RF's Financial News

RF's Financial News

Sunday, May 31, 2020

This Week in Barrons: May 31st, 2020

This Week in Barrons: 5-31-2020:

Google has started to rescind job offers as it navigates a COVID-slump in advertising.

Thoughts:   As companies start to rescind their job offers, college grads are joining with undergrads in asking the question: “What should I do?”  For the first time, many college undergrads are going to have to grapple with the choice of: (a) going back into a virtual learning system – void of engagement and connection but complete with $40k worth of additional debt, or (b) ‘Just Say No’ to that glorified YouTube channel and take advantage of the ‘gap year’ to  pursue other options.  The price of college can’t come down anytime soon because: (a) colleges have spent the last 20 years accumulating real estate and the debt that goes with it, and (b) they have a huge sunk cost in tenured faculty that refuse to be downsized.
   “What should you do?”  Let’s assume traveling the world (given the virus) is off the table.  Also, you landing an internship amidst record unemployment is highly unlikely.  Self-study sounds good, but statistically ineffective even for the most disciplined of students.  My alternative is to take the "gap year" and dive into your own (or join someone else’s) entrepreneurial activity.
-       Question #1: “What would I do?”  == Honor the voice in your head telling you to do something you believe in, and are convinced you were born to do.  Simple formula: “Do what you love – love what you do.”
-       Question #2:  “How do I choose between options?” == Passion wanes, but math is forever.  Is there a market for what you’re thinking?  Then, What price could you charge for your endeavor and what would it cost you to do it?  
-       Then, to quote Nike: “Just Do It.”

   Yes, there is a structured path we could talk about in terms of getting up to speed within your sector, and developing a ‘minimally viable product’ - but honestly, be prepared to work 24/7/365 and have the time of your life.  Will you hit a home run your first time out – the odds are at least 1 in one-thousand against you.  BUT, simply trying it will change your life, and will put to bed whether you need to be an entrepreneur.  The ‘idea’ part is actually the easy part.  For example, say you love crypto-currencies:
-       The world’s economic response to the coronavirus makes this an excellent time to learn about: central banking, monetary policy, credit cycles, and why hedge fund titans like Paul Tudor Jones and Ray Dalio are weighing in on the long-term debt, inflation, and hard money alternatives.
-       Just from learning about crypto, you may decide to explore your options within the crypto industry.  The good news is that there are hundreds of crypto-startups operating as remote-first organizations.  Most of them are actively searching for well-credentialed college grads along with “gap year” thinkers.
-       The good news about crypto is that due to the open protocols and standards – virtually anyone can begin to contribute to a slew of crypto projects immediately.
-       So what are you waiting for?

   The risk-reward pendulum for disenfranchised college grads & students has swung, and entrepreneurship offers a compelling “gap year” alternative for anyone who would rather not spend $40k this fall on a bad YouTube experience.  There is very little to lose and an enormous amount to gain from taking a step back from higher-education and learning to be more marketing, sales, production and financially savvy.  Although “Build it and they will come” is just a phrase made famous by a movie – maybe you are the ONE that will beat those odds.  Don’t you deserve to give yourself a chance of being in it – to win it?

The Market…

   During the dot.com boom, a slew of people tried day-trading stocks.  In hindsight, you couldn’t really blame them because the upside was insane.  Lots of money was made and lost in wild overnight and intra-day moves.  When the blow-off top ended the insanity in March of 2000, one important element remained – the self-directed investor.  With chaos comes change, and change is usually a good thing.  Now we are in the midst of a global pandemic, and most people (other than those at Lake of the Ozarks) are staying at home.  Last week I listened to CNBC tell me all about the “dangers of trading from home” and thought – here we go again.  The panelists were insulted that amateurs could even think of putting down their remotes and entering a stock traders / members-only sandbox.  How could the everyday, self-directed investor ever compete in a world of complex financial strategies?  This is what CNBC in 2020 is telling me.  I keep getting back to, if you would have purchased $1,000 worth of Bitcoin 10 years ago – you would never have to put up with that drivel again in your life.  So yes, of course you can do it.  

-       From Movers:
o   Novavax (NVAX) was flat on the week.  It’s up over 1,000% YTD and deserves a rest as the broader biotech space underperforms. 
o   Waitr Holdings (WTRH) was up 5.5% on the week.  This stock is insane in its own right (up 667% YTD) but overshadowed by NVAX.
o   Mersana Therapeutics (MRSN) gained an absurd 128% last week on encouraging early stage cancer study results.  It’s market cap crossed the $1B line.  All MRSN shareholders: when bars open up – you’re buyin’.

-       To Shakers:  
o   I’m seeing a WFH movement picking up steam.  This is a tectonic shift that will virtually touch every investing sector from Peloton to real estate.
o   A couple months ago when HL compared Draft Kings and gambling to Virgin Galactic and Space travel – I just smiled.  And then Virgin Galactic went from $10 to $40 in a month.  Marijuana stocks have been perking-up since COVID-19 began (see graph of MJ – the Marijuana Index).  Post-Covid, weed and wagering will likely be front and center for states that need tax revenue – which is ALL of them.


-       The Bluetooth fairy strikes again…   when 60m pairs of Air Pods were sold in 2019, and an expected 94M pairs in 2020.  It appears Air Pods are Apple's #2 profit machine (behind iPhone) – not Mac’s or iPad’s.  Who knew?

-       Bezos broke a sweat when…   Facebook intro’d Facebook Shops.  It allows businesses to set up digital stores across FB & Instagram.  FB gets a fee for purchase, but with 3B users and an apocalypse – AMZN is sweating.

-       Unicorns are falling from the sky:   Softbank posted a record-shattering $18B LOSS for its Vision Fund.  Almost $10B of that came from a plunge in the values of its Uber and WeWork investments.

-       A University of Chicago study…    found that 68% of out-of-work Americans are receiving more money from unemployment than when they were working.  20% of the unemployed are receiving over double their previous earnings. 

-       Consumer confidence ROSE…   to 86.6 in May – up from 85.7 in April.  

-       Amazon… is in advanced talks to buy Zoox – a startup working on self-driving cars.  The deal would value Zoox at less than its $3.2B valuation in 2018.

-       WFW - will we ever go back into the office?   The WFH (work-from-home) life may well become – just life!

-       Good News = Quibi works…    Bad News = Nobody cares?  I actually tried watching videos on my phone that are 8-10 minutes long.  Sorry – can’t do it.

-       Last week COVID deaths exceeded 100,000 …    killing more Americans than the Korean and Vietnam wars combined.  And at least 13 states are experiencing a spike in cases as the country starts to reopen.  Infectious disease experts say it’s almost certain we’ll see a second surge of the virus when summer ends.

-       Relief changes may be coming…   The House is scheduled to vote on changes to the Paycheck Protection Program that would give businesses more time to use the loan proceeds and more flexibility in how to use them.

-       The Cybertruck is bullet-proof   because it's bad-ass,” says Elon Musk.

-       Amazon has a rare opportunity…   to buy cheap planes and take on FedEx.

-       First-time jobless claims totaled 2.1m last week.  The high jobless numbers persist even as states are reopening their economies.  Nearly 41m jobless claims have now been filed since the coronavirus was declared a pandemic.

-       42% of all jobs lost due to Covid-19…   will become permanent job losses.

-       Acorns…    a startup that helps its customers invest their spare change in the stock market, has started to lay-off personnel and close satellite offices.

-       Twitter (TWTR) investors aren’t happy…   as it’s down 25% from its 2013 IPO – while FB is up over 800% during the same period. 

-       U.S. GDP FELL by 5% between January and March:  Much of the decline was driven by a sharp drop-off in consumer spending -- especially on elective health care procedures. 


-       Google teams with Theta Labs …   to help the video delivery network onboard users through Google Cloud.  As part of the partnership, Google is assisting Theta with its Mainnet 2.0 launch, and will become the platform’s fifth validator.

-       Coinbase is finally acquiring Tagomi…   a prime brokerage platform specializing in digital asset trading.  Tagomi will integrate into Coinbase’s product suite, helping the firm complete its liquidity, custody, lending offerings. 

-       BlockTower Capital has returned 33% in the first 4 months of 2020.  Despite the havoc coronavirus wreaked on markets, the fund did better in those 4 months than the S&P index has done in any full year since 1997. 

-       Hold’em for a cause…   on May 31st crypto figureheads come together to play poker for charity.  You can ‘buy in’ and play against: Ryan Selkis, Brock Pierce, Hailey Lennon, Ran Neuner, and Charlie Lee.  Maybe you’ll win the 2 BTC prize. 

-       The Digital Dollar Project…   is proposing a framework for the creation of a U.S. central bank digital currency (CBDC).  Their white paper details how a CBDC could help the U.S. maintain its world reserve currency status.

Last Week:

Tuesday:  This morning hopium is in full effect.  The story being told is that there's more vaccine and medication news coming as company after company is trying to rush their product to market.  I’m a little frightened over the shortcuts they're taking over this Covid mess, but we’ll see.  Generally it's pretty tough to buy stocks on a day where the S&P opens up 55, but a few I'll be watching include CWH.  RV sales are soaring and CWH offers the best combo of options, selections, and financing.  SABR is a chart play.  Since March it's been hovering between $6 and $7, and it looks like it might finally push through and run.   SWI is another chart play that squeaked up and over its 200-day moving average on Friday.  I'm not keen on buying a gapped up: MSFT, Goldman Sachs, or JPM.  If we get a decent fade, we can use some of today's prices for entry levels down the road.

Wednesday:  Yesterday we put in a 530 point DOW day, and now I’m looking at 350 more – really?  All the excitement is being caused by MONEY.  Japan announced that it is willing to dump a trillion dollars into their economy.  The EU just said that they're going to conjure up 750 billion Euro's.  So once again, tidal waves of fresh money are coming, and we all know where most of it goes.  Yesterday, I snagged a little SABR.  It was a simple chart play.  If we see a pop and drop this morning, that means a trillion out of Japan and near trillion out of the Eurozone don't go as far as they used to.  I’m looking at CLF over $5.38 and NBR over $37.50.  I have no idea how far they'll let this drop, but let's see if they get brave later in the session.  Bingo – the S&P which went red earlier today, but it’s now up 11.  I’m watching SLB because there's a huge gap from about $19.28 to $24.  So, I’ll take a swing at SLB over $19.28.

Thursday:   Initial unemployment claims were once again up 2.1m.  GDP is DOWN -5%.  Durable goods FELL 17.2%.  With all of this reality check, this market is beginning to feel pretty stretched.  Yesterday I picked up CLF, and then I took on NBR as it crossed 37.72.  I’m still liking SLB if it crosses $19.28.  I’m seeing some sector rotation.  Banks and manufacturing that were hot – are not.  While healthcare and utilities lead the pack.   MDT looks like it's breaking out of a falling wedge, and over $99.20 it’s a gift.

Friday:  Today has the ability to be ugly red.  Are investors going to want to load up ahead of this weekend, where riots could explode in more cities and protesters in Hong Kong could be stomped out?  Hard to say, but I'm thinking red is in play.  We've come a long way in the face of multiple global problems, so a Friday fade is not out of the question.  I'm sitting on my hands today.  Yes this might be a buyable dip, but if something ugly does happen this weekend – we could see a fat red Monday open.


-       CBD retailer Green Growth Brands has filed for bankruptcy.  The company has recently begun selling off the majority of its CBD assets.  Former CEO Peter Horvath was recently named CEO at High Times Holding Corp.

-       A Mexican vote on marijuana legalization was moved until after Sept 1st.  While it’s certainly unfortunate that the vote has been postponed, legalization has strong  support in the Mexican Congress.  In March’s first voting, there were 23 votes in favor versus 10 against.  Mexican lawmakers are identifying cannabis as an opportunity to spur economic growth and help the country recover from this crisis.  Mexican farmers need this crop, and the potential for economic stimulus across Mexico cannot be ignored.

Next Week:  Markets are set up for a Phenomenal Risk/Reward:

-       Ripping it to the upside on a wing and a prayer.  This past week the volatility box surrounding the S&Ps broke to the upside.  This forced a large number of market participants to cover their short positions.  The act of ‘short-covering’ involves buying more stock at higher prices, and last week’s move higher smells of ‘short-squeeze’.  When you look at the weekly Top-10 ETF Redemptions, you’ll see that all went higher even though they had record out-flows.  This is dangerous because there haven’t been many times when markets grind higher as people are removing their funds.  But, that doesn’t necessarily dictate a downward trend – because those outflows could quickly turn into FOMO and drive real buying. 

-       Pop goes the Volatility Box…   but not for bonds, gold, or for the dollar.  I think we needed to go higher in order to move lower.  Markets tend to be ‘equal opportunity dream destroyers’, and therefore the short sellers needed to ‘cave’ before handing everyone their just deserts.

-       Volatility can be to the Upside.  If you are forced to cover your ‘short positions’ inside the S&Ps, you will naturally drive this marketplace higher. I remain suspect of the move because (a) the number of ETF redemptions is high, (b) the bonds, gold and the dollar remain inside their respective V-boxes, and (c) volatility remains elevated at levels only seen during the financial crisis and the Internet bubble. Don’t get off your game just because we have a little volatility to the upside.  This is still an extraordinarily chaotic and volatile marketplace.

-       Bonds UP and Market UP?   Stocks and bonds do not normally move in lock-step.  The issue I have is with the financials (XLF) faltering.  If this marketplace is going to sustain these levels or go higher, the XLF must be a part of that upward movement.  I’m worried because the XLF has an implied volatility of around 40%.  Apple and Facebook have implied volatilities in the 30% range.  That means banks and financial institutions are being viewed as more risky than Apple and Facebook.  That’s a scary thought.  The reason for that view is the XLF continues to breach its expected move.  Watch the XLF to signal the market’s next direction.

-       The VVIX is under 110…   but for how long?  The volatility of the volatility index (VVIX) has been above the 110 level longer than at any other point in history.  By dropping down, it means that the pros are not hedging their bets as much.  Keep an eye on the VVIX as to whether it gets ‘bid higher’ next week.

-       The Monsters of Tech are weak vs the QQQ’s:  Microsoft, Apple, Amazon, Facebook and Google are all displaying weakness in comparison to the Nasdaq.  But then again: bonds are up, stocks are up, gold is up, oil is up, outflows are up and the advance decline line is 50/50 at best.  With the monsters of tech and financials being incredibly WEAK when compared to the Nasdaq, it means that what drove this marketplace higher – is starting to display weakness.

-       The SPX Expected Move:  was $72 last week and we breached it to the high side by an additional $17.  That means our market place is becoming inefficient once again.  Next week’s expected move is $78 in the SPX.  If we breach that move as well (for a 2nd week in a row), then know that we’re in for more wild marketplace action.

-       Sector Rotations continue from tech into financials & energy.  It’s becoming a game of musical chairs, and we all know how that game ends.  Don’t sleep through these market rotations.  If we see all 3 categories lower (XLK, XLF, and XLE) – we will know that sector rotation has stopped, and real selling has begun.

-       This market is setup for a phenomenal risk/reward:  Stocks like LULU, HD and MSFT exemplify this marketplace as all 3 are up big year-to-date.  If / when this entire marketplace sells off, the first stocks that will be hit are the ones that have moved the furthest and the fastest.  The upside reward has been lowered to a point, that the downside portion of many of these charts (like HD) look extremely attractive.  My concern is NOT the fundamentals (nobody cares), but rather where to place my shorts and LULU, HD, and MSFT get my vote. 


   It's quite insane what's happening, but we're living it.  We’re living a global shut down – but up we go.  We’re seeing the most horrid employment numbers since the great depression – but up we go.   We continue to blame China for tens of thousands of Covid-deaths – but up we go.  Riots are burning down our Cities – but up we go.  Are we climbing a wall of worry?  No, we’re floating in a sea of cash.  We’re probably going to challenge the all-time highs.  The SPY, DIA, and XLK are ‘easy’ ways to play this.  On Friday the S&P's 200-day moving average was 3000.  How low did the S&P go before bouncing = 2998.  I would consider that a successful test of the breakout over the 200-day, and therefore I assume we're going higher.  As crazy as this sounds = lean long.  Maybe if an asteroid hits us, we'll make all-time highs even faster.

-       First Majestic Silver (AG = $10.01 / in @ 9.15 = up 9%),
-       Yamaha Gold (AUY = $5.36 / in @ $4.60 = up 17%),
-       Canopy Growth Corp (CGC = $17.37 / in @ $22.17 = down 22%), 
-       DRD Gold (DRD = $9.77 / in @ $3.82 = up 167%),
-       GBTC Bitcoin (GBTC = $10.89 / in @ $9.41 = up 16%), 
-       GOLD (GOLD = $24.00 / in @ 27.20 = down 12%),
-       Hecla Mining (HL = $3.32 / in @ $2.36 = up 41%),
-       KL Gold (KL = $38.46 / in @ 26.85 = up 30%), 
-       NovaVax (NVAX = $46.04 / in @ $7.24 = up 536%),
-       New Gold (NGD = $1.21 / in @ $0.82 = up 48%),
-       Pan American Silver (PAAS = $29.30 / in @ $13.07 = up 124%),
-       SPY = $295.44 in the July 2020 Strangle = $160 Put / $305 Call

-       Bitcoin (BTC = $9,500),
-       Ethereum (ETH = $235),
-       Bitcoin Cash (BCH = $245)


   In the past six years, silver and its ETF, SLV, pretty much traded in a range.  But just to show us that it wasn’t the dullest thing in the world, SLV lost about 40% of its value in a single week in March.  It spent the next two months rallying back to its pre-crash price.  The excuse for the rally is that demand for silver will increase if manufacturing restarts with a stronger economy.  That could happen, but if that’s already factored into SLV’s price, the upside and downside might be limited – and SLV might resume its range-bound ways.  SLV’s implied volatility is higher now than in March, and that gives its options enough premium to make interesting short strategies.  If you think SLV might trade in a range for the next few weeks, the short strangle that’s short the $15 Put and short the $18 Call in the July monthly expiration is a neutral strategy that has an 84% probability of making 50% of its max profit before expiring.  And with SLV’s low price, the buying power requirements of the short strangle are relatively low,

   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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