RF's Financial News: March 2018

Sunday, March 25, 2018

This Week in Barrons - 3-25-2018

This Week in Barrons – 3-25-2018:

#DeleteFacebook and #UnspoilMe:

Since the Cambridge Analytica data scandal broke last week, Mark Zuckerberg (the CEO of Facebook) has been the focus of intense criticism. His early public responses to the scandal failed to address any of the key questions surrounding Cambridge Analytica’s misuse of people’s personal data. In his final interview with CNN, he still attempted to convince us that Facebook was the VICTIM. A hashtag campaign: #DeleteFacebook is fully underway, and even Elon Musk has deleted the Facebook pages for Tesla and SpaceX. Personally, I don’t see Facebook becoming MySpace over night, but let’s ‘backup’ and set the scene.

Employing subterfuge, Cambridge Analytica (with Facebook’s knowledge and permission) hired 270,000 people via Mechanical Turk to answer questions in an application that they installed on Facebook. That application gave Cambridge access to the group’s Facebook (FB) information – along with the information of their 50 million friends. Although the 270k people may have given Cambridge Analytica permission to access their own data – the other 50m NEVER gave their consent. And NONE of those violated gave Cambridge Analytica permission to use and distribute their data.

We all know that FB is in the business of selling our private information to governments and corporations. What’s surprising is that FB refuses to take responsibility for doing it. When the Russians invaded FB, FB refused to acknowledge it. Now Cambridge compromises 50m FB users, and FB claims that: “It’s not a data breach.” I can only assume that at FB making money takes precedence over ethics, employees, users, or our country’s elections. With Monday’s resignation of FB’s Chief Information Office, it was revealed that he was pushing for increased transparency surrounding Russia's campaign antics but was told to ‘cease and desist’ by FB leadership. Lately, the FTC is reviewing whether FB violated a consent decree that regulated user privacy, and if 50m users were in fact exposed – then FB’s legal exposure will be in the trillions. A former FB data operations manager explained that data extracted by 3^rd party developers “could not be monitored by FB. In fact, executives turned a blind eye to the security risks because legally they would be in a stronger position if they didn’t know about the abuses.”

Cleary FB understands that all the power today comes from chips (computers) not clips (guns). We need to stop coughing up our life stories (for free), and allowing FB to slice, dice, and sell them to advertisers – so we can be influenced. We’ve allowed our social networks to become the custodians of our personal information, and it’s time to take it back.

Then there’s Google, Siri, and Alexa – all home gadgets capable of voice interaction, playing music and audiobooks, assembling to-do lists, setting alarms, streaming podcasts, controlling smart devices, providing weather, traffic, and news, etc. And it seems that they are even capable of ‘laughing’ at me. I remember in 2015, Samsung drew criticism for its always-on voice detection policy that stated: "Please be aware that if your spoken words include personal or other sensitive information, that information will be among the data captured and transmitted to a third party." If that wasn’t creepy enough, it seemed that owners of Samsung Smart TVs were also vulnerable to spying. Newly published documents detail a problem called ‘Weeping Angel’ – an attack designed by the CIA and United Kingdom's MI5 that make Samsung smart TVs look like they're turned off when they're not. When the CIA was asked about the program they said: “We would never use them to spy on Americans. Samsung TVs are sold all over the world, and there are bad people everywhere.”

Okay, so we have a history of the CIA spying on people through Samsung TVs, Facebook releasing personal data on the world, Google and Siri listening to everything that’s said, and Alexa laughing at us – could it get stranger? Sure, it seems Samsung has a new program called ‘Unspoil Me’. It solves the problem of someone spoiling the ending of a TV show for you. Simply go to the Samsung website http://www.samsung.com/se/unspoilme/eng/, they will hypnotize you, and REMOVE the memory of that show’s ending. Their website clearly states: “You decide what TV series you'd like to forget. Then you will be guided through a self-hypnosis, digital, audio experience – led by a certified hypnotist. The experience lasts for about 23 minutes, and has to be experienced without interruption in order to work. Once you've completed the hypnosis it's recommended that you get one nights sleep, before you watch your TV show for the first time – again.” http://www.samsung.com/se/unspoilme/eng/

For me, creepy just hit a whole ‘nother’ level. The same outfit, that worked with the CIA, wants to crawl around in my head, and help me ‘forget’ things - really? They say it will only remove that TV show – honestly? It’s probably an over-reaction on my part, but something tells me that there's more to this than just wanting to let me see a TV show through a fresh pair of eyes. Bottom line, we need to start taking back our own information and privacy. My friends have been moving off Facebook for years. Now that Facebook’s stock is down, shareholders are suing, and users are losing trust - #DeleteFacebook along with Alexa, Google, Siri and Samsung all are in the cards for me.

The Markets:

A couple Crypto-Bytes:

- 10 Years: is how long Twitter and Square CEO Jack Dorsey thinks it will take until Bitcoin becomes the single global currency of the Internet.

- Yi Gang: newly appointed head of China’s Central Bank said: “Bitcoin is a currency that provides freedom to anyone that uses it”.

- Fundstrat Global Advisors: “We believe the current crypto purgatory period will last for between 150 and 175 more days. That implies the bull market for alt-coins really starts mid-August to mid-September”.

- Peter Thiel: PayPal co-founder: “I would be long Bitcoin, and neutral to skeptical of just about everything else … with few exceptions.”

- VersaBank: is beginning to secure digital assets via their own blockchain-based bank.

- PwC: announced a blockchain audit service that should give companies more confidence that the technology is being used properly. PwC is already seeing traction as a major exchange and a digital wallet provider have signed up as customers.

- Jane Street: a global liquidity provider and market maker, revealed that Bitcoin was just added to their list of tradable assets. Being a high-frequency trading firm that trades $13B in equities, their announcement is a clear indication that prominent providers are getting involved in crypto. For traders looking to make a quick buck on Bitcoin’s intraday price movements, Jane Street’s entry isn’t making their lives any easier.

- Cybersecurity and blockchain: A recent report declares cybersecurity a top impediment to economic growth, and cites blockchain as a potential “aid to help the economy function more efficiently and securely.” The statement describes blockchain as being “nearly invulnerable to cyberattacks”. So while there’s been no official endorsement of Bitcoin, central bank digital currencies continue to be likely contenders to win Congressional approval.

Last week U.S. stocks were besieged following the convergence of three major Wall Street threats. (1) Our FED 2.0 raised its benchmark interest rate by a quarter percentage point to between 1.5 and 1.75%, and places the new effective federal funds rate at 1.63% - the highest since Sept. 2008. (2) Pres. Trump announced the beginnings of a trade war with China by signing a memorandum that imposes up to $60B worth of tariffs on Chinese goods. The memo stipulated a 30-day consultation period to begin after a list of appropriate Chinese goods was submitted – leaving a window for the two countries to hold discussions. China responded by saying: “China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the U.S. will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.” (3) Finally, a $1.3T government funding bill was signed.

In a weekly response to those events, the DOW and S&P plunged by almost 6%, and the NASDAQ dropped below 7,000. After all, a full-blown bi-lateral trade war could damage the global economy, and significantly bring down profits of major U.S. exporters. The markets’ biggest sectors (technology and banking) slumped the most due to their massive overseas business interests. Bank stocks fell because investors sought refuge in bonds, driving yields down – which is detrimental to bank profits. The only bright spot was the marijuana industry when Pres. Trump exempted Canada from the tariff discussion, and Canada passed Bill C-45 – further securing country-wide ‘weed’ legalization after June, 2018.

Last week I showed the DOW inside a narrowing sideways cone – wondering which direction it would break. There were hundreds of reasons for it to break to the downside, and only 2 to the upside: Central Bank and Corporate intervention. This week the downside won, as Friday’s DOW closed at 23,533 – approximately 200 points from its 200-day moving average of 23,357. That will be the next level of support, and ‘yes’ I think we will get there. Why? Last week’s 700+ and 400+ point down days were on just above-average volume. For a washout to end, there needs to be a large volume capitulation day – and we haven’t had that yet. Our markets are currently in a short term oversold condition. Only 15% of the S&P remains above their 50-day moving averages – so a bounce is in order. Watching how far that bounce takes us before we roll over again will be key to deciding whether the correction is over. After all, last week was the worst for the market in over 2 years. Tomorrow, we could experience ‘Margin Call Monday’, or at minimum – increased volatility.

If you have a long portfolio, it’s time to begin to assess your risk. Last week’s expected move in the SPX (the S&P Index) was around $45.60, but we moved $164 = 3.6 TIMES that amount. This means that the option market professionals are not handicapping risk correctly – and that’s scary. Although you may think market volatility has increased enormously, looking back over 20 years of data shows that last week’s actual price movement was only ‘slightly’ above average. This means we could see larger 5 to 6% moves going forward – rather than the 2 to 3% moves that we’ve experienced lately. And even though the recent downside moves in a stock like Amazon have been large, we’re not even back to Amazon’s December levels. Think for a minute, if Amazon (which currently sits at $1,500) fell to its December level of $1,100 – the devastation that would fall upon the NASDAQ would be horrific. It would NOT necessarily be caused by people selling Amazon directly, but more by Mutual Fund and ETF (QQQ-style) redemptions. Because Amazon has such a prominent weighting inside many of the global funds and ETFs, it would take a significant hit by virtually any global exit strategy. For next week, the SPX is expected to move $77 in 4 trading days – which is 1.75 times last week’s 5-day expected move. The Financials are looking at twice their normal implied volatility, and if the bonds rally again – the financials will get crushed. So, a bounce is to be expected – but a lot of people will be selling into that bounce. I’m wondering if we see a little flight-to-crypto = safety this coming week. Just be careful and remember – cash is a position.

Tips:

In recent days, daily volumes of Bitcoin, Ethereum and the other cryptos have remained low, but if they can sustain the current daily trading volume over the next few days, the market may be able to rebound. Currently, I’m not finding any buy setups in the cryptocurrency space. If Bitcoin can break above $9,561 – I’ll change my tune, but until that point my next buy point for Bitcoin is at $4,450, In order words, ‘look out below’ unless we pierce above the $9,561 level.

Top Equity Recommendations:

Marijuana stocks (HODL):

- Aurora (ACBFF),

- Cannabis Wheaton (CBWTF), and

- Canntrust Holdings (CNTTF).

Options (I LIKE):

- SPY, SPX, and DIA short into March 25^th,

- Northrup Grumman (NOC) – long into April 20^th (earnings), and

- Raytheon (RTN) – long into April 20^th earnings.

Top Crypto Recommendations:

- Bitcoin (BTC),

- Ethereum (ETH), and

- Cash.

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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Sunday, March 18, 2018

This Week in Barrons - 3-18-2018

This Week in Barrons – 3-18-2018:

Marketing by Exclusion OR “How I landed my husband on the web” … https://youtu.be/d6wG_sAdP0U

Thoughts:

Most young businesses practice marketing by focus and exclusion, and I think there is a better way. Many small businesses think they know the problem that they’re solving, and proceed full-bore into picking the right sectors and prospects to attack. After all, who knows you better than you – right? Wrong. Stephen Hawking said it best: “The greatest enemy of knowledge … is the illusion of knowledge.” Your CUSTOMERs define what you are, and what you’re NOT. Your customer understands: (a) all of your abilities, (b) the timing, (c) the competition, and (d) their own tolerance for ‘early adoption’.

JT introduced me to the above video (https://youtu.be/d6wG_sAdP0U) that shows how Amy Webb adopted a ‘big data’ philosophy for finding a husband on-line. She was able to narrow her eligible prospects in Philadelphia from 1.5m down to 35 in a matter of seconds. After all, in a city as big as Philadelphia (1.5m people) there are 50% men = 750k prospects. Of those men, only 4% were in her targeted age bracket (30 to 36) = 30k. Of those, only 2.3% were Jewish = 690, and only 10% of those would be attracted to her versus the competition = 69. Finally, she eliminated another 50% because they liked sports – leaving her only 35 husband-worthy men in the entire city of Philadelphia. If you believe those numbers, you should immediately start trying to connect with those specific 35 men, make appointments, and begin to ‘close’ on some sort of relationship. Unfortunately, Amy (along with many small businesses) fail to realize that the smallest error in any of the original assumptions will lead to a very large error in the final pool of eligible prospects.

By combining the possibility of an original assumption error with the failure to correctly understand your own competitive advantage(s) – should cause you to think more openly about your prospects. A young company needs to more heavily emphasize sectors where early adoption, timing, and ‘the numbers’ immediately give them a competitive advantage. Based upon those results, grab the ‘low-hanging-fruit’ and begin to fill your sales pipeline until finding the appropriate ‘flag waver’ to take you forward. In terms of Amy, rather than searching for those 35 specific gentlemen in Philadelphia, I would recommend she spend time where 30 to 40 year old Jewish guys hang out, and begin to build her relationship grid accordingly.

For another example, lets discuss our aging workforce. We know that only 50% of households have enough savings to get them through 1 missed pay-period. We also know that 80% of older households do not have enough savings to retire. Now you could start a business that ‘focuses’ on increasing education, training, and disciplined investing to this group. You would quickly find that getting our government (or anyone) to pay for yet another educator, trainer, or investment advisor is next to impossible. And then you would end up walking away with little to show for it except an additional pain, blues and agony merit badge. OR, you could ‘widen your net’ and include the government and corporations into the problem. At which point the problem morphs into our U.S. labor force growth rate stagnating by 2020. Because GDP is still growing, older workers will be given a competitive advantage. A recent Bain and Co. report emphasized that companies looking to innovate and scale will find employee retention to be a ‘front burner’ item by 2020. This is good news to Baby Boomers and Gen Xers. With older workers in shorter supply, employers will need to hang on to the ones they have, and entice others to rejoin the workforce. This war for talent means companies will be making ‘innovative’ offers to workers that emphasize more flexible workforce and workplace arrangements. Companies will begin to actively ‘poach’ from other employers, and will engage in a custom blend of compensation, benefits, and hours. Age discrimination will morph to include more part-time and contract arrangements. The well-educated could end up working into their 70s if need be. The high-school educated will have a much tougher time of it. After all, automation will eliminate 40m jobs – 20 to 25% of the current job market and especially targeting the $30 to $60k worker. The beneficiaries of automation will be managers that show professional expertise, and can use technology to increase productivity.

Startups: rather than reducing the niches where your business belongs – participate in more conversations where prospects think your business is wanted. Work from a bottom-up customer point-of-view to gain acceptance and support. Don’t be surprised to find that your original target market was too confining due to one of your early assumptions being too restrictive. As JB once told me: “People write business plans because then (and only then) do we know one way that the business will NOT grow – and that is according to the plan.”

The Markets:

Info Bits:

- There’s gold in them thar hills: A Yakutsk gold rush ensued after $368m in gold and silver tumbled from a AN-12 cargo plane over the coldest region in Russia. Over 9 tons of Russian gold and silver, along with an undisclosed amount of diamonds and platinum have been reported missing. All of the flights to Yakutsk are booked as people have stopped mining for crypto and started mining for gold.

- Poor Geoffrey the Giraffe: With Toys “R” Us being a sad chapter in our memory, I wonder how the company’s mascot will pay his bills. Gigi (Geoffrey’s better half) has already moved on, but Baby Gee still lives at home. We’re all wondering whether it was Amazon, Target, and Wal-Mart who brought them down, or whether it was the debt saddled on to their spotted backs by KKR, Bain, and Vornado?

- Bye Bye American Pi: RIP Stephen Hawking (1942-2018). The world-famous physicist and bestselling author died last week in England. He was known for his deep dives into black holes and coming out with them not being entirely black – but rather particle radiators. His major breakthrough came as a result of combining quantum mechanics with Albert Einstein's theory of relativity. He did most of his research while suffering from Lou Gehrig's disease (aka ALS). Upon his death his family shared his thoughts: "It would not be much of a universe if it wasn't home to the people you love. Look up at the stars and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious.”

- It’s official – Google banned crypto ads: Starting in June of 2018, cryptocurrency ads will take an indefinite hiatus from Google. Facebook and Reddit were the first major platforms to curb ICO advertisements, and now Google. Will this cause cryptocurrencies to fall off of people’s radar? While adoption may not come to a halt, it will definitely be harder for the public to stumble across cryptocurrencies during a random web search.

- Fake trading volumes … maybe? Crypto-exchanges came under fire last week for allegedly faking their trading volume. Sylvian Ribes concluded this while analyzing how far prices moved when selling $50k of each cryptocurrency on each of the top exchanges. Ribes’ calculations found that over 80% of the OKEx trading volume was fake, along with 70% of Binance’s trading volume. Responding to that accusation the Binance CEO said: “We like liquidity.”

- You’re Fired. Early last week D. Trump sacked Secretary of State Rex Tillerson. On Friday, Attorney General Jeff Sessions fired former FBI Deputy Director Andrew McCabe. He was fired just 26 hours before his formal retirement – which could cost him his federal pension.

- As Playboy prepares to release a new crypto wallet: I’m betting that D. Trump wishes he’d paid Stormy Daniels in Bitcoin, Monero, or Zcash about now – instead of by bank check.

- Central Banks now own 44% of the worlds GDP. Shortly, the U.S. will be $25T in debt. Low interest rates have caused U.S. business to take on trillions in debt to fund record corporate stock buy-backs. Trump's tax overhaul and cash repatriation package are funding the stock market’s move higher. This has come at the expense of investment in facilities, R&D, wage increases and bonuses. This will hamper long-term growth.

The value of corporate stock buyback programs announced in February surged to $153.7B – eclipsing April, 2015’s previous monthly record of $133B. J.P. Morgan (JPM) estimates that S&P 500 companies will buy back a record $800B of their own shares in 2018, far exceeding the current high of $530B that was recorded in 2017. Companies opt to buy back shares instead of using those funds to make long-term investments in things like facilities or R&D because it bolsters the corporate stock price. Buybacks are good for shareholders, and senior executives – who tend to be big owners of their companies’ stock.

According to JPM, nearly half the stock purchases this year will be funded with the windfall from the Trump administration's tax-reform plan. The other half will be financed by strong corporate earnings and the repatriation of the cash held overseas. That notion has completely upended the view that the big U.S. corporations would pass along benefits of the Trump tax plan to their workers in the form of increased wages and/or bonuses. Democrats point to increased stock buybacks as proof the Republican tax plan largely benefits corporations, corporate executives, and wealthy shareholders – instead of employees and average citizens. As said by Senate Minority Leader Charles Schumer: “Share buybacks inflate the value of a company’s stock, which primarily benefits corporate executives who are compensated with corporate stock, not the workers who are paid by wages and benefits.”

The recent surge in share repurchases will give the 9-year bull market a boost at a time when many investors are concerned about how much longer it will last. According to the FED’s flow of funds data, corporate share buybacks have been the main buyers of U.S. shares since the 2009 market low (see chart).

Recent analysis by Credit Suisse revealed that corporate stock buy-backs have repurchased a net $3.3T worth of U.S. equities (18% of the total market cap) over the past 9 years. All the while mutual funds and ETFs bought a net $1.6T, and households and institutions (insurers and pension funds) SOLD a net $672B and $1.2T respectively. What this means is that since the 2008-09 financial crisis, there has been only one buyer of stock in the U.S. – the corporations themselves. This demand for equities from largely price-indiscriminate corporations has had the knock-on effect of crushing equity volatility. Mr. Cole reported: “Share buybacks are a major contributor to low volatility because a largely price insensitive buyer is always ready to purchase on weakness. It’s like a snake eating its own tail. Only the market cannot rely on share buybacks to nourish the illusion of growth forever. Rising corporate debt levels and higher interest rates are catalysts for slowing down annual share buybacks that are artificially supporting the markets and suppressing volatility."

Last week U.S. stocks took a hit as talks and fears about a potential global trade war continued. President Trump wants to bring down our country’s huge trade deficit with China via the imposition of tariffs. For the week, the DOW fell 1.5%, the S&P lost 1.2%, and the tech-heavy NASDAQ slid by 1.0%. On the economic front, housing starts fell by 7% in February, industrial production increased by 1.1% (the fastest pace in 4 months), and consumer sentiment soared to a 14-year high.

This week the government put the clamps on any potential Qualcomm / Broadcom merger, but Qualcomm remains in the government’s crosshairs. If Trump plans on reducing the trade deficit with China by $100B – he’s going to target where Qualcomm lives – the technology and telecommunications sectors. If a trade war between the two countries erupts, the San Diego-based chipmaker will need to walk a tightrope. China is Qualcomm’s most lucrative market due to patent and licensing fees earned from smartphone vendors such as Apple, Samsung, and Xiaomi. Any trade dispute with China could have a heavy impact on Qualcomm’s business dealings and sales pipeline.

Lately, Bitcoin (BTC) has been on a swift decline from the record highs it reached last December. Losses are mounting so quickly that technical analysts are saying the most popular crypto is nearing the so-called ‘death cross’. This term is a bearish indicator and is brought on by a short-term moving average falling below a longer-term moving average. Earlier this week, Goldman Sachs (GS) warned that Bitcoin is at risk of taking out its February lows. The group’s forecast aligned with a technical indicator for Bitcoin to potentially hit a low of $5,922. Bitcoin bulls however find it too early to call a bottom as they see a corrective rally coming off of this week’s low. Bitcoin’s impending death cross may give the technically-inclined investor reason to push the price even lower.

Next week the main event will be the FED’s monetary-policy meeting, and on Wednesday the FED will announce its interest rate decision. An increase in short-term interest rates is likely, but investors will await the Fed’s press release concerning the number of rate hikes they can expect for the remainder of 2018.

This sideways market movement has gone on for over 2 weeks now – trapped in ‘no-man’s-land’ within the following cone:

Shortly, one of those blue lines will give way to either a break-out or a break-down. A break-out may indeed come, but I’m witnessing some ‘not so bullish’ trading as well. For instance, you can make the case that the smart money has sold into the morning pops – leaving the retail guy to buy the afternoon drops. You can also see that volumes have been lagging. No one wants to hear that the great bull run is over, but as the cone continues to narrow – it will be forced to violate one of those trend lines. When it does, thousands of algo-bots are primed to buy or sell the breakout and push it hard.

I think that the chances are better for this to be resolved to the upside, but only because of what I consider to be criminal behavior. It would be too easy for the big 3 Central Banks whip up another $3B and use it to buy stocks. We would go higher but not on: earnings, GDP, or infrastructure – just on CB printing and corporate buy-backs. Both are horrendous reasons for a market to rise, but they have been the only reason for the past 10 years. Will it do so in the face of some not-so-hot economic news? After all, 2 months ago the Atlanta FED predicted 2018 GDP at 5% – and last week they lowered their estimate to 1.9%.

You could try and play both sides of the fence by buying call and put options on one of the ETF proxies such as the DIA or SPY. But I would recommend you wait and see which way the trend line is broken, and then load up. One of these lines is going to break, and probably fairly soon. When it does, the move up or down will be substantial.

Top Equity Recommendations:

"Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett

Currently, I’m not finding any buy setups in the cryptocurrency space. If the price of Bitcoin falls any further, miners will start to lose money, and that may force some miners to stop their operations.

Marijuana stocks (HODL):

- Aurora (ACBFF) – is thinking of listing on the NASDAQ, along with its current Toronto exchange listing,

- Cannabis Wheaton (CBWTF), and

- Canntrust Holdings (CNTTF).

Options (I LIKE):

- Micron Technology (MU) – long into March 23^rd earnings,

- LuLuLemon (LULU) – long into March 29^th,

- J.P. Morgan (JPM) – long into March 29^th,

- Nvidia (NVDA) – long into March 29^th,

- Microsoft (MSFT) – long into March 29^th,

- Raytheon (RTN) – long into April 20^th,

- Sketchers (SKX) – long into April 20^th, and

- Steel Dynamics (STLD) – long into April 20^th.