RF's Financial News

RF's Financial News

Sunday, November 26, 2017

This Week in Barrons - 11-26-2017

This Week in Barrons – 11-26-2017:



“Is this the last Black Friday sale…ever?”

   A recent survey by the National Retail Federation found that 59% of shoppers plan to shop online this year.  That would make 2017 the first year that online shopping was the most popular choice.  Robert Schultz (S&P’s chief retail sector credit analyst) said: "This year the holiday season is more important than ever for stores like Wal-Mart and Target – because they are struggling to stay relevant.”  A record number of store closures (6,735) have already been announced this year, and over 620 retail bankruptcies.  That's more than triple the tally for 2016.  Prominent names such as Toys R Us, Gymboree, Payless Shoes, and RadioShack have all filed this year, and Sears (which owns both the iconic Sears and Kmart chains) has said that there is “substantial doubt” it can remain in business.  Even if all the troubled retail brands make it to the 2018 holiday season, there's a good chance many of their stores won't.  “Store closings will rise next year to about 9,000 as retailers shift their investment to online”, says Michael Dart, author of Retail's Seismic Shift.  "Even those retailers who have survived reasonably well are rationing their cost structure and closing stores," he said.  Factually this retail apocalypse is happening with a strong economy.  If the economy encounters even a minor bump in the road, things could quickly go from bad to worse for struggling retailers.  Any kind of economic downturn or an uptick in interest rates, and their debt becomes unsustainable.
   So maybe we need to start analyzing retail stocks thru a prism of cultural change?  Amazon is preaching a new calculus to corporate boardrooms – where profits are ‘so yesterday’.  Maybe it’s all about vision and great storytelling.  After all, Amazon (despite posting just a handful of profitable quarters in its 20-year history) is the fourth-largest public company in the world.  And now, maybe it’s time for all the others to change their game.  NYU business professor Scott Galloway argues that Jeff Bezos (the founder of Amazon) has created a playing field so tilted in his company’s favor – others really don’t stand a chance.  “Jeff’s ability to paint an extraordinary vision and register steady progress against that vision is being rewarded with the cheapest capital in the history of business,” says Galloway.  And it’s that steady flow of cheap capital that has allowed Amazon to do a bunch of extraordinary things that would have doomed most companies.  It allowed it to start: a cloud-computing business, a movie studio, a consumer electronics business, a shipping company (road, sea and air), a battery company, and now a clothing company.
   Bezos recently told shareholders that the goal is to “experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.”  It’s clearly working, and other companies (that don’t compete directly with Amazon) are starting to get the same leeway.  Amazon (since its IPO) is up almost 52,000%.  $10,000 invested in Amazon when it IPO’d would be worth $5.2m today.  If you’re cut from the fundamental cloth, then all I can say is that you don’t have to like Amazon’s new rule set for retail – to buy its stock on $50 to $100 pullbacks.
   As well as Amazon plays the game with ‘vision’, Palo Alto Networks (PANW) plays the game with accounting.  Last week PANW released earnings to which Wall Street went nuts – the stock gaining over $10 / share.  Yet, if you look at their actual income statement, you will find creativity at its finest.  Using GAAP (Generally Accepted Accounting Principles) – which is the legal way of doing the books and paying taxes, PANW lost $0.64 / share.  But instead, PANW released a non-GAAP pro-forma earnings statement showing that they ‘magically’ MADE money at the rate of $0.74 / share.  How long can this chicanery go on?  As long as Wall Street allows it.
   Take Tesla – or as MJP put it: “The world’s largest ‘KickStarter’ campaign.”  It’s burning through cash at the rate of $8,000 a minute / $4B per year as it tries to ramp up Model 3 production.  If that spending spree continues, the company will exhaust its current cash on Monday, Aug. 6, 2018 at 2:17 a.m. Eastern Time.  Tesla is already utilizing more of its revolving credit facilities than ever before.  And the bond market is not likely to alleviate its financial position as investors who bought $1.8B of Tesla bonds 3 months ago remain underwater.



   And then there’s Uber.  Just imagine the movie about its growth and demise.  If I were Uber’s new CEO, I would be so jealous of Meg Whitman moving on from running HP.  After all, New York's attorney general just launched another investigation into Uber as it was discovered that 57m Uber users and drivers had their personal info hacked last year.  And to add insult to injury, the company's employees paid the hackers $100,000 to keep it a secret and delete the data.  Hackers gained access to usernames, names, driver’s license numbers and mobile phone numbers.  The hack occurred in 2016, and the company has hidden the information from the public until now.  According to Uber:  "At the time of the incident, we took immediate steps to secure the data and shut down further unauthorized access by the individuals.”  But where’s the turnaround at Uber?  Last summer, the appointment of a new CEO was supposed to mark the beginning of a new chapter, but we keep finding more horror stories at every turn.  Combine this with sexual misconduct and them being stripped of their license to operate in London due to the lack of corporate responsibility – and I’m beginning to think that Uber ain’t gonna make it.
   The early returns for Black Friday weekend are good, and are expected to exceed those of 2016.  According to Customer Growth Partners (a shopper traffic monitoring group) store crowds in many locations around the country were reported to be strong.  The economic environment appears to be in solid territory due to a strong labor market, lower unemployment, high consumer confidence, rising home prices, and a vibrant stock market.  Consumers are also spending on big-ticket items such as cars, home renovations, and appliances, among other categories.  So if this was the Last Black Friday – it should be one to remember.


The Market:



“GE … we bring good things to light.”

   Last week I was looking for a changing of the guard back to small caps leading the way higher.  The indexes started slowly this week, with the IWM and SPY drifting higher, but the QQQ was lagging.  By Tuesday all that changed with 3 moving higher, and the QQQs taking the lead into the weekend.  What does this mean for the coming week?  For the S&Ps, all of the moving averages are stacked and moving higher, the MACD is crossing upward showing a ‘buy’ signal, and even the Bollinger Bands are showing more room to the upside.  Elsewhere, gold is consolidating, while crude oil continues its march higher.  The U.S. dollar is renewing its downtrend trend which is good for the global markets because for every 1% rise in the U.S. dollar – the world economy suffers a 0.7% decline in global GDP.   Volatility is low – keeping the bias to the upside for equities.  The S&Ps (SPY) appear to be the strongest, with the NASDAQ (QQQ) at resistance, and the small caps (IWM) consolidating.  SocGen thinks that: “The S&P has reached our target for the end of this cycle, and is now entering expensive territory.  On all metrics, U.S. equities are trading at levels only seen during the late-90s bubble.  Since Trump's election, the U.S. equity market has risen 24%, but only half of this came from earnings growth.  According to our calculations, the U.S. equity market is already pricing in tax reform.  The rise in bond yields and FED repricing should be headwinds against further US equity increases.”  I have a feeling that the closer we get to the mid-December FED rate hike – the more we're going to see analysts suggesting that our bull market is in need of a rest. 
   I put together a preliminary list of my surprise winners and losers for 2017.  The top 3 winners thus far are:
-       #3 Amazon (AMZN) - First, it reported $43.7B in revenue this quarter, which is an awe inspiring standalone number.  It also showed 34% year-over-year growth (29% without Whole Foods).  AWS (Amazon's cloud computing service) brought in $1.2B in operating profit, making up for the $900m loss from Amazon's international segment.  As long as AWS keeps growing at a 40%+ rate, Amazon is good-to-go.
-       #2 Intel (INTC) - A strong quarter from an underpriced company is always a good recipe for a nice pop in the share price.  Notwithstanding the competition, the semiconductor giant proved its ability to grow despite competitive headwinds from NVDA and AMD.
-       #1 Wal-Mart (WMT) - Those calling for the demise of brick-and-mortar retail have wildly underestimated Wal-Mart’s resolve to remain on the map.  Comparable sales (the key metric for companies with physical locations) rose the most in eight years.  If that wasn't enough, Walmart reported a 50% jump in online sales, proving to the world that it can and will adapt to the new e-paradigm.

The top 3 losers are:
-       #3 Chipotle Mexican Grill (CMG) - Ever since sanitary issues began plaguing Chipotle in 2015, the Mexican restaurant chain hasn't been the same.  The e-coli outbreak (which erupted two years ago) continues to have an adverse effect on Chipotle's share price, and continues to prevent it from re-establishing itself as an appealing destination for consumers.
-       #2 Under Armour (UA) – This exercise apparel and footwear specialty chain – is in big trouble.  Its largest segment is North America, and unfortunately, the NA sportswear retail environment has U.S. consumers reining in spending and long-established names like Nike and Adidas regaining their dominance.  It could take a year or more for Under Armour to regroup.
-       #1 General Electric (GE) - There's no way to soften this – GE is a chaotic disaster.  Key executives (including the company's chairman) left unexpectedly, earnings disappointed, and their dividend was cut in half.  This international infrastructure and technology company is going through a substantial restructuring that will include the divestiture of various divisions.  I’d wait to see what the final, slimmed-down version of the company actually looks like before even thinking of investing.

   Even though stock markets around the world are in a bull run, their returns pale in comparison to the cryptocurrencies.  Wealth managers will soon be forced to invest a portion of their assets in digital currencies.  Here are the top 3 concerns I hear from investors about Bitcoin:
-       #1 Bitcoin is anonymous - False.  Many people believe that Bitcoin's anonymous nature makes it perfect for money laundering and other illegal activities, when (in reality) there are other currencies far more anonymous than Bitcoin – including ‘cash’.  Bitcoin operates using a technology called blockchain.  Every transaction that takes place on the Bitcoin network is recorded on the blockchain.  If you do a transaction under a fake name, you may be able to keep your identity secret, but the minute your identity is revealed – it will be known to the world along with all your transactions.
-       #2 Bitcoin has no intrinsic value – True and False.  It is true that no government entity or banks ‘back-stop’ Bitcoin.  But that doesn't mean it doesn't have value.  In fact, the lack of centralized support actually is one of Bitcoin's intended strengths.  When Bitcoin was introduced in 2008, it was established so that its token would provide a decentralized form of currency that was NOT connected to any government entity or bank.  It’s purely a ‘peer-to-peer’ version of electronic cash that will allow online payments to be sent directly from one party to another without going through a financial institution.  Today, countries and individuals are actively using Bitcoin as both a currency and a store of value.  As Bitcoin matures, it will become clearer as to whether the token is actually ‘digital gold’ or a currency – but what really gives Bitcoin its value is its network.
-       #3 Bitcoin isn’t safe – True and False.  It depends upon what you mean by ‘safe’.  Over the course of Bitcoin's life, about 25% of the bitcoins in circulation have been lost or destroyed.  This has happened because often people store bitcoins in hardware wallets or on hard drives that have met unfortunate ends.  One gentleman spent hours rifling through miles of garbage in the hopes of finding a tossed hard drive that housed over $9m in Bitcoin.  Talk about having a bad day.  So yes, it’s true that you could accidentally lose or destroy your bitcoin investment.  There are a lot of resources to help you avoid such a fate.  Another safety issue is hacking and digital security.  In 2011, the Mt. Gox breach saw a thief steal over 850,000 bitcoins.  Since then, you can store your digital currency investments in a wide range of software and hardware wallets – each equipped with its own security measures.  Coinbase (for example) comes with two-factor authentication.  No one can tell you that investing in digital currency is 100% safe – to do so would be to ignore the tremendous volatility and the infancy of the space.  That said, with Bitcoin and other digital currencies raking in triple-digit gains in under 11 months of this year – people are willing to take that risk.  It's also worth noting that almost $25B in credit card fraud was reported in 2016, with 46% of all Americans being impacted – so ‘money’ is not any safer. 

   If you’re looking for a bio-tech company that hasn’t seen a lot of love in a while – then Curis (CRIS) is for you.  It’s focus is on the development and commercialization of innovative drug candidates for the treatment of human cancers.  CRIS fell below the $1.00 mark on November 14, and finished at $0.8984 on November 24.  The analysts have an upbeat prognosis, and forecast the stock price to be in the $3.50 to $7.00 range over the next 12 months.  The boost is due to their strong pipeline, and their plans to conduct research programs both internally and through strategic collaborations.
   And don’t look now but the largest ‘weed’ merger could be on the horizon.  Canadian-based medical pot producer Aurora Cannabis (ACBFF) surprised investors last week with an unsolicited bid to acquire rival CanniMed Therapeutics (CMMDF).  Aurora Cannabis is after increased medical marijuana exposure.  Apart from chasing the recreational weed legalization, the company wants to keep pace with industry giant Canopy Growth (TWMJF).  The completion of Aurora’s Aurora Sky project is expected by mid-2018, and that would make Aurora the largest and most automated pot growing facility in the world – capable of producing more than 100,000 kilograms of dried cannabis annually.  Aurora will use this scale to reduce their costs of growing marijuana. 
   Each year, between Nov. 20th and December 4th, the market generally moves higher, and thus far this one is following the same playbook.  After December 4th, however, things get ‘iffy’.  That is to say, some years the market continues higher, and some it begins to roll over.  Because there's still so much Central Bank liquidity in the system, I don't suspect that a ‘roll-over’ is in the cards.  But, I also think that once this year draws to a close, a lot of fund managers are going to be willing to pare down their exposure, and we could see some rocky times in 2018.


Tips:











   Questions from the mail bag:
   What do Futures Markets mean for Bitcoin?  A bitcoin futures contract is a forward agreement to purchase or sell a specific amount of bitcoin, within a specified time frame for a set price.  So, if you buy a 30-day bitcoin futures contract at a set price of $10,000 / BTC – you are agreeing to purchase the coin at the contracted rate ($10,000) on the agreed upon date.  The same goes for selling.  Futures markets are the exact opposite of spot markets.  Spot trades occur immediately, where futures contracts are scheduled in the ‘future’.  Factually, there is a lot of money to be made (and lost) playing the ‘spread’ between the futures price and the spot market price.  Future markets will give bitcoin a more mainstream exposure, and it could help to calm bitcoin’s price volatility.  But honestly, bitcoin futures are being offered in response to customer demand.  Bitcoin, like gold, is a perfect non-correlated asset to be added to an investment portfolio – as a hedging mechanism.  I (for one) am not surprised that there is such overwhelming demand for bitcoin futures from traders.  Now, every trader is going to have the option to invest right there on their screen without having to do the work of buying and securing bitcoin on a separate platform.
   In a sign of growing mainstream acceptance, digital currency exchange Coinbase now boasts more accounts (13m) than brokerage firm Charles Schwab (10.6m).  I’m sure that the amount of assets controlled by Schwab vastly exceeds that of Coinbase users; however, the user number does reflect adoption.  Regardless of bullish or bearish expectations, the reality is that Bitcoin is gaining traction amongst members of the general public.  This is further demonstrated by the offering of futures by the Chicago Mercantile Exchange (CME) and the CBOE, the proliferation of crypto hedge funds, and the embrace of Bitcoin in cash-strapped countries.

   BTC/USD ($8,980) – Bitcoin has its sights on $9,000 – showing that the momentum is intact and buyers are willing to step in on every dip.  BTC broke above its ascending channel (see top left chart), and I’m anticipating a move to $9,969 assuming it remains above $8,600.  For fresh trades, the risk to reward ratio is not favorable as the stop loss is deep – so I’d await a pullback before committing fresh capital.  My bullish view will be invalidated if the digital currency turns down from the channel resistance line and breaks below $7,400 levels. Until then, the uptrend in Bitcoin remains intact.
   ETH/USD ($475) – For the past 3 days Ethereum has been on fire – breaking out of its channel (see top right chart) to the upside.  Assuming it can hold the breakout, I’m looking at a rise to the 1.272 extension of $652, and potentially to the 1.618 extension closer to $800.  However, it is unlikely to be a straight shot to these levels.  We should see a pullback towards the $420 levels in the next few days, and this would be the buying opportunity.
   LTC/USD ($88.79) – Like Ethereum, Litecoin has been steadily rising for the past several days – and has broken thru its upward channel.  It has nicely blown past the selling at the $72 and $80 levels, and is again shooting for the 1.272 and 1.618 extensions before consolidating.  However, we may see another two to three days of consolidation at the current levels, as this is the final resistance before the virtual currency can continue to make new lifetime highs.
   DASH/USD ($623) – Dash has found a place in our analysis based on its stupendous run, which has propelled its market cap. to just under $4.8B – making it the fifth largest coin by market capitalization.  Its immediate target is $650, above which a move to $729.8 is also possible.  As the risk to reward ratio is not attractive, I don’t recommend a fresh trade at the current levels at the moment.
   Over the next several weeks, I’m looking for moves higher in ZCash (ZEC) and Lisk (LSK).

Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread)
-       Abbott Labs – ABT (56.13) – Sell PCS, Dec 8th: -55 / +53, $0.26,
-       Aurora – ACBFF (5.66) – Long Stock from $2 / share,
-       Adobe – ADBE (184.46) – Sell PCS, Dec 1st: -177.5 / +175, $0.30,
-       App. Materials – AMAT (57.90) – Sell PCS, Dec 1st: -56 / +54, $0.30,
-       Credit Accept - CACC (288.46) – Sell PCS, Dec 15th: -280 / +270, $2.25,
-       Caterpillar – CAT (137.39) – Sell PCS, Dec 15th: -135 / +132, $0.51,
-       First Solar – FSLR (60.83) – Sell PCS, Dec 1st: -59 / +57, $0.32,
-       Google – GOOGL (1056.52) – Sell PCS, Dec 1st: -1042.5 / +1042, $0.50,
-       Lam Res. – LRCX (216.83) – Sell PCS – Dec 15th: -210 / +207.5, $0.57,
-       Micron – MU (49.68) – Sell PCS, Dec 1st: -47.5 / +45, $0.35,
-       Netflix – NFLX (195.75) – Sell PCS – Dec 8th: -190 / +187.5, $0.49,
-       UnitedHealth – UNH (212.51) – Sell PCS – Dec 8th: -207.5 / +205, $.50,
-       VM Ware – VMW (124.22) – Sell PCS – Dec 1st: -118 / +116, $0.36,
-       Zebra Tech - ZBRA (109.13) – Sell PCS – Dec 15th: -105 / +100, $0.70,

My Crypto-Currency holdings include (from largest to smallest):
-       Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Bitcoin (BTC), ZCash (ZEC), Lisk (LSK), Ripple (XRP), Monero (XMR), and Dash (DASH).

To 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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Sunday, November 19, 2017

This Week in Barrons - 11-19-2017

This Week in Barrons – 11-19-2017:



Leonardo da Vinci's ‘Salvator Mundi’ sold for $450.3m last week.

   Thanksgiving is my favorite holiday of the year.  No, it’s not because of the food – but that doesn’t hurt.  It’s because there’s so little of the holiday to celebrate.  It’s a day where all that is asked of us is to just slow down and say ‘Thank You’.  It’s a day to spend some time with friends and family.  Here are a couple ways to answer some of your mother’s tough questions:
   Mom: “So how much is this plane ticket home costing me?”  Virtually nothing compared to what da Vinci’s ‘Salvator Mundi’ sold for last week.  The painting dates back to the 1500’s, and is now the most expensive artwork to sell at auction – ever.  Or you can gracefully change the subject and remind her that it was reported last week that Russian ‘bots’ used Twitter and Facebook to sway voters in last year’s Brexit election.  It seems that the Kremlin had its eyes on breaking up another rival – the EU.
   Mom: “Let us all give thanks.”  Make sure you’re thankful for not working for General Electric.  Last week GE cut its dividend in half, announced a corporate restructuring, laid off a quarter of its staff, and is probably getting rid of its transportation and lighting divisions.
   Mom: “Do you have plans for after dinner?”  Be sure to avoid Willow Creek, California – where they’re celebrating the 50th anniversary of the 59 second Patterson-Gimlin blurry ‘Bigfoot’ film clip of a bipedal ape creature laying proof to ‘Sasquatch’.
   Mom: “Thanks for buying the turkey.”  You can explain that you bought it with bitcoin using Square.  Explain to her that bitcoin is becoming a lot more mainstream.  It's starting to be accepted at legit businesses like PayPal and CVS.  And that Square even has a Venmo-type payment app that will now allow all of her friends to buy and sell bitcoin.  Then you can explain that depending upon whom you ask: bitcoin is either in a digital bubble about to burst, or the biggest thing since the Internet.  FYI - more and more companies are tiptoeing toward the latter.
   Mom: “Can you believe the cost of turkey this year?”  You could explain that it’s not only turkey, but what about the cost of oil and gasoline.  And how it seems that the only thing keeping the U.S. dollar as the global reserve currency is the 1970’s ‘petro-dollar’ deal where the U.S. promised to keep the House of Saud in power in Saudi Arabia, and to support them militarily – in exchange for Saud's agreement to only sell oil in U.S. dollars.  But American shale players and frackers are creating real competition in the oil space.  Just last week a new study concluded that China's oil reserves will be depleted by the end of 2018.  Without finding an alternative source of energy, the study warned that this will undermine China’s continuing economic growth and challenge the sustainable development of the Chinese society.  So, there's a pretty good chance that the Saud's are going to be selling oil directly in exchange for Rubles and Yuans in the near future.  If that plays out, the value of the U.S. dollar will drop – and maybe the price of turkey along with it.
   Mom: “Pretty soon you’ll need gold to buy anything.”  You can let her know that China and Russia are buying as much gold as they can get their hands on.  Ray Dalio (the head of Bridgewater Capital – the #1 hedge fund in the world) is now the 7th largest holder of all the GLD stock (a proxy for gold).  In the 3rd quarter alone Ray purchased over $100m of the GLD ETF.  You could argue that he didn't buy physical gold, because buying $100m worth of physical gold bullion would be a bit of a problem these days.  Gold has done nothing for the past 6 years, so why is a man with this kind of wealth and global connections suggesting that things could get rocky in the year ahead?  Right now, the crypto currencies are the alternative of choice for a lot of people, but many may wonder about their staying power in the face of something truly ugly.
   Mom: “So should I buy gold or bitcoin?”  You could explain that money is a funny thing.  Something only has value as a currency if we all agree to use it as a currency.  You can't eat it.  It simply sits there and does nothing.  We value it because of its purity, rarity, and inability to be produced out of thin air.  It also needs to serve all the requirements of money such as: utility, portability, durability, homogeneity, divisibility, malleability, cognoscibility, and stability of value.  The biggest obstacle for any currency isn’t often technical – it’s political. 
Bitcoin has been declared dead more times than most people care to count, and will continue to be written off long after dissenting CEOs have conceded defeat and quietly bought BTC.  The common thread surrounding crypto-currencies is that blockchain is in need of an upgrade.  As new users pile in by the hundreds of thousands, the network is struggling to contain the strain.  In the early days of bitcoin, few balked at a transaction taking 30 minutes to confirm.  But for businesses today seeking to use bitcoin as a global payments system, that wait seems interminable.  Of course, the scaling debate isn’t just about speed – it’s also about fees.  When Segwit was first implemented back in August, one feature that it hindered was near-instant transactions for small purchases such as a cup of coffee.  Exacerbated by rising fees, bitcoin has become unsuitable for small transactions.  As the bitcoin network has struggled, Bitcoin Cash with its 8MB blocks has gladly stepped up to the plate and offered itself as an ideal candidate for fast and low-cost transactions.  With bitcoin fees hitting an all-time high, over 130,000 unconfirmed transactions in the mempool, and some transactions taking days to complete – bitcoin is searching for a harmonious scaling solution.  Critics are calling bitcoin’s increased block size solution both arbitrary and an approach that simply kicks the can down the road.  Unfortunately, that exact solution appears to have done the trick for Bitcoin Cash thus far, and will soon be working for Dash.  The alternative for bitcoin is to implement off-chain scaling such as the Lightening Network.  Admittedly, off-chain transactions occur all the time on bitcoin exchanges without anyone complaining, but formalizing this into bitcoin’s core would be a different matter.  You can tell your mom that until the ‘Church of Bitcoin’ can get its house in order, it is ‘in fact’ its own worst enemy.  But, I’d still choose bitcoin over gold.
   Mom: “Who will eat the cranberry muffins?”  You’re probably going to have to swipe left on those muffins, just like Qualcomm did on its rival Broadcom after their take-over bid last week.  Broadcom offered to buy Qualcomm for over $100B in what would have been the largest tech deal ever, but Qualcomm said: ‘Come on man, we're worth more than that.'
   Mom: “Be thankful for your family.”  Unfortunately, Uber’s family got a little bit smaller last week.  A British employment tribunal rejected the ride-hailing company’s argument that its drivers are self-employed.  The decision affirmed last year’s ruling, and means that Uber will have to ensure that its drivers in Britain receive a minimum wage and paid time off.  So much for the gig economy that relied on hand-shakes and ‘at-a-boys’.

   Yes, we’re all probably guilty of whining, complaining, and shouting: ‘Why me?’ once or twice.  But we rarely ask that question while sitting next to a cancer patient, or someone in a homeless shelter.  If we did, we might just ask: ‘Why them?’  Happy Thanksgiving to all.  


The Market:





















"Some people want it to happen, some wish it would happen, others make it happen."… Michael Jordan

   This is the second week in a row that the S&P and the Dow Jones Industrial Average logged losses.  Investors remained focused on the new (work in progress) tax plan – with the set of differences between the House and Senate versions becoming a legislative grind.  Until last week, the market seemed to have forgotten what volatility looked like.  Because of its long absence, its reappearance was tough to recognize.  FYI – it should be noted that the market hasn't seen anything that resembles normal volatility for some time.  The S&P moved by more than 0.5% on two separate days last week.  That’s the 1st time that has happened since July.  The market has risen in 10 of the last 13 weeks, and hasn't posted a monthly loss since October 2016. 


   According to the National Retail Federation, the estimated number of Americans who plan to shop this coming Thanksgiving weekend is about 164m.   As the picture suggests, Amazon’s ‘click and mortar’ easy access, is expected to push even more retailers to the wayside this holiday season.  However, the physical store battle for the U.S. consumer is far from over.  Amazon’s market cap makes up about 50% of the entire S&P retail index.  It is up over 50% this year by adding over $192B to its own market cap.  But ‘just when you thought it was safe’, Wal-Mart (WMT) this week announced that sales growth online and in-store was the strongest it’s been since 2009.  Their shares touched a record high on Friday, as did those of Home Depot (HD).  Analysts see that size will matter when confronting Amazon’s ‘click and mortar’ challenge.  Wal-Mart has more than 5,000 U.S. stores and Home Depot has over 2,200.  Their distribution networks will indeed be their lifeline this holiday season.
   This past week several of the world’s largest telecommunications and media companies have started encircling Twenty First Century Fox to buy a significant piece their global media and entertainment empire.  In addition to Disney, Comcast, and Verizon – other potential suiters such as Apple and Amazon have begun to surface.  Also, merger & acquisition deals are happening with Meredith considering a bid for Time, and Discovery acquiring Scripps Networks Interactive.  This sudden surge in merger and acquisition activity, particularly in the media arena, is being powered by low asset prices, cheap financing, and the prospect of tax cuts.  Another reason that M&A activity has picked up is because more customers are ‘cutting-the-cord’ / canceling cable subscriptions and diverting the flow of large advertising dollars away from these traditional media companies.
   Randall Stephenson (CEO of AT&T) said the industry is undergoing an incredible disruption, and singled out Netflix and other subscriber based services as the culprits.  It has everybody rethinking their business models.  And meanwhile, AT&T is in the process of buying media and entertainment company Time Warner for $85.4B pending the resolution of U.S. antitrust objections.  Even if the transaction gets the greenlight, the landscape has entered the land of the ‘tech giants’ and who knows where it goes from there. 
   In IPO-land, 9 companies went public last week, and raised a combined $1.1B.  Of the 9 debutants: 2 firms priced below their target midpoint, and 2 priced above their range and traded up 8% and 13%, respectively on their first day.  Injectable drug developer Arsanis (ASNS) topped the pack by being up 40% on its market debut.
   Last week it was announced that the first ‘weed’ ETF (Alternative Agroscience Fund - ETFMG) will debut on December 26th.  This fund is dedicated to investing in marijuana cultivators and distributors.  The day will mark a major milestone for the mushrooming industry that is still struggling to obtain access to mainstream U.S. financial instruments (e.g. bank loans).  With the legalization of medical marijuana in 29 states plus DC, and recreational marijuana in 8 states along with DC – the potential for this marijuana ETF is huge.  The industry should bring in $20.6B in revenue by 2020 – rising from $5.4B in 2015.  More states are beginning to see the ‘green rush’ from the Colorado model that raked in $100m in revenue in its first year, and $163m in its second.  Even if medical and recreational marijuana sales are skyrocketing in the U.S., the growth is still in its infancy.  U.S. marijuana companies are experiencing difficulty managing their accumulated wealth because federally insured banks have yet to do business with the companies’ due to the federal illegality of weed.  Meanwhile, individual investors who have been hoping to take-a-ride on the exploding cannabis market can do so now through ETFMG.
   In December, the FED will meet again, and the market has priced in about a 100% chance of a rate hike.  Honestly, as fake and ridiculous as the FED’s policies have been, if they can't raise rates a measly quarter of a point with the market at all-time highs and all the pundits telling us life is grand – then they would look silly if they didn't.  Even if their mystical inflation rate doesn't reach the numbers they want, I can't see them taking a pass on a rate increase.  IF they were to pass on hiking, I think the markets will get tossed into a pretty big funk, the dollar would fall, and precious metals should soar.  Just something to keep in the back of your mind.
   For those of you in the ‘buy the dip’ (BTFD) club, until the ECB stops its QE – the thought of any real market rollover is hard to imagine.  Last week we saw some fund managers lock in profits, but the ones that are still buying in order to look good for the year, have access to large doses of liquidity.  Even though this market feels heavy, and working under a ‘Hindenburg Omen’ – we still have synchronized central bank printing.  Without that, it would be easy to say ‘I’m selling out and going short’, but with it – that money must go somewhere and that includes into stocks.


Tips:



   In general, Thanksgiving week is usually a decent one for the markets.  That said, Friday wasn't the day I thought it would be.  After Thursday’s 200+ point blast higher, we gave half of that back on Friday.  That was a bit more than I had anticipated.  I expected to give back 50 or 60 points, but not 50% - 112 points.  For me, that give back stole some of the thunder from Thanksgiving week.  I have to imagine that these markets are going to keep moving higher into the rate hike – which I believe comes in December.  As I previously mentioned, if our FED doesn’t raise rates, their credibility will be somewhere south of Baghdad Bob's – so I do believe we get a one-quarter point December rate increase.  I continue to lean long, with one finger near the sell button.

Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread):
-       Adobe – ADBE (182.24) – Sell PCS, Nov 24th: -180 / +177.5, $0.27,
-       App. Materials – AMAT (56.49) – Sell PCS, Nov 24th: -55.5 / +54, $0.29,
-       Boeing – BA – (262.26) – Sell PCS, Nov 24th: -260 / +257.50, $0.52,
-       Broadcom – AVGO (271.86) – Sell PCS, Nov 24th: -265 / +262.5, $0.30,
-       Costco – COST (171.12) – Sell PCS, Nov 24th: -170 / +167.50, $0.54,
-       Lam Res. – LRCX (210.47) – Sell PCS – Nov 24th: -205 / +202.5, $0.37,
-       Micron – MU (46.16) – Sell PCS, Nov 24th: -45.5 / +44, $0.29,
-       2U Inc. - TWOU (63.99) – Sell PCS – Nov 24th: -60 / +55, $0.60,
-       Western Digital - WDC (88.92) – Sell PCS – Nov 24th: +89.5 / -88, $0.27,

My Crypto-Currency holdings include:
-       Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Bitcoin (BTC), Ripple (XRP), Monero (XMR), Dash (DASH), NEM (XEM), NEO (NEO), Zcash (ZEC), and OmiseGo (OMG).

To 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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