RF's Financial News

RF's Financial News

Sunday, March 4, 2018

This Week in Barrons - 3-4-2018

This Week in Barrons – 3-4-2018:











“I did what everybody does – tell white lies” … Hope Hicks (about D. Trump)


Thoughts:
   ‘Welcome to our new FED head’:  This week Federal Reserve Chairman Jerome Powell made his first public remarks.  To summarize: (a) He indicated that the FED (to prevent the U.S. economy from overheating) will do three or more interest rates hikes during 2018.  He also indicated the FED’s intent to allow the balance sheet to continue shrinking.  (b) He downplayed any market volatility as potentially triggering spillover effects to the economy. (c) He indicated that because both the low unemployment rate and the labor participation rate are holding steady; he expects both wage growth and inflation to pick up.  Finally, (d) He cautioned against using the flattening yield curve and history as a marker of an impending recession.  To Chairman Powell, I ask Why – because the yield curve IS flattening, and history tells us that this IS an indicator of an upcoming recession?
   ‘Out of left field’:  President Trump made news last week by unveiling a potential 25% import tariff on steel, and a 10% import tariff on aluminum.  While these tariffs may provide some short-term relief for domestic steel and aluminum producers, they could also have far greater repercussions should trading partners reciprocate in kind.  This could ignite a trade war with higher costs to all – including consumers.  Trade works best with disparate goods.  For example: if you grow apples, and I grow oranges – we’re both happy when I buy your apples and you buy my oranges.  But when we’re trading like products, and one nation has a higher standard of living, quality, safety, and regulations – it’s hard to compete fairly.
   Mobility-As-A-Service’:  When Volvo’s new XC40 SUV arrives at dealerships this spring, it will come with a new ‘Care by Volvo’ subscription program where the driver will pay a total monthly fee that includes everything except fuel.  It’s a monthly model that is designed to combat a retail landscape that increasingly being shaped by ride-hailing services.  In 2017, the industry reported its first decline in new vehicle sales in eight years.  The Volvo subscription service is a first step toward a mobility-as-a-service model, where people only pay for the transportation they use.  After all, why should consumers stick to the same set of wheels when they actually need an all-wheel-drive SUV for winter, a convertible for summer, and a pickup truck on moving day?
   ‘Listen very carefully’:  When Lloyd Blankfein (head of Goldman Sachs) was asked weeks ago whether Goldman was going to ‘build out their own crypto-currency trading desk’ he replied: “Absolutely not.”  Well, he was right.  Goldman did not ‘build out’ a crypto-trading desk – they bought one.  Goldman (along with Baidu) paid Circle, Inc. to buy Poloniex – giving them a large stake in a floundering crypto-trading desk.  Goldman’s most recent Form 10-K filing lists cryptocurrencies, blockchain, and distributed ledger technology as risk factors – when they are in fact business opportunities.  On one side, Goldman is playing checkers – while on the other, it is schooling the world in how to play 3-D chess.
   ‘Ding Dong’: A ‘Shark Tank’ reject is calling.  Remember when no one on ‘Shark Tank’ wanted to invest in the Ring Doorbell solution.  Well this week Jeff Bezos and Amazon purchased the company for between $1B and $1.8B.  I’m guessing that ALL of the sharks can be wrong SOME of the time?
   ‘Speaking of Amazon’:  Jeff Bezos’ ability to identify trends helped him reach a net worth of $126B.  So with nearly 52% of Amazon’s customers indicating that they would be open to buying items using cryptocurrencies – I think I see an ‘Amazon-coin’ in Mr. Bezos’ future.









   ‘Crypto-Slang’:  In crypto-circles LOL means: ‘Lots Of Liquidity’, and WTF means ‘What Time Frame’.  Just sayin’.
   ‘Making it Public’:  Last week Spotify filed to go public – except they’re doing it a little differently.  Usually, when a company makes a stock market debut – it hires an investment bank to handle the dirty work.  However, Spotify's flying solo on this one with a direct listing – which will save them some serious cash.   Companies like Uber and Airbnb are watching to see if they should jump in the express lane as well.
   ‘Houston, we have a problem’:  It seems that the new trendy way of proposing marriage is by putting the engagement ring inside an avocado where the pit normally resides.  Yes Houston – we’ve officially reached peak millennial.
   ‘Wells Fargo – How are you still alive?’:  Last week a federal judge denied Wells Fargo’s request to dismiss a class action shareholder lawsuit that claims the bank’s intentional fraudulent actions caused the stock to drop.  So, why would anyone put money into that bank, or buy that bank’s stock is beyond me.  Heck, even my dog knows to chew up any Wells mailers before I can see them. 
   Starbucks – Set ‘em up’:  Friday, Starbucks put on its fancy pants and opened the first of its new Reserve stores – complete with a full bar, bakery, and oh yes - coffee.  It plans to open 1,000 of these upscale stores in the next few years.  “Here’s lookin’ at you, kids.” 
   ‘Throwin’ a wrench in the works’:  Comcast is shaking things up with its latest $31B offer to buy British broadcaster Sky.  Last year, Disney announced that it was buying a big part of media mogul Rupert Murdoch's 21st Century Fox - which already owns a minority portion of Sky.  Now, with Comcast offering Sky more cash money than 21st Century Fox – it’s getting awkward.  But it’s not the first time a media company is trying to consolidate power.  The difference here is that this move pits two of the biggest names in the industry against each other, and it throws a wrench into the Disney – 21st Century Fox deal.


The Market:





"Who in their right mind buys a [cryptocurrency] from a government that does not pay its bills, with an economy in hyperinflation?"– Marialbert Barrios, Venezuelan National Assembly Member.

   The week started strong, as all major benchmarks surged for the third straight week.  When FED Chairman Jerome Powell highlighted the strengthening economy during his congressional testimony, investors grew jittery. For them it was an indication of an upcoming tighter monetary policy.  By the time the last trading day of February came to a close, the DOW had logged its worst monthly performance since January 2016, and the NASDAQ its worst since October 2016.  Analysts said that February 2018 will be remembered as the month where the fear of unbridled inflation met with valuations well beyond historical norms.  However, nobody saw March opening up with threats of an all-out trade war.  President Trump seemed to be ‘on a mission’ to lift the plight of American steel and aluminum manufacturers.  Trump met with steel and aluminum executives and assured them a policy is being drawn out.  The president said during the meeting, "We'll be signing it next week, and you'll have protection for a long time. You'll have to regrow your industries – that’s all I'm asking."
   U.S. stocks tumbled following Trump’s announcement.  The shares of steel and aluminum makers rallied but shares of automakers and airplane manufacturers fell due to worries over the would-be impact of higher costs to pay for these metals.  Our trading partners were angered by the tariff proposal with the EU saying that it will respond accordingly and China will put import restrictions on U.S. soybeans.  Currently, 16% of U.S. demand for steel is served by Canada, with the top 5 steel importers being: Canada, Brazil, South Korea, Mexico, and Russia.  A challenge to the tariff in an international court is not far-fetched if the U.S. decision violates World Trade Organization (WTO) rules.  While U.S. corporate profits are on track to achieve a growth of almost 20% this year, investors are also struggling with how to value those profits. The issue of valuation resurfaced due rising interest rates, bond yields, and inflation concerns.

Crypto-Bytes: 
-       Nano continues to gain traction among online retailers with hip-hop artist Craig Dubz announcing that he will accept the cryptocurrency as payment for his upcoming album.  The titles and tracks are yet to be released, but I wouldn’t be surprised to see one titled: Retired Nano Investor.
-       What happens in Vegas, stays in Vegas, but now it can stay on the blockchain too.  Exotic dancers that work ‘The Legends Room’ are now accepting cryptocurrency payments via temporary QR tattoos.
-       If Venezuela, Russia and Iran can do it – why can’t Turkey?  Turkish politicians are gobbling up the idea of a Turk-coin – a national digital currency based upon the nation’s wealth fund.
-       Have a friend that wants to invest in ICOs?  If so, please explain that 46% of last year’s ICOs have already run out of gas, and an additional 13% are running on empty.  And that doesn’t even include the 29% of all pre-ICO listings that failed due to lack of awareness or (surprise surprise) the project was a scam from the beginning.
-       The State Bank of India had another ‘about face’ this week with their Head of Innovation predicting that “By 2030, many traditional banking services could cease to exist because of the Blockchain.”
-       By the way, if Venezuela’s oil-backed cryptocurrency succeeds, it will bring in an entirely new use case for crypto-technology: fundraising for rogue states.  After all, we are dealing with completely open networks.  All a public blockchain cares about is: as long as you control the private keys to a wallet, you control the funds in it – no passport required.  Similarly, as long as you know how to code, you can build applications on top of Bitcoin or Ethereum – no Ivy League degree needed.  This is ‘permission-less innovation’.  It may very well allow Venezuela’s president to eat more burritos at his desk while his country burns around him.

   Make no mistake, from this past Tuesday the DOW lost more than 1,000 points in 3 sessions.  It could have been due to FED Chairman Powell acting more hawkish, or because of Trump’s tariffs.  Whatever the excuse, the market ‘fell like a sack of taters’ exceeding the expected move to the downside.  What continues to surprise me are the wild moves that ‘low beta’ stocks like Walmart (-10%), Eli Lily (-9%), and Verizon (-10%) are having.  The term ‘low beta’ refers to stocks that have traditionally moved LESS than the market, and are now exceeding those limits.  The chart below shows Walmart’s 20% move (from high to low) in 2018 – while the S&P sits virtually unchanged for the year.






It’s the higher beta stocks that are not being affected as much by this negative market.  The risk to this market is if these high-beta ‘pillars’ like: Amazon, Netflix, Boeing, and Apple – begin to crack.  If Boeing begins to see some selling – the DOW will go down hard.  When Apple starts to be sold – the NASDAQ will crumble alongside it.  And with high volatility – you eventually hit ‘em all.
   It wouldn’t surprise me if we start next week with a wild upside move – indicative of volatility.  However, I do not believe that we have finished testing the February lows.  It is true that often ‘retests’ of lows don’t go quite as deep as the actual low, but this S&P still has over 60 points to drop.  As long as the 50-day moving average is above us, and the February lows are below us – we’re in no-man’s land.  When volatility comes back to a market, investing turns into trading, and 2018 becomes: ‘The year of the trader.’


Tips:





   I circled the ‘Strong Sell’ recommendations above because I think a good strategy this week is to be patient or be fast.  If you're really nimble, buying the dips and selling the rips will work.  If you're more casual, letting the chop work itself out makes more sense.

Top Equity Recommendations:

Marijuana stocks (HODL):
-       Aurora (ACBFF),
-       Cannabis Wheaton (CBWTF), and
-       Canntrust Holdings (CNTTF).

Options (I LIKE):
-       LuLuLemon (LULU),
-       Micron Technology (MU),
-       Boeing (BA) – the DOW’s best-performing stock in 2017, and up 16.87% year-to-date – is well positioned to move higher.
-       Amazon (AMZN) is pushing out rumors that it may move into the crypto-currency market and take on the banking system.  A recent survey concluded that 59% of shoppers would welcome an ‘Amazon-coin’, and  45% would consider making Amazon their primary bank.

Top Crypto Recommendations:
-       Bitcoin (BTC),
-       Ethereum (ETH),
-       Nano (NANO),
-       Neo (NEO), and
-       OMG

   Bitcoin trading volume is languishing at about half of the average seen during its December peak.  Some believe that this is a sign of an approaching bear market in Bitcoin, I do not agree.  During any frenzy (like December of last year) it’s natural to have surges in volume because traders throw caution to the wind and invest using leverage.  Additionally, many newbies enter the markets to make a quick buck.  This combination leads to a spike in volume.  When prices fall, most newbies are stuck with their positions because they rarely use a stop loss.  The only option they see now is to hold until the market recovers.  So, this portion of the volume will not return until a price reaches the December highs.  Cautious traders also don’t venture out in a falling market because it is always better to trade in a market that is in a clear uptrend.  Factually Bitcoin rallied last week and gained 14%, and in the last 30 days has gained over 23%.  Also Bitcoin (BTC) seems to shine when extreme uncertainty engulfs Wall Street, and/or  geopolitical concerns are high.  Last year BTC rallied as North Korea was launching missiles over Japan, and while China was charting its own navigation rules in the South China Sea.

   BTC/USD ($11,118)  Previously I recommended booking profits on half positions around the $10,700 mark, and trailing the rest because a breakout of the $11,400 to $12,200 resistance zone will complete an inverted head and shoulders pattern.  Currently, bulls are attempting to break out of the descending channel and the BTC moving averages are on the verge of a bullish crossover.  BTC will continue to gain momentum above $12,200.  If the $12,200 level fails, then we will become range bound between $9,500 and $12,200.

   ETH/USD ($846)  Ethereum is underperforming, and struggling to break free of its 20-day EMA.  If it can’t break above the $880 arena, it will be a bearish development, which could sink it back to $780 levels. Therefore, set your stop losses around the $830 mark, and look for sustained growth only after it breaks out and remains above $980.

   BCH/USD ($1,235)  Bitcoin Cash continues to trade between $1,150 and $1,355.  The longer it trades within this range, the stronger will be the breakout. Therefore, I’m looking to buy the breakout above $1,355 with a target to $1,560 and potentially $1,800.  Set your stop loss to $1,150.
   XRP/USD ($0.906) Buyers seem to have abandoned Ripple because for the past 8 days, it’s been trading inside the range of $0.85 to $0.98669.  If it can breakout of the range, it’s likely to rally to $1.12 where it will face resistance from the 50-day SMA.  On the other hand, a break below the $0.85 level could push it down to $0.72.
   XLM/USD ($.345)  The trading in Stellar has been bearish, to say the least.  It currently sits at critical support of $0.32.  If this level breaks, it could fall to $0.21.  If bulls can defend the $0.32 levels, then my view will turn bullish above the $0.48 price level.
   LTC/USD ($209)  Litecoin is one of the few coins that is trading above all of its moving averages.  However, this didn’t seem to help it move higher at all.  Bulls now have an uphill task as they will face resistance at the $220 and the $240 levels.  I will turn slightly positive after LTC can sustain a move above $220.
   NEO/USD ($120)  I have been bullish on NEO since it broke out of its bearish, descending triangle pattern.  However, the price has not moved according to my expectation.  NEO was rejected from the $140 overhead resistance level, and if it fails to find support at $120 – it will likely fall to the next immediate support of $110.  The moving averages are flattening out, which suggests a range bound action for a few days.  On the upside, the cryptocurrency will gain momentum only above $140.

   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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