This Week in Barrons: 8-30-2020:
Entrepreneurial Thinking 101…
Oh please, education is the hustle that exchanges our compliance for a certificate of completion. That’s ALL it is. Any institution can educate, but learning is a choice that requires active participation – not just attendance. Learning is a skill that isn’t dependent upon a location, in fact – most of the learning moments in our lives are accidental. That’s why people say: “80% of life – is just showing-up”. To make any real changes, we need to consistently show-up. And constantly committing to something doesn’t lower its urgency, but rather acknowledges its importance. Bobby Fisher (one of the greatest chess players of all time) learned the game at the age of 6, was the U.S. champion by the age of 14, and grand master by 16.
Entrepreneurs (including athletes, entertainers, and politicians) make choices every day about the level of risk they’re willing to absorb. Those choices create a journey which finally lands at a destination. It is the risks that we take that define our entrepreneurial lives, and NOT the destination. Bobby Fisher defeated the Soviet Union’s Boris Spassky in Reykjavik, Iceland when he was 29. Three years later Bobby was stripped of his title because he refused to defend it. So, it’s not uncommon for people not to like where they’ve landed. Most of the time it’s because they didn’t want to suffer the discomfort and indignities that it would have taken to overcome tougher obstacles to get to a different destination.
People often blame their career choice for their lack of wealth. Honestly, “Don’t blame the horse – blame the jockey.” It’s the entrepreneur in all of us that is often unwilling to put in the time necessary and/or take the risks required. If you’re currently a teacher (for example), you couldn’t ask for a better time to branch out and develop a hybrid learning curriculum that would marry on-premise learning with WFH compliance. Yes, it’s a risky path, that will undoubtedly produce a much rockier journey. It’s NOT the destination that dictates the journey, but rather the risks that you take.
In 2020, we have combined: the 1918 pandemic, with the Depression of 1933, adding in the race riots of 1968, along with the stock market bubble of 1999. The ONLY way to navigate all of these nuances is to think entrepreneurially – 6 moves in advance – just like Bobby Fisher. On the surface, Walmart throwing its hat into the ring to acquire TikTok may seem like a really crazy idea. But ask yourself: Who is Walmart’s biggest competitor in the retail and ecommerce space, and where do they accel? The answer is Amazon with their data, behavioral, and digital dominance. By Walmart combining with Microsoft on a bid for TikTok, it allows Walmart to shore-up it’s digital weakness while gaining a massive ecommerce and advertising reach to help sell ads to its suppliers and its own products to its prospects and customers. This is Bobby Fisher and Entrepreneurial Thinking wrapped up in one. They’re thinking 6 moves ahead – and the world may never catch up!
Here are some disturbing facts that are almost too difficult to write:
- San Francisco: over half of the storefronts are no longer in business.
- New York City: has an unemployment rate of almost 20%.
- New York City: 83% of all restaurants are unable to pay their full rent.
- Louisiana: in 2020 has lost twice as many jobs as it did after Hurricane Katrina.
- South Carolina: 52% of all renters/owners are at risk of eviction.
- 27% of all Americans did not make their rent / mortgage payment last month.
- Mortgage Bankers Association: the delinquency rate on residential mortgages increased by almost 4% last quarter – the most ever recorded.
- U.S. bankruptcies are at their highest level in 10 years and are continuing to rise.
- World trade is at its lowest levels on record.
- 31% of U.S. workers that were brought back to work after being laid off – have been laid off a 2nd time, and another 26% have been told that layoffs are coming.
- Half of all U.S. workers that have been laid off during this pandemic believe that their jobs losses are permanent.
- The IRS is projecting that it will receive 37m FEWER W-2 forms than planned.
- Over the last 22 weeks, more than 57m Americans have filed new claims for unemployment benefits.
Just this week our FED Chair Jerome Powell announced that he’s going to let inflation rise above its traditional 2% target. Powell didn’t rule out expanding the balance sheet to keep markets from tumbling if the economy worsens and bankruptcies increase. The implication is that our FED will likely let inflation run hot for a few years, which could theoretically weaken the dollar and boost prices for bitcoin and precious metals. I’m reminded of just how dramatically once-slow-moving forces have accelerated due to the pandemic. The national debt now stands at $27T. Digital currencies are now being pursued by central banks everywhere. And Goldman warned that the U.S. dollar is on the verge of losing its reserve currency status. Got anything stronger?
- A cure to hangovers… was found by researchers in Finland who discovered that amino acid L-cysteine relieved alcohol-reduced ailments such as nausea, headache and stress and anxiety.
- Sorry – sent ya the wrong amount… Citibank accidentally wired $175m to a hedge fund where it only meant to send $1.75m. So far, the fund is ignoring their "pay us back" Venmo request.
- Target’s stock hit an all-time high… the secret is to make sure you’re in the grocery business (serving milk and hummus) so that you’re allowed to remain open during a global pandemic.
- DoorDash… delivery company … IPO with a $16B valuation.
- Unity Software… video game developer = IPO post reporting revenue growth exceeding 40%.
- Snowflake… cloud data storage & mgmt.. - IPO will raise > $100m.
- Asana… Facebook cofounder Dustin Moskovitz – direct listing.
- Bentley Systems… construction proj. software – IPO will raise > $100m.
- Corsair Gaming… gaming software developer – IPO will raise > $100m.
- JFrog… manages software update – IPO will garner a $2B valuation.
- Luminar… auto lidar sensor developer – SPAC headed by Gores Metropoulos worth $3.4B.
- Outset Medical… portable dialysis machine mfr. – IPO
- Sumo Logic… pinpoints operational and security issues – IPO
- Xpeng… electric luxury car maker – IPO w/ $1B valuation
- Palantir… data analytics company w/ U.S. government – IPO. CEO Alex Karp = $12m salary. Pres. Stephen Cohen = $16m salary. CTO Shyam Sankar = $25m salary. No wonder the company is so secretive.
- Ant Group… Chinese fintech giant controlled by Alibaba’s Jack Ma will break-the-valuation-record on IPO’s this year.
- Gary Cohn… former Goldman COO & Trump advisor = SPAC IPO.
- Ticked-Off… TikTok sued the US government over Trump's ban, saying it didn't get a fair shot to prove that it's not a national security threat.
- Empowered… Salesforce, Honeywell, and Amgen will be added to the Dow index in a major shakeup (saying goodbye to: Exxon, Raytheon, and Pfizer).
- Delta isn’t happy… because it is preparing to furlough almost 2K pilots in October when the bailout ban on airline job cuts ends.
- American Airlines isn’t happy… and is expected to cut 28% of its workforce once the additional federal aid expires in October. A memo to employees read: “It was assumed that by Sept. 30, the virus would be under control and demand for air travel would have returned. Obviously, that’s not the case.”
- Mortgage Applications fell 6.5% last week… that’s not so hot.
- Papa John’s continues its pandemic growth… with a 24% quarterly increase in sales growth. It's hiring 30K workers to meet corona cravings.
- Amazon is opening a grocery store filled with smart devices… The good news is you don't need to talk to other people. The bad news is a bunch of ALEXA’s are always listening and talking to you.
- Urban Outfitters showed a surprise profit… It owns Free People (where a floral tank top costs $60) and Anthropologie where a candle costs more than your car insurance.
- Zuckit Facebook: Apple is giving us back our privacy. Apple's new iOS update will lead to a massive 50% drop in FB’s ability to steal our personal info – and therefore cause a 50% drop in revenue from targeted mobile ads.
- Dick’s Sporting Goods hit it outta da’ park… nearly tripling profits due to WFH conditions. We’re loving our hiking and workout attire.
- Nordstroms is The Biggest Loser… as sales plunged 53%, after falling 40% in the previous quarter.
- Pinterest terminated a massive 490,000-square-foot lease… in an unbuilt project in San Francisco, citing a shift toward WFH. The company will lease its existing offices, and will pay a one-time fee of $89.5m to back out of the deal.
- Abbott Labs just got FDA approval… for its $5 / 15-min. at-home COVID test.
- Coca Cola and MGM announced lay-offs.
- Watch Sunrun (RUN)… it’s a provider of solar panels and storage systems. It recently hit all-time highs and has closed green 17 out of the last 23 weeks.
- Bill Ackman was right, and Herbalife is shady: Herbalife will pay $123m to resolve foreign bribery charges because Herbalife was bribing Chinese officials. Ackman was right, but he still lost $1B. The markets can remain irrational longer than you can remain solvent.
- Digital dollars: The FED is evaluating more than 30 different blockchain networks to determine if they would support a digital dollar. This follows news of our FED testing a tokenized version of the U.S. dollar with the M.I.T. Digital Currency Initiative.
- The Bitcoin Rich List… or the number of wallets containing over 1,000 BTC ($11.5m) is at a record high of 2,190. This reflects increased interest in bitcoin from institutions and high-net-worth investors.
- FTX acquires Blockfolio… in a $150m cash, crypto and equity deal. FTX’s vision is to become a retail and mobile-friendly exchange. Blockfolio has 6m cumulative downloads, and gets 150m impressions on its news / portfolio tools.
- Peter Jubber, Fidelity Investments’ Chief Strategist… is launching a new bitcoin index fund. "Wise Origin Bitcoin Index Fund" has a $100k minimum buy-in and is the latest example of Wall Street veterans warming up to bitcoin.
- Venezuela’s crypto economy… now ranks 3rd in the world for crypto adoption – behind the Ukraine and Russia. Venezuela has adopted a crypto-friendly attitude amid crippling sanctions and hyperinflation.
- Wild predictions Tyler and Cameron Winklevoss, early crypto investors and founders of Gemini, believe weakness in the U.S. financial system and other factors mean that bitcoin could one day reach $500,000 per coin. They said: "Even before COVID-19, and despite the longest bull run in U.S. economic history, the government was spending money like a drunken sailor, cutting taxes like Crazy Eddie, and printing money like a banana republic."
Monday: Last week, the S&P made new all-time highs only with a very narrow support band. In fact, 70% of the stocks in the S&P actually ended the week lower. That's proof as to how much the monster names pull their weight. This morning I expect more of the same: AAPL, BABA, MSFT, AMZN, and TSLA will all rise – because that’s where the bankers are ploughing their FED dollars. One to watch will be SQ. A few days back it ran into some resistance, but if it can get over $159 – I’ll take a shot. Another interesting chart caught my eye. EMQQ is an ETF for emerging market technology and Internet use. It's got a nice looking chart, and a move over $54.25 will bring me in for a trade. Someone just purchased $73m worth of Nov 20, 2020 AMZN call options at the $3,300 strike price. Ya think a stock-split is coming?
Tuesday: The DOW is making a move because it needs to keep moving higher. The DOW committee has decided that Exxon, Pfizer and Raytheon are OUT and Salesforce, Amgen, and Honeywell are IN. The move is designed to mitigate the damage from AAPL's stock split. The DOW is price weighted, and when AAPL does its 4 for 1 split – its weighting in the DOW will be reduced, pulling the index lower. So by adding CRM and AMGN, they can mitigate that drop. The metals are down slightly this AM, catching their breath until Chairperson Powell tells us all about ‘Necessary Inflation’ on Thursday. Today was a pop ‘n drop day, but they have rescued the S&P and the NASDAQ getting both of them green. I'm having a hard time finding anything I feel really good about.
Wednesday: The NASDAQ is moving on the heels of CRM who beat the estimates. Yes, it’s the same CRM that's going to replace Exxon in the DOW. Tomorrow’s speech from Chairperson Powell is where he announces how our FED is going to let inflation run going forward. Today money is tossed around like water. One of the stocks with a pretty good story, that simply hasn't been caught up in the mania is AKAM. For the whole month of July, AKAM was banging its head at the $115 level but couldn't get through. Then it pulled back and is now heading back toward that level. I will take a shot at them if they exceed today’s high of $112.60. The action today is nuts. This isn't the kind of action one would expect ahead of a major announcement, unless they knew what that announcement was in advance. I think the most enjoyable thing about this market melt up is watching the talking heads on CNBC try and justify these prices without saying that it’s 100% FED money acting as a backstop. Without a doubt the most profitable plays in this madness have been playing call options on the WEEKLY QQQ options chains. It’s the only real way to use leverage, considering the prices of some of these assets. I continue to lean long, but understand that this market is bat-crap crazy in a way I haven’t seen since 1999.
Thursday: The NASDAQ closed up 1.73%, but there were 586 more decliners than advancers. The S&P closed up 1%, but with 54 more decliners than advancers. Only in the most bizarre of markets, could an index rise when inside it, more stocks fell than went higher. Peter Schiff said: “Powell's speech is BS. The only reason the Fed is allowing more inflation is that no one has the guts to fight it. The economic bubble the Fed inflated is so large that pricking it to fight inflation will be catastrophic. So, the Fed is surrendering without a fight.” Powell basically told everyone that they are trapped. These ‘junkie’ markets need ever increasing amounts of QE to maintain their high. I see DOW 40k – not kidding. Our FED just told us that inflation will rip, and the dollar will be devalued even more. I’m still leaning on gold, silver and crypto.
Friday: Retailer Lord and Taylor couldn't figure any way out of debt so they rolled over and went belly up. This economy is in freefall. The only thing that the FED is proving is that if they give Wall Street money – Wall Street’s going to invest it. They’re not buying bonds at 0.5% interest. They're buying Amazon, Tesla or Apple and making 4% a day. I still see a pullback in the cards, but they haven't allowed one to materialize yet.
Precious metals (PMs) are being supported by near zero or below zero interest rates around the globe. Bond yields are making owning gold and silver more attractive, since investors give up less potential income than they might by owning interest-bearing assets. This point is starker when factoring in inflation because the real yields of many global bonds (including the U.S. 10-year) are in fact negative. A 2nd source of demand for the PMs is a weaker U.S. dollar. The U.S. dollar has slumped 10% since March as investors assess which economies will rebound most quickly from the pandemic. Finally, the potential for higher inflation down the road is stoking interest in the PMs. Our government’s macroeconomic policy in response to the coronavirus has been unprecedented in its size and speed.
Silver is widely used on the factory floor, including in the production of electronics and solar equipment. Industrial fabrication accounted for 52% of silver demand in 2019. That means that silver investments are more clearly linked than gold to any pickup in global economic demand. And in 2020, buyers have paid more for gold relative to silver than has been typical over the past 50 years. That means in a reversion to the mean scenario, silver prices would rise at a faster pace than gold. In August, it took 72 ozs. of silver to purchase 1 oz. of gold – higher than the average of 69 since 1960.
Next Week: The trade that’s driving markets higher…
Trader Geek Speak: The markets are in ‘perpetual motion’ to the upside. Why are they doing this, and what’s forcing this condition?
-- SKEW is Extreme: The SKEW measures the cost of the out-of-the-money Puts against that of the out-of-the-money Calls. A high SKEW means that the out-of-the-money Puts will costs much more than the corresponding out-of-the-money Calls. In fact currently, the out-of-the-money Calls are downright cheap. A high SKEW moves the normal distribution curve downward – saying that the experts view this market as being expensive and the less risky trade is to the downside. For example:
- With the SPY @ $350 let’s go to the November monthly options chain, and go $50 out of the money in both directions.
- A $300 Put will cost you $4.75.
- The equidistant Call ($400) will only cost you $0.77.
- This should NOT give you a warm-n-fuzzy feeling, because (in fact) we are seeing one the highest levels of the SKEW ever recorded.
Now that you know that the SKEW is ‘jacked’ – this should influence the way you short-term trade. A high SKEW tells me to use back-spreads as the trading vehicle. That is to say: (a) sell an at-the-money call and with that money, (b) purchase multiple out-of-the money calls. This trade carries with it very little risk.
--Bonds Fall = Rates go Higher: Although our FED is telling us that interest will be low forever – the BOND market is disagreeing. In the last 3 weeks, bonds have gotten crushed, and 10-Year Treasury Rates have moved from 0.51 to 0.72. Bonds have not broken-down as of yet, but when the /ZB gets below $170 the fireworks will begin to go off. Now, our FED will ferociously defend that level, because of the spike in short term rates. Interest rates moving from 0.51 to 0.72 caused the financials to move higher – and last week they exploded outside of their expected move.
--SPX Rips through Upper Expected Move: Last week the S&Ps (SPX) closed outside their expected move while the NASDAQ (QQQ) did NOT. That means that the market expected the S&Ps to remain within a certain range. However, when the S&Ps moved outside their expected move, it triggered market makers to dynamically hedge – buying S&P futures and driving the S&Ps even higher.
--Gamma Risk is Driving this Perpetual Motion Upside Trade: An overwhelming majority of the professional trading world believes that this market is going to move to the downside. This is reflected in the out-of-the-money Puts being 7 TIMES more expensive than the out-of-the-money Calls. Trading firms have obviously loaded up on Puts, and the slightest movement of the financials, and/or Tesla, and/or the S&Ps above their expected move – will trigger an impressive ‘short-covering’ type of rally higher.
--Influential Products = SPX, SPY, VIX, TSLA, and AAPL: On Friday: the SPX ($3,500) traded 1.2m options contracts = $4.2B and the SPY ($350) traded 4.3m options contracts = $1.5B. Therefore, S&P related products control over 50% of the market’s volume. On the other hand, Tesla (TSLA) owns the NASDAQ. Tesla is a $2,200 stock that did $1m option contracts on Friday. That’s more volume than the SPYs, and that ‘notional value’ is moving the entire NASDAQ market place. When you compare that to Goldman ($200 w/ 55,000 contracts) = $11m or to the XLF ($25 w/ 325,000 contracts) = $9m – they pale in comparison to TSLA or AAPL ($500 w/ 1.2m contracts traded). But notice, even AAPL’s notional trading volume is much smaller than TSLA’s. Fair warning: trading TSLA is becoming a scary proposition.
--SPX Expected Move – Currently, there are NO correlations. Markets are fragile, and liquidity is below average. If we get a hint of retail sell-side activity – every sell-side server in the world will kick on and “sell the elevator down” in most of these products.
HODL’s: (Hold On for Dear Life)
- Yamaha Gold (AUY = $6.09 / in @ $4.60 = up 32%),
- Selling Sept. $7 covered calls for $0.15
- Canopy Growth Corp (CGC = $16.90 / in @ $22.17 = down 24%),
- CTI BioPharma (CTIC = $1.13 / in @ $1 = up 13% ),
- Selling Sept. $2 covered calls for $0.15
- EXK Gold (EXK = $4.10 / in @ $1.53 = up 167%),
- Selling Sept. $5 covered calls for $0.20
- GBTC Bitcoin (GBTC = $13.20 / in @ $9.41 = up 40%),
- Hecla Mining (HL = $5.90 / in @ $2.36 = up 150%),
- Selling Sept. $7 covered calls for $0.25
- KL Gold (KL = $53.45 / in @ 26.85 = up 100%),
- MUX Mining (MUX = $1.26 / in @ $1.14 = up 11%),
- NovaVax (NVAX = SOLD OUT AT $135) = up 1,800%),
- New Gold (NGD = $1.61 / in @ $0.82 = up 96%),
- Selling Sept. $2 covered calls for $0.20
- Pan American Silver (PAAS = $35.72 / in @ $13.07 = up 173%),
- Tortoise Acquisition Corp (SHLL = $38.00 / in @ $0.32 = 11,775%).
- Bitcoin (BTC = $11,600),
- Ethereum (ETH = $400),
- Bitcoin Cash (BCH = $270)
#1 Take advantage of Silver’s High Implied Volatility (IV):
- SLV = BUY a Strangle with the +$21 Put and +$29 Call in October for $1.08.
- GLD = BUY a Strangle with the $163 Put and the $197 Call in October for $2.03. These trades count on their respective ETFs moving outside of those limits.
#2 Monday: AAPL Splits 4:1, and TSLA Splits 5:1: In loose general terms, stock splits ‘normally’ cause a price drop for a bit – before the stocks starts to move higher again. Most of the time this dip lasts between 2 and 4 weeks. But with unlimited money from our FED, TSLA and AAPL may split, and just continue roaring higher. I plan on buying longer dated call options on both TSLA and AAPL. It would be nice if both split and then went into the doldrums for a bit – helping the entire market put in a corrective fade. Then we could all buy the longer dated call options cheaper, and enjoy the ride back up – which we have to guess is coming considering how much money our FED is prepared to print.
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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