Elegance:
Elegance is a word that’s often mis-used. It takes a little longer to understand and to deal with, but it can become the cornerstone of everyone’s work. What makes something elegantis often more related to talent and perseverance than money. Elegant things are: smoother, cleaner, more understandable, kinder, more efficient, friendlier, and normally more approachable than they need to be.
Growing up, Microsoft Windows was never particularly elegant because you could easily view its inner workings – every time it broke. We referred to it as the ‘blue screen of death’. It was clunky, but it got the job done. On the other hand, the Macintosh was surprisingly elegant. When it broke, it broke gently. It knew that something was wrong, and it even seemed to have a sense of humor about it.
Unfortunately, elegance comes with the burden of satisfying the user – which always costs more time, money, and negatively impacts the immediate bottom line. Ironically, satisfying the user is the single best way to increase the long-term bottom line of a company that doesn’t have monopoly power. The enemy of elegance is constantly increasing complexity, often brought on by parabolic growth. For example, much of what is going on in crypto (right now) is far from elegant. Their transactional reporting is unreadable, inconsistent, and shows no commitment toward educating the end-user.
Elegance doesn’t mean that the boat never capsizes. It means that when it does – the driver / user will learn something about why it happened, and will feel better for learning it. Lately, customer service means: (a) answering the phone and (b) giving away free stuff / refund. Everyone knows that customer retention costs at least one-tenth of customer acquisition; therefore, you should use that extra financial room to build real empathy and insight into the customer service experience. In that way, your customer has a much better chance of remaining – your customer. As soon as a company starts to view their customer as having ‘no other choice’ – their elegance begins to disappear. Honestly, you can either do something elegantly on your own terms, or redo it on someone elses’? It’s your choice.
The Market:
In general, the leaders of 2020: SPACs, software, clean energy, cannabis, tech and biotech stocks have been under pressure for the past few weeks. Many have already experienced a 20 to 30% correction this year. In the meantime, oil and financial stocks have had their best 4-week stretch in a while. Energy and financials have under-performed for so many years that few could believe that so many were hitting new 52-week highs. Some say that the market is simply pricing in a quick economic recovery which comes with rising interest rates that benefit old-economy stocks rather than high-flying new-economy stocks. I don’t know if this narrative is just a temporary rotation, but we can’t ignore price action. I find it hard to believe that any rally can be sustained without the participation of growth stocks but the current facts are that basic material and financial stocks might be the new momentum leaders.
BUT (per HL), we need to mention that Bitcoin is pushing $60k and up over 100% YTD, while Ethereum is up almost 200% in 2021. Hopefully that quiets the value-stock parade outside my window. Due to these crypto gains, I will soon have more capital in crypto, tokens, and funds then I have in stocks. I believe that will continue for the remainder of my life. Maybe I lose 90% of my digital assets from here, but I doubt it. Crypto assets are non-correlated – so I’m actually looking for them to tone down my overall portfolio risk. I believe that crypto is the next great frontier. If our markets do NOT see an epic crash within the next 2 years – imagine what crypto will look like in 20 years. That means a ton of businesses are ripe for disruption. For those of you not in crypto: as everything was correcting the past several weeks (TSLA was down 30%) – the only market unaffected was: crypto. Just sayin’.
InfoBits:
- According to the St. Louis Fed… the bottom 50% of Americans own only 1% of the wealth. 13.4m families have a negative net worth, and won’t be pushed above the poverty line by any $1,400 stimulus check.
- Ads are addicting, subscriptions are nourishing... Normally social media companies make the product free, but use your data to target you. Twitter and Clubhouse are planning paid subscriptions that are harder to sustain, but a more reliable revenue source.
- Gatorade wants to be the thing you wear… and is launching its first wearable. Gx Sweat Patch looks like a cool $13 single-use band-aid that measures your fitness levels by pulling data out of your sweat (sodium loss and sweat rate). Gatorade’s goal is to personalize your fitness drink.
- Chase Pay crashed and burned. J. P. Morgan will discontinue its Chase Pay digital wallet at the end of March – as it struggles to compete with Apple Pay.
- Dropbox is buying DocSend’s… document sharing and tracking platform, for $165m.
- Amazon workers in Alabama… are pushing to unionize their warehouse, which would create the first Amazon union in the US. They want job security and better working conditions. Amazon wants them to stop.
- ZOOM CEO Eric Yuan transferred $6B… worth of his Zoom shares (or 40% of his stake) to "unspecified recipients."
- BuzzFeed is in talks to go public… via SPAC with 890 5th Avenue Partners.
- J&J won't be profiting... from the 1B COVID doses ($10B in sales) that it's on track to produce this year. Unlike Moderna and Pfizer, J&J has pledged to sell "at cost" its vaccine for emergency use. Their stock hasn’t moved higher but their reputation has.
- Salesforce… San Francisco's largest private employer, has canceled a 325,000 sq. ft. lease for office space in the city's Transbay neighborhood.
- Weekly jobless claims were 712,000… the lowest number in almost a year.
- Grab is going public via SPAC… that could value the ride-hailing startup at $40B – making it the largest SPAC deal on record.
- Hindenburg Research strikes again against Lordstown Motors. “Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities. The company has consistently pointed to its book of 100,000 pre-orders as proof of deep demand for its proposed EV truck. Our conversations show that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy. For example, they recently announced a 14,000-truck deal from E Squared Energy = $735m in sales. E Squared is based out of a small residential apartment in Texas that doesn’t even operate a fleet of vehicles.”
Crypto-Bytes:
- Everything comes back to crypto these days… including the above $69m NFT (non-fungible token). Digital artist Beeple produced a new piece of digital art every day for the last 5,000 days (~13.7 years). Last year, he started selling them as NFTs. Last week he auctioned off a mosaic of all 5,000 pieces titled: “Everydays: The First 5,000 Days” (see above) – for a staggering +$69m.
- The pay package for Coinbase’s CEO Brian Armstrong… could be one of the most lavish in corporate U.S. He could be in line for a $3B payday.
- J.P. Morgan is beefing up its digital asset team… with 30+ job offerings.
- George Soros and Morgan Stanley… are pumping another $200m into BTC.
- Cipher Mining… a Bitcoin mining firm has agreed to go public via SPAC with a $2B valuation.
- Go Long says JPM… as it grows increasingly cognizant of digital assets. JPM filed a prospectus for a Cryptocurrency Exposure Basket that is long: MicroStrategy (20%), Square (18%), Riot Blockchain (15%), and NVIDIA (15%).
- Bitcoin cruised past $60,000… making a new all-time-high and movin-on-up.
- 30% of U.K. investors… feel that they’ve “missed the boat” on cryptocurrency.
Last Week:
Monday: This morning, seeing the ugly futures, CNBC brought out David Tepper – who said that he went: "All in on the Friday lows, and it’s hard to not be bullish in here". In response Kyle Bass worte: "The Bank of Japan owns more than 100% of Japanese GDP in bonds, and more than 80% of every ETF ever listed in Japan. They're a top 5 holder of some of the largest companies in Japan. That's where we're headed - yes?" I'm still feeling that they are propping this market up, but it's working. So, what can we look at? PLTR over $24.60, EQX over $8.20, and BLNK over $33.10.
Tuesday: Is today the day the DOW goes red and the techs fly higher – or do they all just fly higher? The action over the past 6 sessions has been quite insane. If you add in yesterday's plunge, the NASDAQ is off 11% from its high – which is technically a correction. Names we can watch today are: ABNB > $189.50, ROKU > $355.80, and NVDA > $497. Interesting, in a late filing from Kodak (KODK), self-made billionaire Tom Golisano of Paychex is buying 9% of the company for $7.5m. So, maybe a nibble on KODK > $8.61 will be in order. I still like EQX for a buy-n-hold over $8.20, but we may be holding on for a while.
Wednesday: So yesterday, the NASDAQ and DOW were up strongly for most of the day, but in the late hours the DOW started sliding and almost went red. Like so many sessions lately, the action was – weird. Little EXPR is doing some wild swings for a cheap stock, with a low of $4.04 and a high of 4.95. Those are big swings for a $4 issue. I like EXPR over $4.95.
Thursday: Okay so the stimulus bill passed, with enough pork to feed an army. I'm still liking JPM if it holds over $155.60. MSFT has a gap to fill from 237 to 240. So, I'll be a MSFT buyer over $236.70. And SMH over $232.80 would be organic – so that works.
Marijuana:
- Curaleaf Holdings said Tuesday it signed a $286m deal to acquire London-based medical marijuana company Emmac Life Sciences. This would give Curaleaf a major foothold in the European cannabis market and a leg up on their rivals.
- Mexico is on the brink of becoming the 3rd country to legalize cannabis at the national level. Mexico’s Congress could pass legislation as soon as this week, backed by current president Andrés Manuel López Obrador. Legalization in Mexico would be a major development for both Mexico and the U.S. In the U.S., it would sandwich us between 2 countries that have enacted recreational access.
Next Week: Rates are Soaring … Can Markets Hold?
On the edge of the Expected Move: We’re seeing an entire marketplace (SPX, QQQ, DIA) operate on the edge of their respective ‘expected moves’. Normally, in times of low implied volatility – the play here is: to purchase a fairly narrow options product called a ‘butterfly’ (for very little money) centered at either end of the expected move. That has worked well the past several weeks and with this coming week’s FOMC meeting – I suspect it will work well again next week.
The Russell Small Cap Index explodes higher opening opportunities: The Russell (IWM) is doing incredibly well swinging from the bottom of its expected move to the top – all in one week. The play here is: to buy an ‘iron condor’ where the two ends (once again) are located over their respective upper and lower IWM ‘expected moves’.
The FED Cometh:
- Rates are sending Jerome a message: The marketplace really only has Monday and Tuesday to make a statement, because on Wednesday the FED announces the results of their latest FOMC meeting – which will move markets.
- Bring on the FOMC: Interest rates are driving this market right now, and currently the Bond market is daring the FOMC to do something. After all, the 10-Year interest rate is only up 78% YTD. I think the selling inside of the bonds will continue up to Wednesday’s FOMC message. Then, depending upon the strength and wording of the message – maybe rates will back off. I absolutely believe our FED will step in and do something: either Yield-Curve-Control (YCC) or Twist.
- Yield curve: Currently the 10-Year rate is 1.635%. If it increases to 2% (which isn’t that far away), it would absolutely put stocks into a virtual free-fall. Not because of home buying stopping due to mortgage rates climbing, but rather because of cancelled stock buybacks, carry trades and currency related transactions that will begin to unwind. All that matters right now is the FOMC meeting on Tuesday and Wednesday, and the 10-Year Bond yield.
- So, are we doing the Twist or Yield-Curve-Control like Japan? I think that the FED will (quietly at first) begin Twist – Part 2. That is to say they will buy more of our longer-dated bonds (reducing the 10-Year Rate) and buy less of the shorter-dated bonds (increasing short-term rates). I believe they will do this because if they introduce YCC, they will in effect make an entire asset class useless, and I believe that our FED will NOT want to do that. Initially our FED will use rhetoric and actions behind the scenes.
- Implications for financials and energy: Every ounce of sell side activity inside of the bonds, is being met with buy-side activity inside of the financials. So, the minute the bonds reverse – so will the financials. The play here would be to: Short the XLF. The other play is on the energy side of things: Short the XOP – which is only up 53% YTD.
Indicators:
- SKEW: is the implied volatility of the out of the money puts vs calls, and it is incredibly high at 140. This tells us that the professionals are: (a) hedging their bets, and (b) see large potential risks to the downside
- VIX: is currently low (21) due to the markets being at all-time-highs. But if you look 67 days out, the market is pricing the VIX up in the 27’s. That tells me that market pundits are planning on some increased volatility during the upcoming summer months starting in May.
- VVIX: is currently almost 112 – where anything above 110 is ‘duck-n-cover’ territory; therefore, we are still in the danger zone in so far as volatility is concerned.
- SRVIX: the interest rate swap volatility index is still making all-time-highs – which is not good in terms of potentially calming markets down. Swap volatility is at 86 and during COVID (a year ago) it spiked to 90 – so we’re back (on the SRVIX indicator) to being in very dangerous territory.
- Bond Volatility (TLT): hit 23%, which means that it has eclipsed S&P volatility. This tells me that something BIG is going on inside of this marketplace.
SPX Expected Move:
- Last Week’s Expected Move was $99.57
- Next Week’s Expected Move is $73.54. I’m not surprised to see the expected move decrease, but I would expect us to tag either the upper or lower edges of the expected move.
Tips:
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $61,100 / in at $4,310)
- Bitcoin Cash (BCH = $590 / in at $170)
- CLOV Healthcare (CLOV = $8.91)
o Sold Mar. $12.50 CCs for income
- CTI BioPharma (CTIC = $3.32)
o Sold Mar. $3 CCs for income
- Ethereum (ETH = $1,900 / in at $310)
- Grayscale Ethereum (ETHE = $17.12 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $50.00 / in @ $9.41)
- Hecla Mining (HL = $6.50)
o Sold Mar. $6 and $7 CCs for income
- Hyliion (HYLN = $14.42 / in @ $0.32)
- Infinity Pharma (INFI = $3.12)
o Sold Mar. $3, $4 & $5 CCs for Income
- Inovio Pharma (INO = $10.50)
o Sold Mar. $14 CCs for income
- Litecoin (LTC = $223 / in @ $191)
- Opko Health (OPK = $4.44)
o Sold Mar. $5 CCs for income
- Peabody Coal (BTU = $3.77)
o Sold Mar. $4 and $5 CCs for income
- SOS Limited (SOS = $6.63)
o Sold Mar. $5 and $7.50 CCs for income
- VisLink Tech (VISL = $3.51)
o Sold Mar. $5 CCs for income
- VivoPower (VVPR = $10.22)
o Sold the August $12.50 CCs for income
Thoughts: Over the past three days, GE has dropped nearly 13.5% - the equivalent of 2.4 standard deviations. Apparently, the market didn’t like the deal to sell its aviation services business to AER, the world’s largest aircraft leasing company, even though it would add some $30B to GE’s value. Nor did the market approve of GE’s 1-for-8 reverse split, even though that has no theoretical impact on GE’s value. The news isn’t bad, and the much higher trading volumes during the last three days indicate that the sell-off may have been exacerbated by undercapitalized longs forced to liquidate. But GE’s OTM calls are trading over equidistant OTM puts, suggesting that the market sees risk to the upside. A contrarian trader who thinks GE might not be going out of business anytime soon might see the sell-off as a bullish opportunity. GE’s 67% IV is high enough to make short options interesting trades. If you are bullish on GE, the short $11.5 April Put is a bullish strategy that has an 84% probability of making 50% of its max 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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