This Week in Barrons – 4-15-2018:
“Better call Saul”
On Friday, we got the earnings out of J.P. Morgan and of course they beat the estimates. But they’re not bragging about their credit card uncollectable delinquencies that are UP 18% year-over-year. JPM better call Saul.
On Wednesday the Fed indicated that rate hikes might be coming faster than previously thought on the strength of current economic growth. Unfortunately the FED missed the news that bankruptcies are also the highest they’ve been in 7 years. Let’s face it, the days of easy credit are over, and smaller companies are going to get squeezed. Small businesses better call Saul.
Child advocacy groups are asking the FTC to crack down on YouTube, and its parent company Google because it’s illegal to gather data on young kids without parental consent. Even though YouTube publicly discourages kids from using its platform, it collects their data and sells targeted ads because of it. YouTube, I think you better call Saul.
In 2011, Bitcoin crashed by 94%. In 2013, Bitcoin fell by 87%. In 2014, Bitcoin declined by 83%, and in 2018 Bitcoin slumped by 70%. The action we’re seeing in Bitcoin is just normal volatility, so there’s no need to call Saul.
SF writes: 10 years ago our U.S. debt to income ratio was 40%, and last week the CBO projected that in 10 years our ratio will be 100%. This is due to our Congress’ inability to control spending on defense, healthcare, social security, and pensions. It’s not a matter of IF the U.S. becomes insolvent, but rather WHEN. Our FED lead us out of the 2008 financial debacle by simply creating cheap capital for a decade rather than addressing the debt issue. Our continued deficit spending will collapse our fiat currency system. Ah, so that’s why Bitcoin matters. FED, you really should have called Saul.
Check your tour dates to see when the Facebook ‘Apology Tour’ is coming to your area. Last week Mark Zuckerberg (CEO of Facebook) testified in front of Congress about the policies that led to a political consulting firm getting access to 87m Facebook (FB) users' data. Also, about how Russians used the platform to troll the 2016 U.S. election. It’s clear to me that Facebook’s back end is designed to be complex. It’s designed to make it possible for Zuckerberg to avoid tough questions, because the interviewers lacked the technical knowledge to mount an effective challenge. Except, when Congressman Ben Luján (Democrat from New Mexico) stepped up to the plate. The following ensued:
LUJÁN: Is it true that you (up until last week) had a search feature that allowed people to scrape and gather large amounts of information on other people?
ZUCKERBERG: Congressman, I’m not familiar with that.
LUJÁN: Does Facebook keep detailed profiles on people who have never signed up for Facebook?
ZUCKERBERG: Congressman, in general we collect data from people who have not signed up for Facebook for security purposes – to prevent the kind of scraping that you were just referring to.
LUJÁN: These scrapes are called shadow profiles - yes?
ZUCKERBERG: Congressman, I’m not familiar with that term.
LUJÁN: On average, how many data points does Facebook collect on each Facebook user?
ZUCKERBERG: Congressman, I do not know that off the top of my head
LUJÁN: It’s been reported that Facebook has as many as 29,000 data points on the average user. How many data points does Facebook collect on the average non-Facebook user?
ZUCKERBERG: Congressman, I do not know. But I can have my team get back to you if you wish.
LUJÁN: Can someone who does NOT have a Facebook account opt out of Facebook’s involuntary data collection?
ZUCKERBERG: Anyone can turn off and opt out of any data collection for ads, whether they use our services or not. But in order to prevent people from scraping public information, we need to know when someone is trying to repeatedly access our services.
LUJÁN:You’ve said everyone controls their own data, but you’re collecting data on people that are NOT even Facebook users, and have never signed a consent or a privacy agreement. It may surprise you to learn that for a non-Facebook user to download and turn-off your data collection on them – they need to become a Facebook user.
Congressman Luján succeeded in digging into an issue that nearly every other politician had been unable to verbalize: FB’s data practices as they relate to non-Facebook users. Ultimately, this comes down to FB’s business model. It collects everyone’s data, and then funnels it into one of the most powerful advertising platforms the world has ever seen.
What followed were a few apologies from Mr. Zuckerberg, some earnest-sounding promises to do better, and a couple superficial changes to FB that will fail to address the underlying structural problems. This is nothing new. After each scandal, FB expresses regret, announces cosmetic fixes, and then works like mad to scuttle any legislation that may have an impact on their core model.
Honestly, merely saying that individuals own their own data just isn’t enough. Companies will continue to persuade people to part with their own data in ways that may seem to make sense at the individual level, but could work in the aggregate to create a far different outcome. For example, getting paid for your own health information might seem beneficial – but any company that holds health information on a billion people can end up in a compromising position that they would have never foreseen.
On Saturday, two senators introduced legislation that would require online platforms (such as Facebook) to explicitly get consent from users to use, share, or sell any of their personal info. Facebook, you better put Saul on speed-dial.
The Markets:
The DOW gained 1.8% last week while the Nasdaq and S&P booked gains of 2.8% and 2% respectively. It’s the beginning of earnings season, which is normally a bright spot for Wall Street and investors. Lately, trading has been cautious because of U.S.-China trade war tensions, and the conflict in Syria. On Friday, J.P. Morgan, Citibank, and Wells Fargo took center stage to report their first-quarter earnings. Hopes were high because the banking sector should be benefitting from tax cuts, rising interest rates, and a generally positive outlook for economic growth. Unfortunately, the financials fell 1.6%, and were the worst-performing sector going into the weekend.
Friday evening President Trump announced that a U.S. lead coalition conducted precision missile strikes against the Syrian government’s chemical weapons depots. The objective was to: "Establish a strong deterrent against the production, spread, and use of chemical weapons." Every time the U.S. goes on a military offensive, shares of defense companies outperform the broader market. A company like Raytheon (RTN) benefits because firing their Tomahawk missiles from an aircraft carrier or destroyer – eliminates the possibility of our fighter jets being hit by anti-aircraft fire.
In terms of Biotech, Cowen analysts released a note saying, “With so few clean, growth-oriented, earnings-driven names to choose from, generalist interest in biotech may be at a low point. Given seasonal headwinds, expectations for biotech earnings are modest.” Lately, healthcare and biotech funds have seen 3 consecutive weeks of outflows and are down $2.4B thus far in 2018.
For the first time since March, the price of Bitcoin (BTC) jumped higher by 14%, and ended the week above the $8,000 level. It registered a high of $8,225 on Friday, and could soon be moving up to the $8,500 mark. With total trading volume increasing in all exchanges, volume analysts are quick to suggest the rally is here to stay. If BTC can break through resistance at $8,500, the next stop would be the 50-day moving average of $8,620. A minor pullback to $7,600 cannot be counted out as Bitcoin looks to be slightly overbought at current levels. A daily close below $7,000 would stop the bullish view.
The concerns over higher tariff proposals will again be present next week, but the negotiations being worked out by the United States and China should cushion the effect on Wall Street. The broader market will feel the effects only when the tariffs take effect. What could negate the impact of the tariffs would be evidence of improving earnings growth. More than 10% of the S&P 500 companies will be reporting their first-quarter results next week. As for the brewing military conflict in Syria, the U.N. Security Council will convene on Saturday to discuss the matter. It’s a grim development for Wall Street if things escalate into a full-blown war.
Over the years, I've mentioned many times that when markets get incredibly choppy, the existing trend is normally ready for a reversal. Well, the trend for the past 9 years has been straight up. That trend is no longer in place, and we've entered no man's land – where daily 400+ point swings have become the norm. Even if you're a very experienced trader, the movement lately has been hard to catch profitably. There are trades to be made, but you have to be very selective, and holding too long will eat up your profits. In the big picture, we remain locked between the 200 and 50-day moving averages. As long as we remain there, we will continue to pop and drop depending on the headline, the tweet, or the mood of the market. Markets don’t trade ‘sideways’ forever, and whether it breaks out or breaks down – it’s going to be a large move. I'm siding with the downside, but I won't be totally surprised to see new highs.
For traders who like to fade market trends, a ‘tone change’ is welcome; however, only a predictor of a recession 30% of the time. Still, you can sense something has changed. The volatility sellers, the ‘buy-the-dippers’, and the FANG lovers are either gone or worried. Passive investors have the yips. Any time that the market enters year-to-date negative territory, the asset gathering world starts to panic and circle the wagons in order to try and preserve their annuitized fees. Negative returns for stocks and bonds mean that self-directed strategists have an advantage, and this could signal a decade when the bull market sales geniuses are forced to develop some real trading chops.
I’ll be the first to tell you that I truly have no idea what Monday is going to bring. The U.S. has tossed 105 missiles at chemical weapons depots in Syria. There's a lot of chatter about escalation, but the U.S. has said their job is complete. The market did not go out on the lows on Friday, and that's encouraging for the bulls. It's the start of earnings season, and we're about to hear 1,000 stories – some glorious and some sad. I'd suggest that as long as the S&P and the DOW are under their 50-day moving averages – proceed with caution. Recently, we've seen our markets pop higher out of the gate for 300+ points – only to have it end the day down 150. I think this week will bring even more of that same volatility.
Top Equity Recommendations:
Marijuana stocks (HODL):
- Aurora (ACBFF),
- Cannabis Wheaton (CBWTF), and
- Canntrust Holdings (CNTTF).
Options:
- Northrup Grummon (NOC) – long into April 26th(earnings), and
- Raytheon (RTN) – long into April 26thearnings.
Top Crypto Recommendations:
- Bitcoin (BTC):Last week, it broke above a key bearish trend line with resistance at $7,600. The price settled above the 61.8% Fib retracement level from the last $9,025 swing high to $6,450 swing low. However, it’s facing a monster hurdle on the upside near $8,500. If BTC buyers succeed in pushing the price above the $8,500 level, they could then test the last swing high near $9,025.
o 4-hr MACD – Showing positive signs
o 4-hr RSI (Relative Strength Index) – Well above the 60 level
o Major Support Level – $7,500
o Major Resistance Level – $8,500
- Ethereum (ETH):An important reversal signal formed from the ETH $388 pivot. The price started an upside move and broke a few key barriers such as $450 and $500. It traded as high as $530.62, and is now trading well above its $480 pivot and the 100-day simple moving average – all positive signs.
o 4-hr MACD – Showing positive signs
o 4-hr RSI – Well above the 60 level
o Major Support Level – $460
o Major Resistance Level – $530
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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