This Week in Barrons: 9-27-2020:
I Get It…
- I get it: your back hurts and you think you need surgery to help with the pain. But first, let’s talk about why you run every day.
- I get it: your employees regularly show up late - how do you get them to care more? But first, let’s talk about how you hire and lead.
- I get it: you just had an argument with your significant other, and you need a way to show that you’re right. But first, let’s talk about what is the best way forward for the relationship.
- I get it: universities are in crisis with testing in disarray and distance learning ineffective. But first, let’s talk about what the purpose is for school.
It’s always been easy to ignore the system, and to assume it’s as permanent as the water surrounding your goldfish. But in crisis we focus all of our energies on getting back to normal, instead of spending time figuring out the underlying systemic structural flaws. We spend time moving toward something without asking whether we really want or should be going there. I wonder if we spent a little more time understanding the infrastructure of our existing systems, whether it would end up being less work and produce a better outcome.
A couple entrepreneurial quotes (per HL):
- “If you’re not doing something different, it’s a bad idea.”
- “Work at the intersection of enthusiasm and opportunity.”
The Market: If you ever wondered why Crypto was invented…
Topics such as: drug cartels, human trafficking, money laundering, and terror networks – belong as the premise for a Netflix show. But these are the types of crime groups that banks such as: J.P. Morgan, HSBC, and Deutsche Bank help to enable on a daily basis. A secret report (now part of FinCEN) reveals how those banks moved trillions of dollars in suspicious transactions – in order to help criminals launder money.
Banks are required to report large cash transactions and suspicious activities through SARS (Suspicious Activity Reports). Then the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is supposed to share that info with law enforcement so that regulators can crack down on the bad guys. The reports were filed, but those big banks just continued processing suspicious / criminal transactions anyway.
It’s almost laughable when those same big banks talk of how cryptocurrencies will fuel illegitimate activity, when in fact it is THEY who are currently laundering the money for the cartels and terrorist groups. It seems that as long as a bank files a SAR, it essentially immunizes itself from criminal prosecution. The FinCEN Files include over 2,000 SARS, and neither FinCEN nor the banks themselves are stopping their illicit activities. We shouldn’t wonder why crypto is on a rocket ship higher, and banks are down 24% YTD.
- The deal on TikTok… Oracle will own 12.5%, and get the data stored in the U.S. Oracle cloud. Walmart will own 7.5%, and will provide ecommerce and other online-shopping services to users. U.S. venture firms already own 40% of ByteDance (TikTok’s parent), so technically this makes TikTok an American owned company. U.S. Govt would like TikTok to build a HQ with 25,000 new jobs, and a potential NYSE IPO for even more US ownership.
- Delta Airlines… is losing $800m per month. Their travel is down 60% YoY, and our government’s $25B bailout program runs out in 3 days. It’s now using its customer’s SkyMiles to raise $6.5B in debt. Oh boy…
- September’s Value over Growth outperformance… is the widest it’s been since 2008.
- Officials of the People’s Bank of China… said that its digital currency electronic payment system is essential to weakening the U.S. Dollar's role in international finance and could open a "new battlefield" between nations. Their digital currency has been in development for 6 years, has over 130 patents, and is in testing at banks and corporations around the globe as we speak.
- Nikola, say it ain’t so: Trevor Milton, founder and CEO of Nikola, stepped down last week. NKLA and Milton came under fire after he overstated claims of the readiness of Nikola’s technology and therefore misinformed investors.
- In 2016, 71% of Americans over 65 voted… while only 46% between 18 - 29 voted. It seems that those with the most future had the smallest interest in it.
- Dude, where's my e-truck? Apparently your Nikola truck is simply rolling downhill, and NOT moving under its own power. Nikola’s response: "We never said that it was moving itself – just in motion.”
- Twenty percent of college students… are opting out of the fall semester. That’s understandable. A $50,000 bill for Zoom University = No Thanks. But our higher-education - lecture / recitation based system was broken a long time ago. Lectures no longer work, and in fact what does is allowing students to digest course materials on their own time – using their classes for interactive discussions and projects with their teachers.
- Carvana (online used car seller)… expects record sales this quarter.
- 39% of U.S. adults are comfortable dining out… 26% are Democrats and 54% are Republicans.
- 87% of bars, restaurants, nightclubs in NYC… were unable to pay their entire August rent.
- The sale of gas and diesel-powered cars in California will end… in 2035.
- In early 2021, Volkswagen will release its first EV… featuring 201 horsepower, and a driving range of 250 miles. The cost is $39,995 minus the $7,500 tax credit.
- The Times Square New Year's Eve ball drop… is going virtual.
- Dunkin’ Donuts… is planning on hospitality stands at stadiums, and is testing a new checkout-free payment system from Mastercard.
- Westpac (Australia’s 2nd largest bank) is paying $920m in fines… for money laundering and child trafficking.
- J.P. Morgan faces a $1B fine for market tampering: It’s rumored they made $50B fixing the precious metals market, and only lost $1B on fines. I’ll take that trade every day of the week – says JPM.
- Tim Kendall (former FB mgr.)… told Congress that Facebook "took a page from Big Tobacco's playbook, making our offering addictive at the outset." He argued that FB has been hugely detrimental to society, and is potentially pushing it to the "brink of civil war."
- Amazon has 6 new gadgets, including a security drone to patrol your home.
- Investors are pouring money into public companies… at levels not seen since the dot-com era. Renaissance Capital’s IPO ETF (IPO) – is up 65% YTD.
- Desperation doesn’t look good on you, GM: GM is so desperate to beat Tesla that it’s taking a shot on the Theranos of EV companies – Nikola. GM is continuing with its $2B investment in Nikola. Can’t say you weren’t warned.
- SPACs have raised… $36.4B across 104 public offerings YTD in the U.S. Those figures are all-time-highs.
- Banking veterans by the dozens… are ditching traditional finance to invest in cryptocurrencies. Their new crypto fund, Liquibit Capital, will manage assets worth $50m and will arbitrage a portfolio of bitcoin, bitcoin cash, ether, litecoin and eos – custodied by Fireblocks, with an expansion planned into derivatives.
- The United States Space Force… is looking to blockchain to render its computer systems (on earth and in space) un-hackable.
- Origin has unveiled a stablecoin that’s really a savings account: Origin Dollars (OUSD) earns interest from leveraging various DeFi projects without users ever having to stake those protocols.
- Fintech, meet crypto: Visa's Global Fintech Lead, Terry Angelos, said: “Visa is currently onboarding 25 crypto companies, at various stages of development – through its fast track program and other methods”. Meanwhile, Coinbase announced it has hired former executives from Venmo, Adobe and Google to VP roles on its product, engineering, and design & research teams.
- The U.S. IRS is repositioning a crypto-question on its tax form… that will make it harder for taxpayers to avoid declaring their holdings. The new 1040 income tax form for 2020 will require that all returnees check a box if they have transacted any crypto assets over the year.
- China & Crypto: Ant Group has launched a cross-border trading blockchain platform called "Trusple." The Antchain-based trading platform will make it easier for small and medium-sized enterprises to sell their wares to clients overseas, by automating payments and order placements.
Monday: Historically September is the bumpiest month of the year, and if you add in all the uncertainty of this election, coupled with what appears to be a big push globally to "lock down" again because of COVID - things are pretty dicey. Overnight, news broke that for the past 20 years, some of the more major banks have been shuffling money around and it looks like illegal money movement and/or laundering. Five global banks appeared most often in the documents, HSBC, JPMorgan Chase, Deutsche Bank, Standard Chartered and Bank of New York Mellon. But that’s NOT why we're seeing the DOW futures pointing to a huge red open – that is as a result of a combo platter of uncertainty, our FED, crooked banks, and COVID. Throw in the September funk, a Presidential election, and everybody under their respective 50-day moving averages – and we have the ingredients for ‘fade stew.’ In the long run, the FED money wins, but we could easily correct another 10%.
Tuesday: Today is Tesla "Battery Day." It’s the day that Elon announces what's happening in battery storage. He (a) plans on moving away from cobalt in batteries to reduce cost, (b) the Model S Plaid will have a range between charges of 520 miles, and (c) their goal is a $25k EV by using ‘tabless’ battery cells and modifying interior materials. Today’s also the day that Fed Chair Powell and Treasury Secretary Steven Mnuchin speak to a Congressional panel. I assume they’ll push for another round of stimulus, and I have to think that the markets will like what they have to say. We came out of the gate strong, but then all three indexes plunged into the red. We bounced around the flat line for a while, and finally made it back to the highs of the day. They "want" this market to move higher, but it's not easy. I'm looking at: BBBY > $13.50, PINS > $39.60, AAPL > $112.35, and WMT’s November $120 calls at $19.
Wednesday: Yesterday, big tech was feeble. ‘Fund flows’ out of the QQQs are as large as they were at the end of the dot com bubble. That explains why this market doesn't feel healthy. Today we learned JNJ's vaccine is entering phase 3 trials. What we’re seeing today is the uncertainty of the times, which may last through the election. Silver is getting obliterated, gold is down, the DOW, NASDAQ and S&P are all down. ALL 3 major indexes are below their 50-day moving averages, and that is not a good sign for moving higher. If markets don't get their act together quickly, people will get nervous and send the indexes down to their respective 200-day averages. Today, the Russell and Nasdaq both lost 3%, and the Dow dropped nearly 2%. Energy was the weakest sector losing 4.5%, and tech wasn’t too far behind losing 3%.
Thursday: The markets are still very weak, and probably have more downside to come. Goldman lowered its outlook for GDP due to the lack of stimulus. Not much to do in here this morning but watch, and if things get sideways – scale out. Powell and his chums are all beating the drum about needing more stimulus, and even the market is saying: "Show me the money!" I’m not up for buying the dips. My thought is very basic: “Don’t fight the FED.” I could be all wet, and the uncertainty of our times really could cause this market to keep falling. Right now it’s all about those 50 and 200-day moving averages. Yesterday they turned a 200 point gain into a 500 point dump. Today a 200 point dump has turned into a 300 point gain. I want to believe that the selling is over and they're in the process of driving us back to the upper ranges, but I don't know. I'm willing to nibble on AAPL if it gets back over $110.30.
Friday: Considering that it’s Friday, ‘the powers that be’ may want to put on a good show for the weekend. The tone of this market has changed dramatically. Often periods of wild volatility in the market suggest that the "overall" trend of the market is changing. We could be seeing a change from ‘rising tide lifts all boats’ to one that gradually slides lower. Right now, they don't want to let it roll over. I did go ahead and take AAPL. As I suspected, it's struggling at the overhead resistance around the 50-day. If the NASDAQ’s double bottom holds, then next week should be an up week.
The vote on the MORE Act has been delayed … again. That simply brings the various state initiatives into the spotlight. The MORE (Marijuana Opportunity, Reinvestment, and Expungement) Act is a significant piece of federal legislation both for what it would do and what it represents. If it were to become law, the Act would remove cannabis from the Controlled Substances Act, which would eliminate the current conflict between state-level legalization and federal prohibition. Other policies in the bill include incentives for states to expunge past cannabis convictions, and repair the damage of the war on drugs. In more symbolic terms, it’s the first piece of legislation de-scheduling cannabis to make it out of committee since the passage of the Controlled Substances Act of 1970. Additionally, the bill boasts 113 co-sponsors in the House. Advocates also hoped that a rousing showing might push Democratic presidential candidate Joe Biden toward a stronger stance on the issue.
The MORE Act will not receive a vote in the House of Representatives this week as originally planned. This practically ensures that it will not be heard until after the election. The delay doesn’t change the fact that voters in several states, including key electoral battleground states for both control of the Presidency and the Senate, will be passing similar state-level marijuana measures on Election Day. Of those state-level election initiatives, the most significant appears to be in New Jersey.
- New Jersey’s recreational legalization would add another 9m people to the roughly 90m Americans already living in legal states. Its proximity and borders with New York and Pennsylvania, could also be a catalyst for full legalization in two of the U.S.’s biggest potential markets. New Jersey is also the densest state in the Union and third ranked on median income, which could see it setting new retail sales records. Recent voter polling showed support at the 67% level.
- In Arizona, advocates are trying again for legalization, and have the support of cannabis companies such as: Harvest Health, Cresco Labs, and Curaleaf.
- In Mississippi, voters will consider the approval of medical cannabis.
- Montana has had a medical program since 2004, will vote on recreational use.
- South Dakota will take the unprecedented step of considering both medical marijuana and recreational use on the same ballot.
This election could effectively take the decision-making away from our legislators, and effectively mandate a marijuana wave unlike anything this nation has ever seen.
Next Week: It’s NOT a bottom – until Big Tech says it is.
-Nasdaq outperforms in another sketchy trading week. We had massive daily ranges, and I don’t think that we have hit the bottom…yet. The QQQs outperformed the other indices this week, the SPY breached the lower end of its expected move on Wednesday and Thursday, and the Russell (IWM) got crushed and moved 2 standard deviations lower. I don’t think that the bottom is in – because the sector (and the ‘monsters of tech’) did not see any wicked downside action. We saw huge 400 point ranges, BUT it remained orderly in terms of buying and selling. I’m honestly waiting for that ‘rip-your-face-off’ rally in the Nasdaq – because we’ve had some fairly steep sell-side activity without a correspondingly spike in volume or spike in volatility. Do NOT buy the dip. We are going to bounce, but I don’t think that we are finished going down.
-The underperforming sectors (IWM, XLF, and XLE) are still underperforming. The Russell (IWM) is down 11% YTD, and the financials (XLF) are down 24% YTD. The financials smashed through their expected move this week to the downside. You do NOT have expanding divergences between the financials, S&Ps and Nasdaq – when you’re forming a bottom. Those divergences normally contract when forming a bottom.
-Is the dollar the new volatility indicator? The issue with the dollar is that when nations get nervous – they buy U.S. dollars as a hedge. The dollar went up this week – which put immediate pressure on gold and silver. The U.S. Dollar rallying could be a volatility indicator among the sovereigns. Every currency other than the dollar seems to be having problems. I’m looking at the dollar’s movement higher as a fear trade signal.
-VVIX falls under 100! On Friday we had the lowest print of the volatility of the volatility index since COVID. So, I’m not sensing a bottom here. I think we have an incredibly retail driven market place. The professionals are out there stalking and filling order-flow. They’re not taking positions on one side of the fence or the other, and they’re not LEADING the rally or the collapse. The professionals are just reacting to what retail is doing, and as such, volatility has somewhat fallen by the wayside.
-Opportunities in VIX: If I believe that the bottom has NOT been put in, and the VVIX is inherently low – then there should be an opportunity building in the VIX (the volatility index). Potentially following the ‘rip-your-face-off’ rally (which should lower the VIX) – in which case we ‘once again’ buy the December monthly calls OR you can also sell the December VIX put spread in order to finance your December call spread purchase.
-Bounce and Fade is bac! If we get the rally that I think we will, there will be incredible opportunities to fade a lot of these bounces. Lululemon was one of those candidates last week, but there will more in the week(s) ahead. Low volatility affords you the ability to purchase Puts when you see a bounce that’s too far outside the Expected Move.
-SPX Expected Move: Last week we had an $83 expected move, but we moved $83 alone on Wednesday, Thursday and Friday. The expected move for next week is $87. This should tell you NOT to sell premium, but rather to be a premium buyer. I also believe that next week, we could experience a large rally to 3,350 in order to again test 3211 as support. Big tech needs to lead us lower, and tell us that a bottom is in.
When AAPL and TSLA did their stock splits, it almost marked the top of the market. From a close of 12,056 on Sept. 2nd, it hit 10,875 just two days later, and fell down to 10,519 on the 21st. Then it bounced off that low, but two days later (this past Thursday) it fell again down again to 10,520. Now we’re coming out of September, and we put in what could easily be called a double bottom. The Feds are not hiking rates, or pulling in policy. There’s going to be another “deal” to give money to the people. The Swiss National Bank is still buying US stocks. The European Central Bank still ready to: “Do whatever it takes.” Our FED is still preaching: “We need more inflation,” which means more fiscal stimulus. So my guess is that the NASDAQ gets back over its 50-day, dragging the S&P and DOW over their 50-days as well – but then goes into a volatile holding pattern while the markets sit there and figure it out.
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $5.61 / in @ $4.60 = up 22%),
o Looking into selling Oct. $6 covered calls
- Canopy Growth Corp (CGC = $14.17 / in @ $22.17 = down 36%),
- CTI BioPharma (CTIC = $1.05 / in @ $1),
o Selling more Oct. $1 covered calls for 20 cents
- EXK Gold (EXK = $3.41 / in @ $1.53 = up 123%),
o Looking into selling Oct. $4 covered calls
- GBTC Bitcoin (GBTC = $11.23 / in @ $9.41 = up 19%),
- Hecla Mining (HL = $4.92 / in @ $2.36 = up 108%),
o Looking into selling Oct. $6 covered calls
- KL Gold (KL = $48.53 / in @ 26.85 = up 81%),
- MUX Mining (MUX = $0.99 / in @ $1.14 = down 12%),
- New Gold (NGD = $1.66 / in @ $0.82 = up 102%),
o Looking into selling Oct. $2 covered calls
- Pan American Silver (PAAS = $31.24 / in @ $13.07 = up 139%),
o Looking into selling Oct. covered calls
- Tortoise Acquisition Corp (SHLL = $44.39 / in @ $0.32 = 13,772%).
- Bitcoin (BTC = $10,750),
- Ethereum (ETH = $350),
- Bitcoin Cash (BCH = $220)
#1 Look at a ‘Risk-Twist-Spread’ out in December on the VIX – to the upside and on the SPY to the downside.
#2 Over the past several weeks, the VIX (volatility index) hasn’t really responded to the drops we’ve seen in the S&P 500, which suggests a bit of complacency and potential upside for volatility if political surprises spook the market. That could push the Nov VIX higher than the Oct, making it a volatility trade for the big events. If you are bullish on volatility, the long VIX call vertical that’s long the $32.5 Call and short the $35 Call in the Nov monthly expiration is a bullish strategy that has the $32.5 call in-the-money, and has a 70% probability of making 50% of its max profit before expiring.
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Please be safe out there!
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