This Week in Barrons – 12-17-2017:
“NOT investing in Bitcoin could be hazardous to your health.”… Cecil
Robles
Thoughts:
Sure, there is risk associated with every investment, but NOT
investing in bitcoin and other lesser known cryptocurrencies carries a lot
more risk at this juncture. The key to successful investing is to
minimize your risk and maximize your upside potential. Bitcoin has been called everything from a
massive bubble to a passing fad to a scam – but the rally continues. My argument for fiat (paper) currency being riskier
than bitcoin goes something like this:
-
The U.S. is more than $21T in debt.
-
Real inflation is running around 9.6%.
-
3 out of 5 people do/will not have enough money saved to
retire.
-
Since 2000, most world currencies have lost over 70% of their
value.
-
The top 68 Initial Coin Offerings of 2017 averaged gains of 21,000%.
On Friday, TD Ameritrade said it would open
trading for the recently launched bitcoin futures contract on the Cboe Group. A spokesperson for the online broker Ms. Alyson
Nikulicz wrote: “At this point, we
believe the market is showing signs of adequate liquidity for the CBOE product. There has been increased client demand for
access, and as long as the response is positive, TD Ameritrade will continue to
roll out futures trading on other crypto products in waves.” But last week’s bitcoin futures trading
volume was anemic at best ($60m/day), and only a fraction of the cash bitcoin
transactions ($8.5B/day). However, this
coming week the CME and TD will both join the fray, and other brokerage houses
are likely to experience FOMO (fear of missing out) and follow suit in short
order. Max Keiser (the host of the
Keiser Report on RT) believes that the increased participation of more
traditional investors will boost the market capitalization of bitcoin and
the cryptocurrency universe past the $1T threshold in the short-term. After all, FOMO can be a powerful influence
on financial decisions as those who believe they’ve missed out on the digital
currency craze kick themselves and frantically search for a way in.
Bitcoin futures were not the only news last
week. The FCC decided that it wanted to
live life in the fast lane, and voted to ditch net neutrality. That means that they stopped believing that all
Internet information should be treated equally.
Which means that the Verizons and Comcasts of the world can now charge the
YouTubes and Netflixes for faster connections.
Or they can slow down smaller sites that can't afford to pay. Supporters of net neutrality say that net neutrality
keeps the Internet free and fair.
Critics say it's an unnecessary regulation, and that by removing it –
competition will increase and customers will have more Internet options. Nothing will change overnight, but now the Verizons
and the Comcasts have free reign to play favorites. As if the media were not powerful enough,
this decision will ONLY impact how everyone accesses the Internet.
Last week Target spent a cool $550m to buy
Shipt – the same-day grocery delivery service. This has everything to do with Amazon buying
Whole Foods earlier this year. Everyone
knows that keeping up with Amazon is the ‘new normal’. Target says the deal means most of its stores
will have same-day delivery by the end of next year. Cheers to their new relationshipt.
Last week Disney bought a big chunk of 21st
Century Fox. The deal (worth more than
$52B) will sync two of the world's largest entertainment companies. 21st Century Fox (headed by Rupert Murdoch) is
selling Disney its movie and TV studios, its international TV, and some cable businesses.
Disney will also get majority control of
Hulu. Disney is hoping that these shiny new toys will help it compete
with online streaming services like Netflix and Amazon – after all, it’s a
‘Mad, Mad, Mad, Mad World’ out there.
Thumbs up to President Trump for turning his
job into a huge cash windfall for his family.
Assuming his tax reform package passes, it will eliminate the estate tax
and will allow him to keep $1B more of his wealth. That breaks down to $250m a year during his
4-year term – a good wage even when put up against other entertainers.
What
happened to SolarCity you ask? In one
word – Tesla. Tesla acquired the company
a year ago and that’s exactly when they put on the ‘sales’ brakes. For years, SolarCity was the largest
player in the residential solar industry.
But
when Tesla took over, SolarCity’s aggressive marketing campaigns and expansion
suddenly came to a halt. As a result,
solar installations have fallen sharply each quarter and their growth is down
by over 42% year-over-year. Tesla
stopped the residential ‘no-money-down’ offer and also stopped selling
door-to-door in order to concentrate on selling systems to high-end retail
stores. Tesla has declined to issue a
statement, almost as if they wanted to be ‘hidden from the sun-light’.
“I get
no respect.”… Rodney Dangerfield
Just when you thought it was safe, in
come crypto-collectables. As silly as it sounds, the
popular CryptoKitties app game might foreshadow a powerful up-and-coming use
case for the ethereum (ETH) platform.
After its launch last week, CryptoKitties quickly became the most
popular ethereum app – boasting over 12m users.
It became so popular that there is now CryptoPuppies (for
those that prefer man's ‘best friend’), and CryptoPets (which lets users
choose any kind of digital pet they prefer).
As much as this has shades of Pokemon dancing in my head, blockchain
thought leader and Litecoin creator Charlie Lee argued that the app is actually
important because it shows the promise of using the blockchain to instantly
transfer all kinds of assets without a third party. Hey, in any case you: “Gotta catch ‘em all.”
The Markets:
This week the Bank of International
Settlements (BIS) came out and said that stock valuations are looking
frothy. It went on to say that stock
prices are dramatically above historical averages and that U.S. companies may
struggle to continue their pace of dividend growth. Nobel-Prize winning economist Richard Thaler
said: “I can’t understand why stocks are
still rising.” And the CIO of the
California State Teachers’ Retirement System said: “Holding shares of stock at this point feels like sitting on a pin
cushion.” As if to echo that
sentiment, Goldman Sachs warned that market valuations are their highest since
1900. They predict that returns in the
first half of 2018 are likely to be lower across all asset classes, and their
risk scenario sees inflation increasing dramatically. GSs International strategist Christian
Mueller-Glissman wrote: “It has seldom
been the case that equities, bonds, and credit have been similarly expensive at
the same time – only in the Roaring ‘20s and the Golden ‘50s. All good things must come to an end, and
there will be a bear market – eventually.”
But even in a year crowded with multiple
records, the Nasdaq has managed to outshine its peers, running up nearly 30% in
2017. According to Bank of America
Merrill Lynch, the tech-laden index is expected to have another banner year in
2018 as it charges toward 8,000. They
believe that a rising channel will take the Nasdaq to 8,000 by July-August 2018
– a gain of over 16% in the next 7 to 8 months.
The bank also sees the S&P 500 trading
between 2,700 and 2,800 in the first half of 2018, and breaking out to test
3,000 by the end of 2018. Instead of a
correction (like 2011) they are seeing a continuation of the bullish uptrend. BofA doesn’t have any specific predictions
for the Dow Jones Industrial Average other than looking strong relative to
the S&P 500. After all, the major benchmarks
have all logged double digit gains this year, fueled by expectations of
pro-growth policies from President Trump, and are putting the market on track
to have its best year since 2013. The
average gap between recessions is about five years and last one ended more than
eight years ago. Nonetheless, no alarm
bells are going off in BofA even as the U.S. yield curve flattens and the Federal
Reserve is on a steady tightening path.
The daily chart on the S&Ps shows a
continued strong trend. All the
SMA’s continue to rise in parallel, and the Bollinger Bands give the price room
to move higher. With Options Expiration
and the FOMC meetings in our rear-view mirror, equity markets look strong
heading into the year’s last full week of trading. I’m looking for gold to continue to bounce
higher while crude oil pauses in the uptrend. The U.S. Dollar continues to mark time with a
downward bias while U.S. Treasuries continue their short-term uptrend. Volatility looks to remain low keeping the
bias higher for the equity index ETFs: SPY, IWM and QQQ into the end of the
year.
In terms of our
‘weed trade’, despite growing organically with its Aurora Sky project,
Aurora Cannabis is looking to buy and expand its capacity. They made an unsolicited bid recently to
acquire CanniMed Therapeutics via an all stock offer worth about $425m. Although CanniMed's board has adopted a poison
pill measure to prevent an acquisition, Aurora has made its case to
shareholders with a substantial premium compared to the company's share price
prior to the unsolicited bid. A merger
would allow both to save on costs while producing 130,000 kilograms of dried
cannabis a year. With just a handful of
major Canadian players emerging, mid-tier growers like CanniMed could find
themselves ripe for the picking.
We just came off a week that saw the 2nd
largest ETF inflows in combination with the 4th largest mutual fund
outflows in history. As you might know,
when money goes into an ETF such as the SPY (the proxy for the S&P 500),
the ETF managers take that money and divide it around the 500 companies that
make up the EFT. Well, they don't exactly
spread it around equally. The better-known
stocks (the high flyers) get most of the money, and the rest get some money. So, if you're in a stock with a bit of selling
pressure, even the buying from the ETF is often not enough to keep it
green. Potentially, the best thing to do is just buy some DIA and some
SPY and forget about the individual stocks for 2018 – except where crypto is
concerned.
While Monero took the ‘largest gainer’ crown
in 2016, with growth of nearly 2,760%, 2017 has shown a different story. Rather than examine all of the 1,000+ coins
which currently exist in the crypto sphere, I decided to focus only on the 20
coins with a market cap of greater than $1B.
Here are the top performers:
-
#1. NEM: 14,617% YTD Gain. NEM
(XEM/USD) is a
peer-to-peer cryptocurrency and blockchain platform that was a key figure
behind Japan’s decision to allow bitcoin to become a legal form of tender. The NEM blockchain software is currently being
used and tested by financial institutions and private companies in Japan and
internationally.
- #2. Ethereum: 9,146% YTD
Gain. Ethereum (ETH/USD) is
an open
software platform based on blockchain technology that enables developers to
build and deploy decentralized applications that run smart contracts. This year's gains have been fueled by several
bullish factors including increased awareness and validation, as well as the
growing support of major global corporations.
They recently formed the Enterprise Ethereum Alliance consisting
of: Intel, Microsoft, JP Morgan Chase, and Credit Suisse to name a few.
- #3. Ripple: 8,577% YTD Gain. Ripple is a real-time gross settlement
system, currency exchange, and remittance network. Also called the Ripple Transaction Protocol,
it purports to enable secure, instant and nearly free global financial
transactions of any size with no chargebacks.
Ripple has recently signed up several additional financial institutions
to its blockchain network, bringing its clientele to more than 100, including: Banco
Santander, Unicredit, UBS, and Standard Chartered. RippleNet has been joined by the likes of
United Arab Emirates-based lender RAKBANK and U.K.-based currency exchange firm
IFX. The New York Times once described Ripple as “a
cross between Western Union and a currency exchange, without the hefty fees”
because it’s not only a currency, but also a system on which any currency,
including bitcoin, can be traded. “Ripple
connects banks, payment providers, digital asset exchanges and corporates via
RippleNet to provide one frictionless experience to send money globally,”
its creators explained. Ripple has
licensed its blockchain technology to over 100 banks. And a new hedge fund
recently announced it would be denominated in XRP.
-
#4. DASH: 8,519% YTD Gain. Dash is an open source
peer-to-peer cryptocurrency that offers all the same features as Bitcoin, but
also has advanced capabilities, including instant transactions, private
transactions and decentralized governance. Gains this year have been sparked by
indications of growing acceptance by online vendors (over 100) and even
physical stores (over 300) willing to accept Dash as a form of payment
-
#5. Litecoin: 6,921% YTD Gain.
Litecoin is a peer-to-peer, open source cryptocurrency software project. While nearly identical to Bitcoin, Litecoin
has some technical improvements over its more popular counterpart, such as the
adoption of Segregated Wittness (SegWit) and the Lightning Network, allowing it
to facilitate payments much faster than its alt coin rivals in the space. Litecoin's gains this year have been sparked
by a growing number of businesses in the gaming and website hosting industries
that have started to accept it for online-based payments.
-
#6. IOTA: 2,677% YTD Gain. IOTA
is an open-source
blockchain platform that differs from mainstream blockchain networks that use
‘encrypted blocks’ to record transactions by using ‘tangles.’ IOTA’s digital ledger is 'blockless,' and
relies on ‘tangles’ (directed acyclic graphs) to allow users to make
transactions on the network for free. lOTA’s
big draw is that it doesn’t have any trading fees, miners or blocks. For every
transaction you make, your processing power is used to validate two other
transactions, making every Iota owner also an Iota “miner. IOTA focuses on becoming the backbone for
secure machine-to-machine payments in the Internet of Things economy and is
unique in that it is hailed as the first crypto created that allows: zero-cost
transactions, offline transactions, and infinite scalability.
It's been an action-packed year in the
cryptocurrency arena and there's no sign that interest or activity will be slowing
down. Multiple ways remain to ride this
wave while it is still in its early stages, particularly via the lesser known
coins. Some of the best options for seeing 10x gains
next year will be in the 'alt-coin' space, via such cryptocurrencies as NEO
(the Ethereum of China if China eases its stance on ICOs and bitcoin), Cardano
(ADA - big in private transactions as well as responding to the needs of
regulators), along with a couple 2017 favorites like Ripple and IOTA.
Tips:
Equity Recommendations:
Bullish: (Sell PCS = Sell a Put Credit Spread):
-
Aurora – ACBFF (5.92) – Long Stock from $2 /
share,
-
GST (1.04) – Long Stock from $1 / share,
-
LYB (107.14) – Sell PCS – Jan 19th:
- 105 / +100, $1.30,
- MARA (5.74) – Sell PCS – Jan 19th: -2.50
/ +1, $.20,
-
MU (43.21) – Sell PCS – Jan 19th:
- 45 / + 40, $2.30,
-
NFLX (188.54) – Sell PCS – Jan 19th:
- 180 / + 175, $2.00,
-
OSTK (68.35) – Sell PCS – Jan 19th:
- 25 / +20, $0.15,
-
SVXY (127.36) – Sell PCS – Jan 19: -27.5 /
+25, $0.16,
-
RIOT (28.5) – Sell PCS – Jan 19: -10 / +7.5, $0.35,
- AAL (51.06) – Sell PCS – Dec 22nd: -50 /
+49, $0.16,
- EA (109.28) – Sell PCS – Dec 22nd: -107
/ +106, $0.23,
- IWM (152.24) – Sell PCS – Dec 22nd:
-148.5 / +147, $0.11,
- JPM (106.14) – Sell PCS – Dec 22nd: -104
/ +102, $0.23,
- LITE (52.15) – Sell PCS – Dec 22nd:
-51.5 / +50, $0.45,
- PYPL (75.65) – Sell PCS – Dec 22nd: -73
/ +71.5, $0.14,
- SQ (37.03) – Sell PCS – Dec 22nd: -36.5
/ +35, $0.40,
- XBI (81.82) – Sell PCS – Dec 22nd: -80.5
/ +79, $0.28,
The method I use
to invest in the crypto-currency arena, is fairly straight forward. It uses the 2nd derivative of the
slope of the price curve. As long as
that 2nd derivative (indicated by the purple dots above) is moving
higher – I put money into the crypto-currency.
When the purple dots stop – I sell.
Crypto
Recommendations:
-
BTC/USD ($19,741): After a 3-day consolidation, Bitcoin is breaking out with
its eyes on a target of $24,291.58. This
target is unlikely to be achieved in a hurry given there will be significant resistance
around $20,000. The bullish view will be invalidated if the $15,200 level
is violated. With the start of futures trading on CME, we can expect an
increase in volatility; therefore, traders should reduce their position size
for the next few days until volatility subsides.
-
ETH/USD ($723.26): Ethereum fell to a low of
$610.03 last week, close to its 50% Fibonacci retracement level. Its long
tail showed that bulls were eager to buy the dips; however, its failure to
break out to new lifetime highs shows that traders are booking profits at
higher levels. Ethereum is likely to
remain range-bound until the price breaches $610.03 on the downside or $780 on
the upside – with the next upside target = $995.99.
-
XRP/USD ($0.7348): I expected strong resistance at $0.88, and last week Ripple topped
out at $0.88268. Then Ripple pulled back to the 38.2% Fibonacci
retracement of the rally. Never-the-less, these lower levels continue to
attract buyers, and I’m expecting several days of range bound trading below the
$0.88268 level before bulls attempt to break out to lifetime highs of around $1.
-
LTC/USD ($329.42): I forecast a period of
correction/consolidation in a previous analysis, and (as expected) the bulls
purchased dips down to the 38.2% Fibonacci retracement of the rally. However, I think that the levels
between $300 and $342.24 will continue to act as a stiff resistance. I believe LiteCoin will be range-bound
for the next few days, however, the bulls have their eye on a rally into $497.53.
-
DASH/USD ($1,066.75): Though Dash has not run
up to its target of $1,199.01, it is remaining nicely above the $815 level –
which is a positive indication. The bears
attempted to push the cryptocurrency back below the $815 level on Dec. 15,
but were unsuccessful. This increases the possibility of an upside
breakout toward $979. The bullish view
will be invalidated if the digital currency falls and sustains below $815.
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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