RF's Financial News

RF's Financial News

Sunday, November 17, 2019

This Week in Barrons: 11.17.2019:

This Week in Barrons: 11-17-2019:






Thoughts:

   Learning requires understanding.  Rote memorization is not learning or understanding.  Some things (like alphabetical order) can only be memorized.  On the other hand, memorizing anything that you’ll need to build upon, modify, or improve is foolish.  You need to work at understanding it instead.  It’s the time required for understanding that often gets in the way of the entrepreneur.  An entrepreneur’s survival instincts tell them to concentrate on whatever is on stage in front of them, and then to move on to the next item on the urgency chain.  But unfortunately, Copernicus was right – the world doesn’t revolve around the entrepreneur.  In fact, most of the time the world moves on irrespective of any of the entrepreneurs living in it.  It’s the process of learning and understanding that separates successful entrepreneurs from the rest.
   Per MJP, it’s the entrepreneurs ability to plan prior to implementation that is another differentiator.  Strategize – then plan – then market – then sell – then communicate using tactics and actions.  That’s the process.  Within each of these elements, figure out who are your allies – the ones that will help you open doors, and won’t get in the way of execution.  Then line up your accomplices – the ones that will risk, sacrifice, and put themselves out there on the hook for you.  Learn how to tell your story – a story that’s all about the listener (not you).  Make it a story that’s unforgettable, that makes things better, and that people will openly share.  The forever open-ended question is: TIMING.  When is the right time to: build, raise capital, launch and exit?
   One great voice on startups is Eric Feng – former partner at Kleiner Perkins.  Eric believes that the important structural advantage of a startup is that it controls “all of the above”.  A startup controls the team, the timing and the technology.  They even control what they think they’re worth.  A startup’s goals are all focused around risk removal – and those risks generally fall into 6 buckets:
-       #1  Team Risk:   Can the founder(s) recruit a team to carry out their vision for the company?  Prospects will often say: “I don’t have conviction in your team.”  To which you respond:  "If you just want us to go fast – I’ll go it alone.  But if you want us to go far – we must go together."
-       #2  Implementation Risk:   Can the team build the product needed to fulfill the company vision?  Knowing "Never to let perfect stand in the way of good."
-       #3  Market Risk:   When the product gets built, will anyone use it?  I’ve forever heard: "This market needs to gain momentum before I can get excited.”  And then I respond: "I never accept a NO, from someone who can’t give me a YES.”
-       #4  Monetization Risk:   Would the people who want to use the product – pay for the product?  From investors I often hear: “I don’t like your product.”  And here’s where it gets dicey: "Fortunately, you’re not my customer.  But here is our customer list."
-       #5  Scale Risk:   When people are using and paying for the product, what will keep you from doubling / tripling the number of customers you serve?  There is always a ‘different gear’, and “The greatest risk at this point is doing nothing.”
-       #6  Profitability Risk:   Finally, once you have ‘real’ revenue, can you turn that into profits that can sustain the company?  Profitability is not rocket science so remember: “Never go anywhere for the first time.”

   The above process is designed to prevent Twinkies from becoming a breakfast cereal, along with other entrepreneurial nightmares such as: pay toilets, spray on hair, and new Coke.  Here’s to those entrepreneurs:
“Here’s to the crazy ones - the misfits, the rebels, and the troublemakers.
The round pegs in the square holes, and the ones who see things differently.
They’re not fond of rules, and they have no respect for the status quo.
You can quote them, disagree with them, glorify or vilify them.
But the only thing you can’t do … is ignore them.
Because they change things!  They push the human race forward.
And while some may see them as the crazy ones … others see genius.
Because the people who are crazy enough to think that they can change the world…
Are the ones who actually do”… Steve Jobs (1997)    [https://www.youtube.com/watch?v=keCwRdbwNQY]



The Market:  

 

   I’m obviously missing something.  President Trump may be impeached.  Hong Kong is rioting.  Venice is drowning, and Taylor Swift can't even sing her own songs.  Yet, every major index is hitting all-time highs.  Hong Kong even confirmed that they are in a recession as their economy shrunk by 3.2% last quarter – the 2nddeclining quarter in a row.  All this while almost 80,000 retired public employees in California are drawing pensions in excess of $100,000 per year.  Per SF, California has hundreds of billions of dollars in unfunded pension debt, which explains their sudden surge in tax increase proposals.  On the other spectrum, when the WeWork IPO went belly up, its primary investor (the SoftBank Group) lost a staggering $4.5B.  WeWork’s spectacular debacle is widely viewed as today’s version of irrational exuberance that allows asset prices to be pumped up without just cause.  It was fascinating to see Masayoshi Son (CEO of SoftBank) admit he made a ‘mistake’ with WeWork, but his inflated, sociopathic ego prohibited him from “making any strategic changes” to his investment philosophy. 
   The lessons from WeWork are continuing to sink it – especially across such verticals as cannabis, the chip sector, and over-hyped IPOs.  Lyft’s CEO Logan Green acknowledged
 that public market sentiment had turned against companies that were spending heavily in pursuit of high growth: "There has been a major shift from investors valuing growth toward those valuing fundamentals. It has had pronounced impact on our business.”  Also, unit economics are starting to matter more than optics.  AirBnB CEO, Brian Chesky pointed out that one of the lessons from WeWork is that tech companies do not incur that much additional overhead when scaling up.  However, AirBnB and WeWork (although using technology for operations), have their core values in commercial real estate – a non-scalable, low-margin business.  
   Startups will have to go back to basics to win.  We’ve reached an inflection point where people are putting down their ‘magic wands’ and picking up their pencils, axes, picks ‘n shovels – trying to get s**t done.  However, the age of the highly-functioning sociopath (like Masayoshi Son) will never change on a single point of failure like WeWork.  It’s going to take a million points of rejection and ridicule, but from the California pension crisis to WeWork – change is in the air.

 

 

Info Bits:




-       “Back to the Future…”   Motorola is returning to yester-year with their new Razr – a foldable android smartphone.  One reviewer said: “Hanging up on people is fun again!”  It’s available for $1,500 in January 2020.  But how much is one of those Star Trek hang-ups worth to ya?

-       “You’re Fired:”   172 CEO’s were fired in the month of October – breaking a  previous 2008 record.  Exits were driven by profit misses, retirement, and misconduct miscues.

-       Toyota had superior foresight and industry:   70% of US auto sales are trucks or SUVs.  Toyota saw this coming, and prepped factories for Tundra, Tacoma, 4Runner, and Rav4.  Their sales rose 4.5% last quarter and profits on each vehicle average $2,300 vs Ford at $1,400 and Tesla at $268.

-       Voyage’ is starting real driverless cars in Phoenix, AZ:   Slowly, 3T human driving miles and 1.2m annual deaths will begin to be prevented.  The revolution has begun in the suburbs of Phoenix.

-       Saving WeWork … maybe?   John Legere (the current CEO of T-Mobile) is in talks to become the new CEO of WeWork.  John has taken T-Mobile from $11.50/ share to $80.  This sinking ship needs a captain – you could do worse.

-       Whole-r Foods:   In the world of: “What will Jeff Bezos do next,” Amazon said that next year they will be launching their own brand of grocery store.

-       KKR asked Walgreens to dinner & a movie:   KKR wants to take Walgreens Boots private – in what would be the world’s largest leveraged buyout.

-       Who’s card is maxed out…   not mine says Apple co-founder Steve Wozniak.  Steve noticed that HIS Apple credit card gave him 20 times the credit limit as his wife.  Let’s talk about gender equality – ok Apple?

-       “Ralph Broke the Internet”:   People were so excited to sign up for Disney+ that they nearly crashed the website.  Disney+ has surpassed 10m subscribers in its first day of signups, and for comparison: Hulu has 28m and Netflix 157m.

-       What’s a marketing department?   Juul is implementing a $1B cost-cutting plan that starts by laying off 650 marketing employees and phasing out their CMO.

-       Boozy:  Anheuser-Busch is buying Portland’s Craft Brew Alliance (BREW).

-       The cows ain’t coming home:  Dean Foods, the biggest milk company in the US, filed for bankruptcy.  Consumers are moo-ving toward almond and oat milk.

-       "Have you ever used Venmo” …  and thought to yourself: “I wonder if Facebook ever thought about this?”  Well, Facebook Pay is here!

-       Netflix we have a problem…   Netflix wonders how long it should let its movies play in theatres before pushing them out to their 158m subscribers?  Theatres would like 72 days – Netflix settled on 26 days for The Irishman.  

-       WeWork …   LOST $1.25B on sales of $934m.  Yes they LOST 25% MORE money than they took in.  “You can’t fix stupid.”

-       ALDI welcomes in the New Year …   with nationwide alcohol delivery within the hour.  I found that if you’re a 1st timer & use code ALDIHOLIDAY19 – you get free delivery through New Year's.

-       “It’s gotta be electric”…   is the excitement surrounding Ford’s next Mustang.  

-       “I’m with the Gov’t and I’m here to help”…   Per SF, the California Trucking Association filed a lawsuit against the Gov’t challenging the new labor law that seeks to give wage and benefit protections to workers in the gig economy.  The law would put 70,000 truckers out of work.

-       Relationship problems:    Hulu subscribers who opted in to pay for live TV access will now have an additional $10 added to their previous $44.99 bill.  “What’s the point in cord-cutting again?”


Crypto-Bytes:




-       Bachelor’s Degrees are goin’ down…  in value as starting salaries for college graduates have grown less than 1% over the past 2 years.  Worse yet: 10 years after graduation, 23% of graduates are in jobs that don’t even require a degree.

-       Tencent to build a virtual bank…   now that Hong Kong’s Securities and Futures Commission has approved their new license.

-       “Cryptocurrency Is a significant issue for law enforcement”…   said FBI Director Christopher Wray.  “From an investigative perspective, there is a complete lack of toolkits required to follow the money.”

-       Bitcoin options are comin’…   on Bitcoin futures contracts - Jan. 13th, 2020 as long as the CME Group gets the green light from regulators.  And we thought that the crypto-market was volatile before – potentially we ain’t seen nuttin’ yet.

-       “Can I have a little whine with that cheese?”    Singapore startup Blockchain Wine has built a new wine marketplace on Ethereum.  The TATTOO Wine platform (Traceability, Authenticity, Transparency, Trade, Origin and Opinion) employs a digital token, leverages EY’s OpsChain platform, and is integrated with the SAP Commerce solution all in the service of proving provenance.

-       “Take another little piece…”   Custody bank Northern Trust is testing the trading of fractionalized bonds on a blockchain.  The bank is providing asset servicing for large, high-grade bonds that will be tokenized and divided to give easier access to retail investors.


Last Week:   Day by day summary… 




-       The new Tesla pickup…    will be unveiled on November 21st.   The truck will look like something straight out of Blade Runner, with better utility than a Ford F-150, and performance superior to a Porsche 911.

-       Monday:  On Friday, I bought some MSFT and held my nose.  The only thing keeping this market up here is the is the gabillions the FEDs are injecting.  A Hong Kong protestor was shot and a man was set on fire in the 24th week of protests.  Eventually China is going to say "enough" and roll over all those protestors, but the global markets would not like that.  The only reason China hasn't done it already is that they don't want their stock market collapsing.

-       Tuesday:   This market is way out over its skis.  It's overbought, over extended and running on fumes provided by the FED.  With earnings behind us, the FED with us, and the "seasonality" factor – this market wants to go higher.  The technical guys will tell you that having the S&P over 6% higher than its 200-day moving average, is too stretched to continue and a multi-week pull back is right around the corner.  I’d like to believe that – at least before they jam us higher.

-       Wednesday:  Markets are in an early morning funk because Trump said that if a deal isn't made, tariffs will go up "substantially".  I looked at AMD the other day and passed on it.  That was a dumb move.  AMAT looks great, but it has earnings tomorrow.  CVX is looking interesting to me as well.

-       Thursday:   The XRT is the ETF that tracks the retail sector.  We’re currently in the peak retail season and it’s when most of the retailers make their money.   I'm going to take some XRT over $44.80 if it gets there.  As much as this market is "overdone" they're not letting corrections happen.  We just pop higher and then take a pause day.  Yes it's crazy.

-       Friday:  Thursday was flat, and since flat isn't good enough, good old Larry Kudlow came out and for about the millionth time said that they're "really close" to signing a Phase 1 deal with China.  That kicked the algos and the futures in gear.  I'm keeping an eye on MU this am as it’s definitely going to gap up and over its 50-day moving average.  I’m liking MU over $48.55, and UTX over $149.15.

-       Factually:
o   U.S. industrial production dropped 0.8% in October, the largest decline since May 2018 – the 3rddecline in output in the past 4 months.
o   Manufacturing output fell 0.6% in October.
o   Industrial capacity utilization slumped to 76.7 in October – its lowest level in 25 months (and with numbers less than 80, it’s tough to make money).


Weed:



-       Kush:   recently announced the creation of a hemp trading business where KSHB will utilize its network to connect buyers and sellers – for a small fee.

-       Jamaica (all the islands) are building new cannabis regs ‘mon…   governing their legal marijuana businesses and creating a national road map to support the development of the islands’ regulated industry.  The ministry hopes to finalize the policy document by the end of March 2020.  New’ish laws are on the books in other countries in the region such as: St. Vincent, the Grenadines, Antigua, Barbuda, Barbados, St. Kitts and Nevis.

-       $85 Billion is the new U.S. cannabis market size:   higher because of increased incidence levels among older consumers, greater public support for legalization, and incremental actions at the state level.  States such as Florida and New Jersey have begun to open up their brick and mortar retail operations, and each medical state could maximize its annualized unit revenue per dispensary at about $5m per facility.  Colorado, California, Nevada and Massachusetts are all expanding their offerings to include dry flower, and other higher margin opportunities.

-       $150 / month / person:    is what Pennsylvania’s have spent in medical marijuana dispensaries over the past 2 years. 

-       A lot of people grew hemp this year … thinking they’d be able to sell the plants and make a ridiculous profit.  With so much hemp biomass around, some producers are finding that converting the plants to oil is worth over 10 times the money they would get for the plants themselves.  In general, many farmers ended up with failed crops just because they didn’t have enough experience growing hemp in their local region.

-       Finally – Finally – Finally:  Major cannabis firms like: MedMen, Aphria, Aurora, CannTrust, Canopy Growth, Cresco Labs, Cronos – and the list goes on – are slashing jobs and unloading assets in order to get to profitability.  It’s about time.  In the post-WeWork era, this ‘profitability’ concept is something new to most of the CEOs of cannabis firms.  They’ve been allowed to exist with ridiculous valuations on the promise that when global legalization comes – their positioning will easily take them across the finish line.  Unfortunately the finish line came sooner than legalization – and now they’re FINALLY being held to a normal business model.  I loved the quote out of one cannabis analyst this week: “I don’t think we can trust a damn thing that any cannabis CEO says.”  For the longest time I thought that they would ‘grow’ into their valuations, but now any investment in a cannabis company is solely based upon hopium.  Meaning, you are hoping that the U.S. legalizes marijuana at a national level, and that the FDA releases ingestible guidelines in December – so that both markets can explode. 


Next Week:  Lean long, use small positions, and pray.



   In the past week, I've read opinions from a lot of guru's and there's a handful of take-aways that they all have in common:
-       A pullback is likely.
-       2020 will be extremely volatile. 
-       The market is overvalued by a large margin.
-       Stock sales by corporate insiders are at an all-time-high.
-       And the global "rich" are moving out of stocks and into cash.

   Melt-up are the only words that come to mind when I look outward.  This market reminds me of the late 90's, but this time it's worse.  The late 90's melt-up hung on the hopes that all of these new Internet companies were going to make billions.  The Internet was still newish, and any company that mentioned their Internet plans was overtly rewarded.  This time, there is no new wonder of the world. This time, the world’s central banks have simply decided to print trillions, and buy listed stocks. The Swiss National bank now owns a record $94B in US stocks.
   It’s utter madness. They are blowing the biggest bubble the world has ever seen, and amazingly it continues higher.  Our own FED who is doing ‘QE / not QE’ has injected almost a trillion dollars into (behind the scenes) Repo activity and that is finding its way into the markets.  For example, Friday had the New York FED inject $77.093B in overnight repo activity alone.  This "liquidity creation" has been going on for weeks now at the rate of $70B, $80B, or $90B per day.  Whatever the banks aren't using for reserves, is getting pushed into the market.
   It doesn't matter what sort of bad news hits the wires. It is immediately dismissed.  Am I stunned at how far this has gone? Yes, I am.  I'm old school.  Factually: (a) seeing our debt to GDP ratio at 150% tells me we are now a 3rd world country and are going down – yet we go up.  (b) When I see 3rd quarter earnings down 2% year over year, I expect the market to react negatively – but it goes higher.  And (c) when GDP estimates went from +2.5% to 2, to1.5, and now to 0.9%, I expected the market to fade – but it went up some more.  We are in a period where nothing fundamental makes a damn bit of difference.  We're in a MOMO (momentum) driven, FOMO (fear of missing out) driven, Central bank driven, stock buy-back driven, market.  I have NO clue how far this can go.
   The problem is that there's no bell ringing at the top.  You won't know when a red day is the start of a true bear market, or simply something that gets bought up the next day. You won't know if a big gap up and a green run day, is just continuation, or a blow off top.  One day you’ll buy something that goes red and doesn’t recover.  It could be Monday or February.  Every trade you make has to be based on that reality.
   I liken being in this market to walking on egg shells while playing musical chairs.  Each day I wonder when the bubble will meet its pin and down we will go. When this pops, everyone's going to try and get out at the same time, and that's not possible.  It's scary.  Good luck out there.


Tips:

Top Equity Recommendations:
   HODL’s:
-       Aurora (ACB = $2.73 / in @ $3.07)
-       First Majestic Silver (AG = $10.60 / in @ 10.50)
-       Canopy Growth Corp (CGC = $15.33 / in @ $22.17),
-       DRD Gold (DGD = $4.34 / in @ $4.20),
-       GBTC Bitcoin (GBTC = $10.26 / in @ $10.01), 
-       Microsoft (MSFT = $149.97 / in @ $145),
-       Pan American Silver (PAAS = $18.41 / in @ 18.00),
-       United Tech (UTX = $149.36 / in @ $149.15)
-       XRT Retail (XRT = $44.86 / in at $44.80)

   Crypto:
-       Bitcoin (BTC = $8,600)
-       Ethereum (ETH = $185)
-       Bitcoin Cash (BCH = $265)

   Options:
-       RIOT ($1.51): 
o   Bot Jan 17, Sold $3 Call / Sold $3 Put / Bot $4 Call for $1.85 CR
o   Bot Jan 17, Sold $2 Call / Sold $2 Put / Bot $3 Call for $1.45 CR
o   (can only lose money if RIOT falls below $0.70).

   Thoughts:
-       Google (GOOGL = $1,333.54)   Maybe if Google hadn’t given its medical data collection operation the Bond-villainesque name “Project Nightingale” it wouldn’t have stirred up so much negative press.  I’m surprised that Google didn’t see the health data regulators coming a mile away.  If Google’s deal with Ascension sounded a little suspicious, Project Nightingale confirmed it.  And now GOOGL will offer checking accounts in conjunction with Citigroup, not as a source of revenue, but as a way to track spending.  Hmmm, Google isn’t SPECTRE, but it seems to be straying into that ‘fuzzy’ territory.  That territory could cause trouble with state and Federal regulators, which could push GOOGL further off its recent all-time high.  With GOOGL’s IV rank pitifully low, debit spreads are interesting trade candidates.  If you are bearish on GOOGL, the long put vertical that’s short the $1,295 put and long the $1,300 put in the Dec monthly expiration is a bearish strategy that has a 70% probability of making 50% of its max profit before expiring.

   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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