This Week in Barrons: 7-26-2020:
“Those that won’t wear masks – also won’t get vaccinated.”
We’re four months into the pandemic of 2020 and the sad part is, it feels like we’re going backward with no end in sight. We miss our friends, our families, our jobs – and maybe we missed the point. “There is not enough time to do all the nothing we want to do,” said the great philosopher Calvin. The world has changed, and even if there were a treatment for COVID let’s face it – the dummies who won’t wear masks today – won’t get the vaccine tomorrow. Risk reduction is a strategy, but risk elimination is a pipe dream. The good news is that when trading stocks, bonds and options – there’s never a shortage of opinions or emotions. It’s personal, long vs short, and Spy vs Spy. All traders: love high volatility, hate the FED, and think Tesla (TSLA) is overpriced.
If you’re an entrepreneur in an era of this much change, you’re suddenly thrust into the business of moving against the status quo. Random House is no longer in the book business, but rather in the business of publishing ideas that matter. If you’re a worker-bee by day, you’re simply trading your time and effort in exchange for money and a chance to do work you’re proud of in your off-hours. Stop trying to force old models and practices into the new reality – they just won’t fit. Six months ago who knew that Door Dash and Grub Hub were going to be the #1 restaurants in our lives. Who knew that Peloton and Mirror would send the ‘big box stores’ running for their sheer existence.
I give everyone the same advice = “Learn how to sell.” My first job was selling kitchen cutlery and steak knives door to door. Back then face-2-face was the only game in town, and it was trial by fire. If you didn’t like the gig, there was someone right behind you who would gladly take your job. My boss used to yell stalls and objections at me just to see how I would handle them: “They cost too much.” “We already have stuff to eat with.” My goal was to cold call, set appointments, and close the appointments. I learned so much from ‘DOING’ the ear-2-ear / face-2-face sales battles. Toolkits have certainly changed over the years, but the measure of success has remained the same. As a prospect reminded me this week: “80 percent of it is still ‘just showin’ up’.”
The Market: If you missed the memo, RETAIL controls the market.
Ms. Suze Orman (the world’s personal financial guru) came out this week with some tough talk surrounding our financial world. She cited 4 SHTF (S#$t Hits the Fan) elements: (a) Eviction protection runs out on July 24th. 28m people could be evicted before September. “This level of displacement carries the potential to destabilize communities for years to come.” (b) the $600 Unemployment Premium ends July 31. This effects 25m Americans. (c) Foreclosure protection (on all federally-backed mortgages) goes away on Aug. 31. 70% of ALL outstanding single-family mortgages are federally-backed so we’re impacting hundreds of millions of citizens. (d) Student loans will resume their monthly payment collections on September 30th. Orman said: “This is 50,000 times worse than 2008 because there’s no direction. Plus, while the Great Recession was brought on by the subprime mortgage crisis – this one was caused by a health crisis.”
Suze Orman’s advice is eye-opening:
- “The first thing people must do is to stop spending money. Any money that you are receiving, whether paycheck, unemployment, or stimulus check – put it into an emergency fund after you pay your necessary bills. You need 8 months of CASH in this emergency fund.”
- “Secondly, charge everything you can on a credit card. Start with the lowest interest credit card that you have, and pay the minimum payment due.”
- “Third, have a plan when your income drops. Look for any new income opportunities that are out there for you. Stop thinking like your job is going to come back, because most won’t.”
- “Fourth, leave your monies inside your retirement account, because retirement accounts are protected against bankruptcy.”
- “Finally, get ready to file for bankruptcy. I want you coming out the other side – debt-free, with your home, some cash, and your retirement fund intact.”
- "Just like my country, I’m young, scrappy and hungry"... Europe isn't any of those words but like Hamilton (the 1st U.S. Sec. of the Treasury) they’re mouthing the words of absorbing their country’s debts. Time will tell.
- WeWork… (a study in turning $47B into $3B in under 6 mos.) has trimmed 8,000 jobs and has ‘We-Worked’ its way back into profitability - maybe. In a digestible 15-min podcast hear why it should go bankrupt before coming out.
- $25B later... In April, the government gave our airlines $25B so that they could continue paying their employees into October, when travel was expected to pick up again. Reality check: Travel is still bad. For this bailout to work, we need to cure COVID in a hurry.
- Big Banks can't celebrate… because they’re seeing so many loan defaults in their future. They just set aside another $30B (on top of the previous $20B) to cover them.
- Snap launched Headspace Mini… offering 4 minute meditation sessions with titles like "Just Breathe," "Get Out Of A Funk," and "Me Time". Watch out AAPL – this could be the birth of a SNAP mini-app store!
- Uber inked a 4-year agreement… with Google Maps for its Rides and Eats deliveries. The $58m fee charged to Uber seemed small for a service that runs your business - until I remembered that Google OWNS 5.2% of Uber.
- LinkedIn… is cutting 960 jobs as the pandemic has dampened demand for its recruiting products.
- No more halftimes = No more sodas... Coca-Cola’s sales plunged 28% last quarter and profits plopped 30% - in contrast to its rival PepsiCo.
- Men's Wearhouse & Jos. A. Bank… are closing 100’s of stores. ‘In the WFH world, it seems the only tie people are tying is the one on their sweatpants.’
- Bundling White Cheddar Cheez-Itz & Rosé… is the most innovative thing to come out of CPG in a decade. Throw in Disney+ and a robe and I’m there!
- Netflix plunged 11%... because they expect new subscriber growth to slow this quarter to just 2.5m new subscribers.
- S&P 500 Profits… are expected to decline 44% this quarter, the biggest drop since 2008. Major indexes are hitting all-time highs because investors believe the worst is over, and because of The FED (almost forgot that one).
- 48% of Starbucks' sales… are now coming from Rewards members. Now THAT’S a loyalty program.
- Pfizer and the U.S…. reached a $2B agreement to produce at least 100m doses of their Covid-19 vaccine when ready.
- Amazon has continued a practice of… meeting with startups under the guise of investing in them, and then launching competing products. That’s not nice.
- Twitter (after a dip in ad revenues)… said that it's eyeing subscription options.
- "Hurting people at scale"… is how Facebook employees are referring to their own social network.
- TikTok has allocated $200m to pay its creators… because the company wants to keep its platform’s top talent.
- Good Luck buying a house: People are buying houses like crazy, because interest rates are remaining low.
- Futures are lookin’ bleak: Trading in Bitcoin futures on the CME have cooled, and this is part of a larger trend where total daily volume is down 87% from the $36B observed on May 11.
- PayPal picks Paxos… to help bring crypto trading to its massive user base. Paxos launched a brokerage service last week, which provides an API solution to allow businesses to begin offering crypto buying, selling, holding and sending – while it handles all regulatory compliance aspects.
- The Digital Dollar: The U.S. Senate Banking Subcommittee held a hearing on “Winning the Economic Competition” between China and the U.S. where crypto was cited as a possible tool to maintain U.S. economic supremacy.
- The Future of Money: Visa outlined a digital currency playbook showing its commitment to digital currency’s place in the future of money. Visa cast its digital currency partnerships as critical to preserving six decades of innovation.
Monday: The futures are "meh" this morning. After the March plunge, the S&P has battled back and on June 8th, put in a high of 3,233. It then faded off to a low of 2,965 and has since battled back, ending Friday at 3,224 – 9 points off the high. This seems forced to me. Silver is doing very well, and all of the miners are on fire. Of course AMZN is up $200 and TSLA up $100. Yeah, like that’s normal. The real action is in the NAZ which ripped 2.5% higher showing that all that talk about rotation and taking a breather was just that – talk. Chevron also announced that it was buying Noble Energy for $5B. It’s an all stock deal that is the energy sector’s biggest since the historic April lows in oil prices.
Tuesday: Here’s a short list of the COVID related stocks that are being played on a daily basis: BMRA, CEMI, TRIB, GNMK, APDN, THMO, CODX, APT, AHPI, DVAX, INO, SINT, OBCI, MRNA, VXRT, and SRNE. Gold's up, Silver’s up, and Oil’s up. The S&P is now positive on the year. Let’s party like it’s 1999. Remember – virtually all of the stock gains have come during the overnight session. So if you had purchased the close yesterday, you'd be rolling in dough this morning. But if you buy this morning’s open, the odds that you’ll make any money today are slim ‘n none. So, I’m watching the miners for more gains – as GDX and GDXJ are really moving along with AUY, HL, and MUX. AUY over $6.04 is looking good and so is GOLD over $28.90. Chasing this DOW or buying this NASDAQ dip – isn’t thrilling me.
Wednesday: The DOW’s action tells me that the market is tired, and wants to go lower, but every time that’s attempted – our FED conjures up some injection of money. The star performers for me continue to be gold and silver. Silver is over $20 for the first time in years and gold continues to grind higher. Silver is up another 7% today – over $23 per ounce. Has silver finally defeated the cabal that beats it lower every time it warms up? Time will tell, but this push looks good. It's going to be interesting to see what the miners do today because even with gold and silver up sharply yesterday, most of them FELL from their highs. PAAS for instance, was at $37.40 intraday, but closed in the 35's. Strange days for sure. AUY over $6.06 and GOLD over $28.90 are still on my radar. Right now it looks like the NASDAQ may end the day red. If it does, it will be the first time since MAY 12 that it was red two days in a row. In case you haven’t heard, Tesla reported earnings after the close, and sorry shorts - Iron Man Elon delivered again. If you are trying to perform a discounted future cash flow analysis on TSLA, you’re missing the point. Nothing will matter – until it matters, and good luck guessing when that will be.
Thursday: Okay a sluggish start for sure, with some volatility to boot. I'm looking at OSTK and like it over $56.50. I’ve gotten many emails on the miners, and we all know that the problem with the miners is the cabal. Since the 2011 highs, I've seen 3 times where the miners went crazy, only to have the cabal cut off their legs and sink to new lows. Any options plays that I start with them take time. The first options play took 18 months to turn $30k into $1.6m. I need to feel a sustainable run for months and months. I'm not there just yet. Tesla sported the epic fade after last night’s earnings beat. The stock opened up 6% but gave it away all day closing down 5% and near the low. Ugly candle, sure, but was that a top? Apple fell -4.5%, Microsoft dropped -4.35%, Facebook off -3%, Amazon down -3.7% and Google moved lower by -3.4%.
Friday: For this entire week, I've been whining that the market is tired, heavy and wants to correct, but ‘they’won’t let it. This morning the futures are red again with the DOW indicated to open lower by about 90, the S&P down -11, and the NASDAQ is red by over 100, mostly because Intel gave a pretty sour outlook for the balance of the year. Are we going to see two red days in a row – which hasn’t happened since May 12. This is the most perverse market there's ever been. The five biggest stocks (FB, AMZN, AAPL, MSFT and GOOGL) are up 35% on the year collectively. The other 495 stocks in the S&P 500 are DOWN 5%. After almost 3 years, NAK got approval to go forward with their pebble Alaska mining operation. That should get them some well-deserved attention. Other than watching NAK and AUY for a move over $6.06, I'm not buying the dip in tech here.
Gold – the Anti-Bubble:
For the past several months gold and silver have been making very nice gains for a variety of reasons. We’re in a global pandemic with a crippled economy. We’re battling trade wars and extreme tensions with China. The world’s Central Banks are considering a digital currency because countries are fed up with the dollar being the world reserve. In times of trouble, gold and silver have always been a safe haven. So it certainly isn’t surprising to see gold and silver moving higher right now. My only question is the longevity of the move.
Let’s first consider silver. Silver is an odd metal because it is both an industrial metal, a bullion, and a jewelry metal. The industrial side demand has fallen like a rock, as so many companies are halted over COVID. However, the lowered demand, has been offset by COVID shutting down 101 mines as of June 2020. Also helping silver’s price is a rush of new buyers as newbies are buying their first metals and are buying silver for affordability. So silver isn’t simply rising because of gold, it’s also due to the drop in production along with the renewed surge in ordinary people buying it. FYI - Central banks do not buy silver, they let big banks like JPM do that.
Central Banks DO however buy gold – tons of it. Gold (unlike silver) has very little industrial use and is primarily just a ‘store of value’. The World Gold Council said: “The number of Central Banks buying gold is expected to increase substantially this year. The increase is particularly notable as Central Bank buying has reached record levels in recent years. Central Banks say that negative interest rates are a relevant factor for their reserve management / buying decisions. Furthermore, Central Banks are re-evaluating gold’s role amidst ongoing financial and economic uncertainty, while also reflecting long-term concerns about fiscal sustainability as government stimulus is deployed to cushion the global economy.”
For years Wall-Streeters mocked gold because it never paid any interest or a dividend. But, with the advent of negative interest rates (where you literally pay the bank for holding your money) gold IS paying you (indirectly) to hold it. At least it isn’t eroding every year like dollars in a negative interest bearing account. Then there’s the ‘Great Reset’ that the IMF spoke of 2 months ago. We’ll have to see if gold will once again be used as a stability factor in the next global reserve currency. Finally there’s Ms. Judy Shelton who, Pres. Trump nominated to be on the Federal Reserve, is a ‘gold bug’. Dr. Shelton has spent most of her career in the world of free-market policy think tanks. She writes refreshingly and articulately in favor of the gold standard.
Now, Central Banks aren’t dumb – they’re just evil. They’ve been gobbling up gold by the truckload for several years now. If gold doesn’t have some form of significance for the future, they would not be buying it. And investors are buying it, because they’re not thrilled with getting 0.58% in a 10 year treasury or worse – ‘negative rates’. We have people buying it because they’re afraid of buying stocks in what is without a doubt the biggest ‘everything bubble’ ever blown in history – and they fear a crash.
I’m on record for years as saying that gold has a date with at least $3,000, and silver from $70 to $100. I still believe that and hold both. The only reason that I ‘love’ gold and ‘like’ silver is that Central Bankers don’t buy silver. Lately, silver is up 44% YTD, and if / when gold breaks $1,923 to all-time-highs = “Katie bar the door” because then we’re moving higher.
Next Week: It’s a Bubble – Look no further than Retail Trading.
It’s ALL Retail ALL the time … don’t cha know?
- E-Trade’s DARTs (Daily Average Revenue Trades) have tripled in 7 months to 1.1m trades / day with 25% derivatives. Charles Schwaub has moved up 40% to 1.4m trades / day with 8% derivatives. Interactive Brokers has almost doubled to 1.9m trades / day with 11% derivatives. And TD Ameritrade has almost quadrupled to 3.9m trades / day with 15% options.
- The aveage size of an option trade is 5 contracts (with each contract controlling 100 shares of the underlying asset).
- That means that the RETAIL TRADER controls over half the volume on the exchanges – with potentially the other half being taken up by our FED.
- That’s a scary thought because that means that the entire professional world has removed themselves from proprietary trading and are just reacting to the retail order flow – which is insane. Typically, retail trading wouldn’t account for even 10% of the total volume – let alone north of 50%. That means that the Retail Trader will be left holding the bag (or without a chair) when the music stops.
- That also means that when the market corrects, retail traders will be the first to barf up positions – so big time volatility will come rushing back into the market. That explains the high cost of an out-of-the money Call option on the VIX.
- Remember, every major retail trading firm has announced record-breaking numbers of new account openings. Combine that with a couple down days and a massive amount of retail traders will start to ‘chuck the proverbial cheese’ and ‘blow out of positions’ like there was no tomorrow.
- That means:
o Buy premium
o Buy outliers = buy Call or Put spreads ‘outside’ the expected move.
What about the Rotation Game?
- It’s becoming a pairs trade (a see-saw) between financials and tech all being caused by the ebb and flow of retail dollars to one vs the other.
The Nasdaq is hanging on by a thread (Part 1):
- This coming earnings week could derail everything with: Facebook, Google and Apple all hitting the tape.
- Last week:
o Microsoft – beat estimates and sold off down to its expected move.
o Intel – beat estimates, gave bad guidance, and got smoked.
o Tesla – amazed the world and still sold off down to its expected move.
- For example: Apple’s expected move is $20. Apple is currently sitting at $370, so look north of $390 or south of $350. There are cheap contracts in both camps. You can buy an ‘iron condor’ and let one side come through for you.
Bonds are at $181 and the FED is coming!
- “When bonds hit $181 – the fear trade will return to the markets.”
- Next week there is a FED meeting followed by Q&A of Chairperson Powell.
- Bonds have been looking extraordinarily defensive (creeping higher), with the dollar selling off, the S&Ps are becoming downright squirrelly, and the NASDAQ is throwing off it’s ‘bid-less beast’ behavior on a day-to-day basis.
- These are the makings for a ton of volatility.
The Nasdaq is hanging on by a thread (Part 2):
- Amazon is barely holding on, and if it falls – it will fall hard.
- Everyday there is more bad news: China’s hatred for us / our global pandemic results are climbing / 1/3 of the U.S. population could be evicted starting the end of next week / the recession is moving into a depression / and horrific jobless claims numbers continue to be more and more scary.
- The Retail Trader controls the rudder. That will drive a lot of uncertainty and a tremendous amount of volatility going forward. Hold on to your hats!
- Yamaha Gold (AUY = $6.30 / in @ $4.60 = up 37%),
- Canopy Growth Corp (CGC = $16.47 / in @ $22.17 = down 26%),
- EXK Gold (EXK = $4.20 / in @ $1.53 = up 175%),
- GBTC Bitcoin (GBTC = $10.38 / in @ $9.41 = up 10.3%),
- Hecla Mining (HL = $5.20 / in @ $2.36 = up 121%),
- KL Gold (KL = $48.27 / in @ 26.85 = up 80%),
- MUX Mining (MUX = $1.34 / in @ $1.14 = up 18%),
- NovaVax (NVAX = $133.93 / in @ $7.24 = up 1,750%),
- New Gold (NGD = $1.60 / in @ $0.82 = up 95%),
- Pan American Silver (PAAS = $36.70 / in @ $13.07 = up 181%),
- Bitcoin (BTC = $9,950),
- Ethereum (ETH = $310),
- Bitcoin Cash (BCH = $250)
- Newmont Corporation struck gold. NEM closed up 6% on the week. Did you know Newmont is the world’s largest gold producer?
- West Pharmaceutical Services jumped 6.4% last week and closed at an all-time-high. WST has now closed green 6 weeks in a row. The company reported better than expected earnings and raised guidance.
- BioXcel Therapeutics soared 14.6% last week after showing positive results for its BXCL501 drug. The Phase 3 results indicated that the drug lessens agitation for patients suffering from bipolar disorder and schizophrenia. BTAI is also investigating using it on opioid withdrawal, dementia, and hyperactive delirium.
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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Until next week – be safe.
Until next week – be safe.