RF's Financial News

RF's Financial News

Sunday, July 25, 2021

This Week in Barrons: July 25th, 2021

‘Inclusivity’… a different look:

   This past week Tesla announced that it will be opening its Supercharger network to other EV brands.  Tesla currently has over 25,000 Supercharger stalls across 2,700 locations around the globe.  They can recharge a Tesla up to 200 miles in 15 minutes, and the Tesla e-juice is cheaper than gasoline.  Previously, Tesla marketed its exclusive charging stations as a major advantage in terms of: more charging options, shorter lines, and cappuccinos at Supercharger lounges.  So, why would Tesla want to include these other EV brands, and eliminate that product differentiator?  

-       CASH:  Even Tesla owners have to pay per minute to use Superchargers.  By opening the stations to other EV owners, Tesla can make more money and compete against other charging companies such as: ChargePoint and Volta.

-       CREDIT:  If Tesla opens up more renewable charging stations in the US, it could tap into new government funding like rebates and clean energy credits.  Last quarter, Tesla made $518m from selling regulatory credits to other automakers.

   It came down to the forever small-business / pizza decision: Do I want to own a big piece of a small pie, or a smaller slice of a much bigger (and growing) pie?  Tesla could have remained model-exclusive, and grabbed a couple more slices of their specific EV pie.  Instead, it's sacrificing one of its biggest advantages to accelerate EV adoption (making the pie larger).  By helping to cure range anxiety via Supercharger access, Tesla can help make the total EV pie bigger.  It’s all about where you draw your company’s boundary.  Every business has the same choice: Do I build a moat around what I have and defend it to the death, or Do I “share and play nice with others” in hopes that 1 + 1 equals 3.  Greed often makes the first choice – intelligence normally makes the second.

‘Directed Marketing’… a different look:

   Let’s assume there are 10 people that trust you and your company.  Those ten people believe in what you’re doing, and are enrolled in your journey to help ‘make a difference.’  Now, what if those 10 people each find another 10 people to join your cause?  That expanded group of 100 may have the scale to be able to: (a) help you improve your work, (b) introduce you to other resources, and/or (c) become your clients.  Any of those steps could lead to: more opportunities, conversations and improvements.  I call this: Directed Marketing because it’s deliberate and methodical.  It’s NOT D2C, or ‘mass personalization’ or even Direct Marketing – which are all focused on action, measurement and funnel size.  Directed Marketing is specific about precisely who you’re working with and what you’re working on.  Directed Marketing allows you to have tunnel vision, and ignore almost everyone else.  Direct marketing builds awareness while Directed Marketing gains customers, traction, and sales.  Decide for yourself which your organization needs.

The Market:

   SG once told me: It’s pretty straightforward to repair a broken window.  It’s far more difficult to realize that your room would be better off if you added a window in the first place.”  Think of financial markets as you would a room without a window.  Markets always over-react to: (a) the view it will provide, and/or (b) the energy and information that could leak out.    

1.   COVID is again becoming a major theme in the markets.  Reopening plays are falling, while vaccine makers (MRNA, BNTX), and big tech (AMZN, AAPL, GOOGL, MSFT, FB) have been showing strength.  We all know that our government is one scary headline away from announcing another stimulus bill – this time in the form of infrastructure.  That’s why we haven’t really seen any significant pullback in the indices and why market breadth has been lousy.

2.   INFLATION:  While our Fed keeps saying that it’s transitory, each inflation report seems to come in ‘hotter’ than the last.  As soon as the market is willing to put COVID on the back burner, inflation will cause yet another rotation out of tech and software into buying basic materials.

3.   EARNINGS season has just begun.  Currently, it’s hard for the market to decline in any meaningful way without our FED cutting back on its ‘spend at all cost’ philosophy – and that just ain’t gonna happen anytime soon.

4.   MARKET BREADTH:  The market is skating on thin ice as less than 5% of stocks are making new 52-week highs.  The large-cap averages are going to need more support, but that doesn’t mean we have to experience any meaningful corrective activity – as sideways is always an option.  We’re experiencing new highs at the index level and a strong sense of optimism among investors.  At the same time, there is weak breadth, a lack of internal confirmation, and an absence of pessimism.  I continue to believe that you shouldn’t ‘chase’ this market as you’ll get a better chance to buy your favorite stocks when the bears get louder and more confident.


-       Olympics Painting by Numbers:

o   $13B = Cost of the last Rio Olympics = with nothing to show for it.

o   $15.4B = Cost of the current Tokyo Olympics.

o   1984 L.A. = 1st and ONLY Olympics that were profitable for the host.

o   $4B = How much the Int’l Olympic Comm. will make selling the TV rights.

-       Cloudy with a chance of N-95 masks...  is the latest report on the COVID Delta variant.  It’s stalling any global recovery / economic growth.  The CDC is calling it: "The Pandemic of the Un-Vax’d."

-       Indiana University’s COVID vaccination requirement can stay…   said a Federal judge.  This will encourage other colleges to do the same.

-       People are now throwing ‘Business Showers’….  for their new ventures.  ‘Hey congrats – it’s an LLC.’

-       Grand Theft Spin Bike...   has Peloton launching their new video game = "Lanebreak". Think of Rocky chasing Capspin-America around a city to ‘Eye of the Tiger’.

-       Turn down the torque...  Netflix reported that it added a measly 1.5m paid subscribers in Q2.  That was down from 4m in Q1, and way down from the 16m it added in Q1 of 2020 (aka: peak lockdown). 

-       Chipotle smashed earnings expectations…   as dine-in customers returned in droves. Digital orders continue to make up 50% of their sales.

-       Carnival stock popped…   after it announced plans to resume guest cruises at 75% capacity by EOY.

-       The Debt Ceiling needs to be increased.  If Congress doesn’t raise it, the Federal Gov’t will likely run out of cash by October or November.

-       The CDC’s National Eviction Moratorium…  is about to expire at the end of the month.  This could cause 10m renters to lose their homes.  The government is distributing $45B in rental assistance, but not in time. 

-       Unemployment claims jumped…   last week – to their highest level since mid-May. 

-       The Dream Team = The Stream Team:   From Amazon adding Premier League & Thursday Night Football to Disney beefing up its ESPN+ offerings – streaming platforms are becoming go-to’s for live sports.  Remember when Disney+ had its “Hamilton moment” adding 74% more paid subscribers after debuting the musical.

-       A record high $363,000…   is the current median price of a U.S. home.

-       The labor shortage has gotten so bad…  that McDonald’s and White Castle are calling applicants 4-years after they applied.

-       Ford and Argo AI will launch self-driving cars…   with Lyft by EOY.  5-stars to the Robo-driver.


-       B of A just approved…  the trading of bitcoin futures for some clients.

-       ARK Investment increased its holdings in Square…   after they committed to creating a new bitcoin platform for financial services.

-       El Salvador’s government has plans to launch a native cryptocurrency…   that consumers will be able to use for services.

-       Mastercard will use Circle’s USDC stablecoin as a bridge asset for cardholders who want to pay using crypto.  USDC will be the go-between consumers’ digital wallets and the fiat currency paid to merchants.

-       OpenSea is the latest Ethereum unicorn.  The platform capitalized on this year's boom in NFT’s and is now valued at $1.5B.

-       The Port of Buenos Aires will receive a facelift via blockchain.  The port’s blockchain implementation will act as a digital notary to prevent alterations of information, improve traceability, speed and efficiency.

-       Watch out for FTX.  The company has raised $900M in new funding at an $18B valuation – the largest funding round in crypto history.  FTX acquired Blockfolio (a mobile-first crypto trading app) for $150m.  FTX also sponsors the Miami Heat and Major League Baseball.  The exchange has been operating for a little over 2 years, and has over a million users with $10B in daily trading volume.  29-year-old CEO Sam Bankman-Fried saw his own net worth skyrocket by ~$8B

-       A central bank digital currency (CBDC) is “probably necessary” for a competitive digital economy.  CBDC’s give consumers a non-bank option to store their money risk-free.  They increase competition in the market for retail deposits, and allow users to bypass credit card providers.

-       During the ‘B-Word Conference,’ hosted by Cathie Wood…  Musk said that SpaceX owns Bitcoin, and will remain faithful to crypto.

-       Goldman Sachs reports that 50%...   of its rich family office clients – want to get into crypto.

-       BlockFi, a crypto lender facing continued regulatory scrutiny…  is pursuing plans to go public in 12 to 18 months.

-       Amazon is looking for a digital currency and blockchain product lead…   as the e-commerce giant brings its payments systems into the crypto age.  There has been chatter about an Amazon Coin.

-       Bitcoin Depot is making a play for brick-and-mortar foot traffic…    through a “long-term” crypto ATM partnership with the Circle K C-store chain. They will install over 6,000 kiosks before EOY. 

-       In the past year, 13% of U.S. investors traded crypto vs 24% traded stocks.  The crypto investor is 38 years old – compared to the 47-year old equity player.  Crypto is on the rise, but America has not Fallen… yet.

Last Week:

Monday:  OPEC+, its allies, and Russia agreed to further relax output curbs.  Under the deal, production will rise each month and will eventually undo all of the curbs put in place last year.  The market doesn’t seem to like this news (or much of anything) today.  I'm going to focus on the S&P 50-day EMA (4,246).  This market has not spent one-day this year UNDER the 50-day, and I have to believe that they will short cover and drive us back up above it by EOD.  If they do NOT, we could be looking at a pretty nasty market pullback, and at these levels – just 10% is 3,000+ DOW points, and 400+ S&P points.  If they DO get us back over that 50-day for the close, we haven’t proven anything.  Then, I think they call this 1200-point dip as ‘good enough’ and begin to drive us higher tomorrow and the day after.  But that’s ONLY if push us above 4,246 by EOD.

Tuesday:  Well they did it.  They got the S&P’s back up and over that 50-day EMA by yesterday’s close.  At minimum we have a dead cat bounce working here, so we should be green all day and into the close.  Make no mistake, damage has been done.

Wednesday:  Using history as our guide, we should go higher for a few days.  I'm liking the chart set up in ORCL.  It's been fighting off some resistance at the $88.60 level for several sessions.  If it finally gets through, it could go on a nice romp.

Thursday:  We heard from the ECB, and they have no plans to hike rates for years to come.  If the ECB doesn't hike rates, we won't either.  My guess is that the tech darlings will once again shine, but it won't be a broad market.  This market is sick in a way that if you’re not willing to pony up for the high fliers – you’re likely to just get popped and dropped to death.

Friday:  The S&P is at an all-time high because the FEDs are printing and handing it to Vanguard and Blackrock – and they're out buying stocks, homes, and entire developments.  We are in hyper-inflation mode, the casino is rigged to go up, but only if you're in the darling of the day stocks.  I'm going to begin focusing on bigger plays, and using out of the money call options – since that's where the money is.

More Crypto:

-       J.P. Morgan Chase:  U.S. banking behemoth JPM will finally offer its wealthy clients access to cryptocurrency and crypto funds via Grayscale’s Bitcoin Trust (GBTC), Ethereum Trust, Bitcoin Cash Trust, Ethereum Classic Trust, and Osprey Bitcoin Trust.  However, Grayscale and Osprey only permit clients to buy shares tracking crypto asset prices, but Grayscale and Osprey actually own and store the cryptocurrencies.  JPM advisors can only process investment orders – they can’t recommend products.  CEO Jamie Dimon’s stance on crypto is all over the map.  In May, Jamie said: “People should stay away from cryptocurrencies,” but a year ago, he claimed: “Bitcoin is the next big thing.” 

-       A little crypto-techno-speak:  It looks like crypto price action may be starting to reflect some of the trends we’ve been following over the last few weeks.  We’re not out of the woods yet.  In the short term BTC needs to clear $36.5K, $41-42K, and then ultimately get above its 200-day moving average.  This week’s takeaways from crypto are:

o   The ‘Relative Strength Indicator’ (RSI) is still sitting below 7-month resistance, 

o   Volatility looks ready for a breakout, 

o   Funding remains negative,

o   Non-selling Buyers and Miners continue to accumulate heavily,

o   There are strong outflows from OTC Desks, and 

o   A supply squeeze is very much in play.

Next Week:  The Market Distortion are … Epic!

Market Update:

-       Last week showed us a true example of institutional ‘market manipulation’.  Last week (for only the 5th time in a decade) we saw the SPX tag both the upper and lower edges of its expected move.

-       Last week we moved a massive $182 in the SPX.  The SPX’s expected move for last week was $73.  So, this was close to a 3-Sigma move from low to high.  Tip #1: With this level of movement, do not be caught selling any short-term contracts – leave that strategy for longer-duration plays.

-       Last week the IWM bounced off support at the $210 level … allowing us to remain inside the $210 to $230 trading range.

-       TWTR’s and SNAP’s earnings shocked the tech trade back to life…   and were used as a catalyst for a huge underlying gamma squeeze.

-       BONDS scare me.  Tip #2: Any 2 point move higher in Bonds will bring back fears of inflation and a ‘slow-down in growth’.  On Monday we saw wicked sell-side activity in the S&Ps – because bonds ticked higher.

Distortions of Epic Proportion:

-       The ‘Monsters of Tech’ go ballistic:  YTD, the ‘Monsters of Tech’ are up 38%, while the QQQ’s are only up 19%.  The percentage gains coming from the Nasdaq are being specifically driven by the ‘Monsters of Tech’.  The top 7 tech stocks: (AAPL, MSFT, AMZN, Alphabet/Google, FB, TSLA, and NVDA) control / manipulate the indexes.  Therefore, if you can manipulate 2 of these 7 stocks – you should be able to manipulate the market.  That is what happened last week!

-       How does a gamma squeeze work?  

o   An institutional trader goes out and buys a lot of $290 Calls on MSFT.

o   The market maker who SOLD him those $290 Calls is required to buy a corresponding amount of MSFT stock – so that they are completely ‘hedged’ on the trade.

o   Buying ‘enough’ Calls will cause the market making firm to buy enough stock that the action will fuel upon itself – similarly to AMC and GME.

o   Tip #3: This time the action is in MSFT and FB, and it’s NOT being caused by retail Reddit traders, but by the institutions and counter-parties themselves.  You do NOT want to be on the other side of this trade.

-       The gamma squeezes associated with the ‘Monsters of Tech’ are distorting the indices and controlling order flow.  

o   Tip #4: Facebook (FB) was up by 5% on Friday – without any earnings or fundamental news.  On Friday, 3% of all options volume was done by people buying FB calls.  That volume was almost 5 TIMES the normal FB call buying volume.  Only institutions have that kind of buying power, and they learned by watching GME and AMC. 

-       Tip #5: Look on Monday for any unusual options activity, and hop on the band-wagon.  In fact, you can sell option premium 30 to 60 days out, in order to fund the purchase of the present day, weekly calls you plan on buying.


HODL’s: (Hold On for Dear Life)

-       AMC – Holding

-       Bitcoin (BTC = $34,300 / in at $4,310)

-       Bitcoin Cash (BCH = $450 / in at $170)

-       Peabody Energy (BTU = $10.89)

o   Sold Aug $10 CCs for income

-       Electramericcanica Veh (SOLO = $3.50)

o   Sold Sept $4 and $5 CCs for income

-       Express Inc (EXPR = $4.57)

o   Sold August $5 CCs for income, 

-       Ethereum (ETH = $2,150 / in at $310)

-       Franks International (FI = $2.55)

o   Sold Oct $5 CCs for income,

-       GME – Holding

-       Grayscale Ethereum (ETHE = $18.43 / in @ $13.44)

-       Grayscale Bitcoin Trust (GBTC = $27.19 / in @ $9.41)

-       Grayscale Trust (GDLC = $22.95 / in @ $22.75) & buying

-       Hyliion (HYLN = $9.30 / in @ $0.32)

o   Sold Aug $9 CCs for income

o   Sold Aug $11 CCs for income

-       Infinity Pharma (INFI = $2.29)

o   Sold Aug $3 CCs for income

-       Litecoin (LTC = $120 / in @ $191)

-       Tellurian (TELL = $3.63)

o   Sold Oct $5.5 CCs for income.


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Please be safe out there!


Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews.  You can learn more and get your subscription by visiting: <http://rfcfinancialnews.blogspot.com/>. 


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