This Week in Barrons: 12-13-2020:
COVID Lesson #5: “The MBA-ization of America…” … Elon Musk
Tesla and SpaceX founder Elon Musk says: “MBA-ization is the biggest problem with corporate America today. Too many MBA’s are running the show, and they get caught up in the numbers and lose sight of their mission – to create awesome products / services. A company only has value when it creates products / services that are of a greater value than the sum of their parts. The biggest mistake I made as a leader of both Tesla and SpaceX was spending too much time in meetings, and on PowerPoints and spreadsheets – instead of being out on the factory floor. When I’m spending time on the factory floor, it boosts morale and my team is more energized. I would urge all CEOs to get out on the goddamn front lines and show everyone that you care, and you’re not some damn MBA just sitting in an office.”
COVID Lesson #6: There’s No loyalty in Mudville…
In the world of investing, there’s no such thing as hometown loyalty. Everybody’s a free agent. Whether it’s the underlying products we trade, the strategies we employ, or the platforms we trade on – the choice is 100% ours. It’s important to remember that in the world of finance: Don’t fall in love with a product. Long / short, stocks will eventually break your heart. It’s vital to be product indifferent, and trading whatever affords you the most opportunity. Never settle, respect everyone, and fear no one.
The Market:
COVID Lesson #7: “Your stock picks are a lot like pizza and making love…”
One of my readers was complimenting me surrounding my 2020 stock picking (especially after TRNE doubled 2 weeks ago) – and said: “Your stock picks are a lot like pizza and making-love. When they’re right – they’re great! When they’re not so right – they’re not bad either!”
COVID Lesson #8: “Why would any small business let a customer go?”
There are 3 caveats in small business: (a) 80% of your business comes from 20% of your customers. (b) It costs 10 times MORE to acquire a new customer than to retain an old one. (c) Every good customer attracts you 3 more, but every bad one costs you 11.
Let’s assume that ‘Joe’ (your average customer) spends $500 / month with you. By allowing ‘Joe’ to walk away, you’re knowingly: (a) saying goodbye to Joe’s 3 friends (3 * $500 = $1,500) that were going to purchase, and (b) allowing Joe to spread the word to 11 others ($5,500) to NOT buy your product or discontinue your service. So, unless ‘Joe’ costs you $7,000 ($1,500 + $5,500) worth of damage to your product-line, on-line brand, or service … I strongly suggest you fight like the dickens to save ‘Joe’ as a customer. Auto companies figured this out years ago, and have labeled each customer as being worth upwards of $330,000. If we could just teach our small businesses to concentrate on serving and keeping their existing customers rather than expensive customer acquisition – they wouldn’t be so worried about big-box competition.
COVID Lesson #9: “Can I have a little ‘whine’ with that cheese?”
Toddlers whine, but most adults have figured out how to lose the habit – because it’s toxic. Whining: gets attention, lowers expectations, gains sympathy, forces others to identify with the pain, and helps people feel as though they’re not responsible. We stop whining because we realize people hate being around whiners. The best way to make things better is to work towards improving them, not to whine for special treatment. Optimists often run the risk of being disappointed. Whiners are just disappointing.
InfoBits:
- Petco filed to IPO… under ticker symbol WOOF.
- Warner Bros. will release all 17 of its 2021 movies… on HBO Max at the same time they hit theaters = no exclusive theatrical window. AMC, the world's largest theater chain, watched its stock plunge 21% for the week.
- "You're cut off"…. UPS put some of its largest retail partners (Nike, GAP, etc.) on warning that it will strictly enforce shipping limits this holiday season.
- Bob Dylan sold his entire song catalogue… to Universal for about $200m.
- Aurora Innovation… the autonomous vehicle startup has reached agreement with Uber to buy their self-driving unit at a $10B valuation.
- The FED has injected money at a staggering rate… 25% of all U.S. Dollars to ever be in existence were created in the last 9 months.
- Opendoor (a home-selling firm)… SPAC’d itself onto the NASDAQ for $1.5B.
- The Ant Group… has originated loans to over 500m people this year in China – making it one of the world’s largest originators of unsecured loans to individuals.
- Restaurants are seeing a 36% drop in sales… and with less than a 6% profit margin, that’s simply unsustainable. 83% of restaurants expect sales to be even worse over the next 3 months.
- Tesla’s looking to raise $5B in a stock offering. In September, they also raised $5B. Honestly, I don’t know why Elon just doesn’t pony up for the $5B himself – heck he gained almost $10B in net worth over the last 2 weeks!
- Sour Apples…. the tech giant unveiled its new, over-ear AirPods Max for the very low price of $549. Do they come with heated seats and ear warmers?
- FireEye, a top cybersecurity firm… says it was hacked by Russians that stole tools that could be used to mount new attacks around the world.
- The FTC would like Facebook to divest itself of… Instagram and WhatsApp.
- DoorDash (DASH) priced its IPO at $102… but the stock opened at $182. It’s now a $60B company.
- Robinhood has picked Goldman Sachs… to lead preparations for an IPO that could come next year and value it at more than $20B.
- Hyundai Motors is acquiring… robot maker Boston Dynamics for > $1B.
- Cruise, the autonomous vehicle subsidiary of GM… has started testing fully driverless vehicles on public roads in San Francisco
- Softbank Group is poised to gain $10B… from its investment in DoorDash. This potentially offsets the fund’s losses from WeWork.
- Apple CEO Tim Cook said… the company plans to return to the office after June, 2021.
- Disney stock hit an all-time… high on news that Disney+ has ~87M subscribers, and expects 250M by 2024.
- Instagram launches shopping in its TikTok copycat Reels… the day after the "Break-Up Facebook" lawsuit was filed.
- Airbnb IPO'd at $68, but opened on the Nasdaq at $146. Its market value soared to over $100B, more than Marriott, Hilton, and Hyatt combined. That’s more than 5X its April valuation – and the largest IPO this year.
Crypto-Bytes:
- More and more institutions are gaining exposure to Ether… Ethereum's native currency. Over 2020, a new group of investors came to the forefront who are Ethereum-first and in some cases Ethereum-only investors.
- Hong Kong’s Central Bank is working with the People’s Bank of China… to test digital yuan use cases. They are discussing the technical pilot testing of using a digital currency for making cross-border payments.
- After MicroStrategy’s latest investment in Bitcoin… Citibank analysts have downgraded the stock from a neutral to a ‘sell’ saying that the company’s recent bitcoin euphoria may be overextended.
- The Crypto Index Fund is now live… as a publicly traded, cryptocurrency index listed under BITW, and open to U.S. investors. Assets will be custodied with Coinbase Custody Trust Company.
- Bank of America is warning… that a digital euro with mass appeal could “reduce costs and complexity for individuals but negatively affect the region’s banking industry – by cutting into commercial bank deposits and reducing the need for third parties.” You’re kidding me, right? You’re worried about making Banks simpler and less costly.
- Bitcoin is cutting into the U.S. dollar. "Most bitcoins are held as an investment, but that is changing. Bitcoin will gain as its traditional competitors falter – even if the market bubble were to burst.”
- Massachusetts Mutual Life Insurance… recently purchased $100m worth of Bitcoin.
- Over 300 developers/month… are coming into crypto to work on Ethereum.
Last Week:
Monday: "December 7, 1941 - a date which will live in infamy," said President Franklin D. Roosevelt. With that being said, is there anything moving out there? You bet – the following have charts setting up that look interesting: OPK > 4.95, SNAP > 49.50, MAXN > 28.75, BIGC > 85.30, CLSK > 12.35, SM > 5, SDGR > 69.45, CDEV > 1.54, and CPE > 13.98.
Wednesday: You know that things are pretty weird when a company like TSLA announces a $5B stock offering, and the stock goes UP $8 on the day. And consider this: “The Bank of Japan is now the biggest owner of Japanese stocks with a $434B portfolio.” Is it even ‘right’ that the entity that prints all of the money is also the single largest owner of its country's stocks. In 2020 anything SPAC has gone higher. IPOC is one that hasn't quite gotten the attention yet. If it gets noticed like TRNE did, it could fly. Another one I like is CLSK > $11.50, and CDEV > $1.75.
Thursday: Look at this morning's initial jobless report = 853,000 signed up for 1st time unemployment claims. WOW – remember: “When people have nothing left to lose – they lose it.” This selling feels different than simple profit taking. Yes, some could be tax selling, but I’m going to be pretty cautious in here for a couple days. I liked SM a day or two ago when it was $4.70, and today it's $6.30. I still like CDEV and IPOC.
Marijuana… and a little alcohol…
- Dwayne “The Rock” Johnson’s Teremana Tequila… is set to sell >300k 9L cases in its first year. That’s almost double the amount of cases Clooney was selling when he exited his Casamigos tequila brand.
- COVID will cause an 8% global reduction… in alcohol consumption in 2020.
- The Mexican Congress delayed a marijuana bill debate… pushing approval into 2021.
- Canopy Growth is shuttering facilities across Canada… and abandoning outdoor marijuana cultivation.
- 46% of total restaurant operators in March 2020… will NOT be in business 6 months from now, according to the latest Natl. Restaurant Assn. survey.
- WeedMaps, a technology company that finds and rates MJ sellers… has agreed to go public through a SPAC / merger with Silver Spike Acquisition Corp
- The latest Jobless Claims surpassed 850,000… making it the largest week-over-week increase in ~3 months.
Next Week: Will the Bears make a Year End Appearance?
- Change of tone in the markets? This week in particular there was an increase in market efficiency. At the end of Friday (for example), we tagged the bottom of the expected move in the SPX – and immediately bounced higher.
o Change #1: Buy-the-Rumor & Sell-the-News on COST & LULU. Both of these companies blew-away their earnings announcements (to the upside), but both stocks finished flat to lower.
o Change #2: The success of the S&Ps depends upon the financials (XLF). This week the financials followed energy lower. Watch this trend going forward.
o Stay-the-Same #1: Brexit and Initial Jobless Claims: Even though the jobless claims number was horrific – the market place didn’t flinch because they believe any negativity will be met with stimulus.
o Stay-the-Same #2: We’re still playing the shell game of capital rotation. This week’s capital jumped out of financials into healthcare and biotech.
- Volatility Expansion: Between now and the end of the year we will see increased ‘volatility’ – simply because a majority of the country is under lockdown / causing a severe reduction in productivity.
o If you look at the VIX, you’re probably yawning. But when you look at the VVIX (the volatility of the volatility index) – that’s where you’ll see the movement. Professionals are buying volatility options with both hands.
o The VVIX is back over 110, and has increased 20% over the past week. Somebody sees something that’s cause for alarm in a big way.
o Next week’s SPX Expected Move is 30% higher than last week. It moved from $65 this past week to $86 this coming week. Pro-traders see something coming, and they’re putting their helmets on.
- “You can’t fix stupid… IPO’s have gone plaid”
o Airbnb (ABNB) and DoorDash (DASH): I would NOT expect any extreme moves in either of these until they have options listed. Mostly because it’s the options leverage that is moving this market place.
- A couple thoughts:
o I’ve closed several of my directional long positions over the past week.
o I’m looking for increased volatility over the coming weeks.
o I’m also looking for sideways to down between now and the end of the year. I don’t think that the market will ‘sell-off-hard’, but I believe that there will be a lack of buyers.
o I find it interesting that 93% of all of the economies on earth contracted this year, while their corresponding stock markets hit all-time highs. No disconnect there.
o As an income strategy and a capital conservation strategy, I’m actively selling ‘covered calls’ against all of my remaining long positions.
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- CTI BioPharma (CTIC = $3.53),
o Selling Dec. $3 and $4 covered calls for income…
- EXK Gold (EXK = $3.44 / in @ $1.53 = up 125%),
o Sold Dec. $4 covered calls
- GBTC Bitcoin (GBTC = $20.61 / in @ $9.41 = up 120%),
- Hecla Mining (HL = $5.09 / in @ $2.36 = up 116%),
o Sold Dec. $5 covered calls
- Hyliion (HYLN = $17.32 / in @ $0.32 = 5312%).
- New Gold (NGD = $2.15 / in @ $0.82 = up 162%),
o Sold Dec. $2 covered calls
- Pan American Silver (PAAS = $29.66 / in @ $13.07 = up 127%),
o Re-Sold Dec. $34 covered calls
- Trine Acq. Corp (TRNE = $24.77 / in @ $11.25 = up 120%),
o Sold Dec. $12.50 covered calls
o Acquired on Thursday by DM
Crypto:
- Bitcoin (BTC = $18,400),
- Ethereum (ETH = $550),
- Bitcoin Cash (BCH = $260)
Thoughts: MJ (the Marijuana ETF) had a big rally this fall as the likelihood of legalization grew. You’d think the pot business might be a bit more mellow around the holidays. MJ’s implied volatility is 42, which is high enough to make short premium strategies interesting. If you think MJ might take a breather from making big moves in the next few weeks as its components balance the hope of legalization with the realities of the bottom line. A neutral strategy is a short strangle that’s short the $13 Put and $17 Call in the Jan expiration that has an 80% probability of making 50% of its max potential 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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