and lowering demand.
- The S&P 500 has increased 7.45% during the first 18 trading sessions of 2018, and has posted 13 records – the most for any calendar month since February 1998.
- The Dow Jones Industrial Average is also up 7.68% for the year and has set 10 record closes. It is its sixth-best January in the last 68 years, and marked its longest monthly winning streak since 1958.
- The Nasdaq has returned 8.73% year-to-date. Even with the 4th Quarter GDP finishing at 2.6% (below the 3.0% expectation), Wall Street is ‘partying like it’s 1999’.
- When January is positive, the market finishes the year higher 91% of the time.
- Bank of America just came out with a warning that one of their top indicators signaled a strong chance of a 12% pullback in Feb-March.
It’s no secret that medical marijuana is about to overthrow the $635B pain killer industry. It’s also no secret that the painkiller industry is in a tough spot – with its products being addictive and leading to a nationwide opioid epidemic. You can either get on the marijuana train or watch it pass you by. Last week 2 of Canada’s major marijuana producers agreed to merge. Aurora Cannabis (Canada’s second largest marijuana producer) will purchase CanniMed Thereapeutics. Canada will become the first G7 nation (and 2nd country in the world after Uruguay) to legalize recreational use of marijuana. I’ve liked Aurora Cannabis (ACBFF) since it traded at $2, and last week it hit a high of $11.94. By buying CanniMed, Aurora will be the best-in-class cannabis company with operations across Canada and the world. But allow me to present 2 other cannabis companies that should be on your radar:
- Aphria (APHQF = $16.35) which over the past 2 years has already gained just over 2,000%, has two major advantages working in its favor. First, it has undertaken a four-phase capacity expansion that will (when complete) deliver 1m square feet of growing facility and produce over 100k kilograms of dried cannabis every year. Second it has a stellar management team. Many marijuana companies are expanding with absolutely zero regard to profitability, Aphria prides itself on generating positive EBITDA in each of the past nine quarters, and has been profitable in each of the past two years.
- Cannabis Wheaton (CBWTF = $1.81) is potentially a stock that has flown under most investors’ radar. Unlike traditional growers, Cannabis Wheaton is a royalty company. Rather than handling the day-to-day operations of growing weed, Cannabis Wheaton acts as a lender to help budding companies get their grow operations or distribution off the ground, and in return receives a percentage of the production. It's able to buy ‘weed’ at well below market prices, sell it at market price, and pocket the difference. Cannabis Wheaton has the highest profit margins among all marajuana stocks, and is expecting an internal rate of return of 60%. They have about 15 production deals on their books that are expected to yield a combined 230k kilograms of dried cannabis a year by 2019.
This market is in ‘melt-up’ mode. We’ve tied or broken every market record ever set including the fastest 1K points ever, and the longest period of time without a 5% correction. I don't mind a market that rises for a long period of time, if the underlying fundamentals support the rise. But this market isn't running on fundamentals – not even a little bit. After all, the true Price to Earnings ratio of the Russell 2000 is 145. For this number to be realistic it should be in the high teens. So at 145, we are 10X higher than what it should be.
The whole world is bullish. Over in Davos Switzerland at the World Economic Forum the world applauded Trump’s tax reform and put out grandiose projections surrounding how much global growth we will see because of it. However none of the press releases seems to contain the fact that the Swiss National Bank has now purchased over $92B worth of U.S. stocks.
Honestly, I would like nothing more than a strong economy full of high-paying jobs and opportunity. However, that’s NOT what we have right now. We have a Central Bank fueled stock market, with over 100m people out of the work force, and over half of our population that can’t find $400 for an emergency. Those are not the types of elements that comprise a DOW 26k market. I continue to lean long, but it's a nervous long. While it's certainly fun making money in this wild ride, the truth is that unless history is being re-written – there’s going to be one heck of a correction coming. To think that this market can gain 2,000 points every month is insanity. Ride this bull market, but become a professional bull rider. In bull riding, when the rider makes it to 8 seconds, they pull their rope release, and hop off the bull. Remember to pull your rope when this market times out.
Top Equity Recommendations:
- Marijuana & Energy stocks:
o Aurora (ACBFF = $10.81) – higher w/ earnings on Feb 14th,
o GW Pharmaceuticals (GWPH = $138.55) – higher w/ earnings on Feb 8th,
o Canntrust Holdings (CNTTF = $9.35),
o GAStar Exploration (GST = $1.30),
o BIDU ($260.25) - higher w/ earnings on: Feb 22nd,
o Costco (COST = $198.91),
o Disney (DIS = $112.19) – higher w/ earnings on Feb 6th,
o First Solar (FSLR = $70.56) – higher w/ earnings on Feb 21st,
o Lululemon (LULU = $79.08),
o Micron (MU = $43.67), and
o Netflix (NFLX = $274.60).
Top Crypto Recommendations:
- Ethereum (ETH),
- Lumen / Stella (XLM),
- RaiBlock (XRB),
- SiaCoin (SC),
- STEEM, and
Cryptocurrencies represent a paradigm shift to our monetary system. A digital, monetary system could be routine within a short amount of time. Bitcoin dominated the scene at this time last year, with an 85% market share; however, it’s share is now at an all-time low of just 35%.
BTC/USD ($11,400 = Bitcoin):
Plus: Proven track record as a secure blockchain solution, and potentially the only cryptocurrency known to many of the investing public.
Minus: Eroding credibility due to community controversies and constant hard forks, combined with its ineffective and slow implementation of scaling solutions have forced some investors to shift and jump to other coins.
Prognosis: Bitcoin is currently in no man’s land, and is facing resistance at its downward trend line, and even if bulls succeed in breaking out of this resistance – it can only rally to its next higher downward trend line. I’m waiting for a confirmation bottom because, if the bulls fail – the likelihood of BTC $9,900 and then $8,000 increases. Given we’re still below both the 20-day and 50-day moving averages – the trend remains down and range bound. Watch and wait for a break out above $12,200 before initiating any new long positions.
BCH/USD ($1,642 = Bitcoin Cash):
Plus: It was created via a Bitcoin fork that improved scaling by increasing the block size from 1MB to 8MB. It could dislodge Bitcoin if it improved its mining hashing power.
Minus: There is constant pressure to increase the block size as the network grows. However, increasing block size is a linear solution to an exponential problem.
Prognosis: Traders are presently not taking a ‘keen’ interest in BCH, and as a result it has been trading in a tight range. Downside support exists at $1,479, and the upside moving-average cross is likely to act as a resistance along with the $2,072 level. I’m not finding any tradable setup on BCH.
ETH/USD ($1,100 = Ethereum the 2nd largest coin with 18% market share):
Plus: ETH operates in a community with strong leadership (Vitalik is back on board) and an aligned vision. The EEA (Ethereum Enterprise Alliance is a who’s who of heavy-weight supporters) virtually guarantees success, and is already processing a lot more transactions than Bitcoin.
Minus: It’s still has unproven scaling solutions where a surge in network traffic can cause significant congestion (aka CryptoKitties). It’s still difficult to write secure, smart contracts. The DAO hack and Parity wallet bug is a threat even if the Ethereum network itself is secure.
Prognosis: Ethereum is in a pullback within an uptrend because it is still quoting above both the 20-day and 50-day moving averages. Additionally, it has successfully held on to its uptrend line. Downward support is all the way down at $900, while upward resistance will be at: $1,174 levels. I’m awaiting the ‘squeeze’ to fire and upward momentum to shift – which could happen any day now. In the meantime, long positions can be initiated on dips down to the $1,000 level or above the $1,110 level.
Editorial: In a single year, ETH has skyrocketed more than 13,765% since January 2017 when it traded at just $10.22. And according to its co-creator, Steve Nerayoff: “The price of Ethereum could ‘easily double or triple by the end of the year. What you’re seeing with ETH is an exponential increase in the number of projects. There are billions of dollars being poured into the ecosystem right now – potentially 10 times more projects this year than last year, which could easily lead to a more than doubling of the price by the end of the year.” Introduced in 2013 by crypto researchers and developer Vitalik Buterin, Ethereum is said to be the next Bitcoin. At the moment, the only difference between the two is: (a) the price, (b) the fact that Ethereum introduces smart contracts and computer algorithms that allow users to build and develop innovative tools and systems, and (c) Ethereum also uses blockchain to cut out the need for third parties – thereby saving the user both time and money.
XRP/USD ($1.225 = Ripple – a favorite of the banking community):
Plus: Ripple is the preferred digital coin in the financial industry, and has considerably better transaction fees and times than bitcoin.
Minus: It’s regarded as the most controversial coin, and companies need not use the Ripple token (XRP) when using Ripple payment technology. The majority of the XRP tokens are held by the Ripple Company – putting a disproportionate amount of control in the hands of a few.
Prognosis: Ripple is likely to remain range bound between $0.87 and $1.74; therefore, buy and sell appropriately. A trading opportunity will pop up only if the supports of the range hold or if the cryptocurrency breaks out of the overhead resistance.
With BTC’s dominance slipping, there is a strong possibility that by this time next year, a new coin will emerge as the cryptocurrency king, and the top four coins listed above could be overtaken by some newer more powerful models – including:
- RaiBlocks (XRB) which recently emerged from its downward channel and is not firing on all cylinders, and
- Lumen/Stellar (XLM) which (like ETH) never did break down below its 50-day moving average and has resumed its upward climb. It will face resistance at $0.671. Once XLM breaks above $0.671, a move towards the highs is likely – with a small resistance at $0.732. Wait for the break above $0.671 before initiating a new position.
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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